Unaudited Interim Consolidated Financial Statements of
Algonquin Power & Utilities Corp.
For the three and nine months ended September 30, 2021 and 2020
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Operations
Three months ended
Nine months ended
(thousands of U.S. dollars, except per share amounts)
September 30
September 30
2021
2020
2021
2020
Revenue
Regulated electricity distribution
$
308,116
$
218,667
$
922,100
$
562,961
Regulated gas distribution
62,584
55,286
353,909
317,765
Regulated water reclamation and distribution
64,008
39,354
176,600
102,076
Non-regulated energy sales
73,595
56,053
182,268
182,288
Other revenue
20,272
7,121
55,763
20,646
528,575
376,481
1,690,640
1,185,736
Expenses
Operating expenses
177,204
116,037
528,343
364,405
Regulated electricity purchased
94,435
58,106
382,726
158,154
Regulated gas purchased
14,497
13,254
113,983
96,174
Regulated water purchased
3,888
3,747
10,036
9,234
Non-regulated energy purchased
11,898
4,969
25,887
11,714
Administrative expenses
15,165
14,534
48,930
50,557
Depreciation and amortization
96,553
71,528
292,153
226,075
Loss (gain) on foreign exchange
1,267
(936)
3,412
(5,630)
414,907
281,239
1,405,470
910,683
Operating income
113,668
95,242
285,170
275,053
Interest expense
(51,654)
(45,560)
(159,416)
(136,626)
Income (loss) from long-term investments (note 6)
(114,242)
(3,067)
(104,243)
168,365
Other net losses (note 16)
(889)
(16,928)
(11,086)
(44,758)
Pension and other post-employment non-service costs (note 8)
(3,875)
(2,369)
(11,420)
(9,342)
Gain (loss) on derivative financial instruments (note 21(b)(iv))
(1,817)
301
(2,082)
1,747
Earnings (loss) before income taxes
(58,809)
27,619
(3,077)
254,439
Income tax recovery (expense) (note 15)
Current
(3,755)
524
(10,994)
(5,585)
Deferred
23,143
19,179
56,215
(7,927)
19,388
19,703
45,221
(13,512)
Net earnings (loss)
(39,421)
47,322
42,144
240,927
Net effect of non-controlling interests (note 14)
Non-controlling interests
14,087
11,294
54,989
47,270
Non-controlling interests held by related party
(2,588)
(2,765)
(7,886)
(9,924)
$
11,499
$
8,529
$
47,103
$
37,346
Net earnings (loss) attributable to shareholders of Algonquin Power & Utilities Corp.
$
(27,922)
$
55,851
$
89,247
$
278,273
Series A and D Preferred shares dividend (note 12)
2,267
2,102
6,757
6,259
Net earnings (loss) attributable to common shareholders of Algonquin Power & Utilities Corp.
$
(30,189)
$
53,749
$
82,490
$
272,014
Basic net earnings (loss) per share (note 17)
$
(0.05)
$
0.09
$
0.13
$
0.50
Diluted net earnings (loss) per share (note 17)
$
(0.05)
$
0.09
$
0.13
$
0.49
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Comprehensive Income
Three months ended
Nine months ended
(thousands of U.S. dollars)
September 30
September 30
2021
2020
2021
2020
Net earnings (loss)
$
(39,421)
$
47,322
$
42,144
$
240,927
Other comprehensive income (loss) (“OCI”):
Foreign currency translation adjustment, net of tax expense of $291 and tax recovery of $1,068 (2020 - tax recovery of $954 and tax expense of $1,828), respectively (notes 21(b)(iii) and 21(b)(iv))
(28,904)
10,812
(32,172)
(17,245)
Change in fair value of cash flow hedges, net of tax recovery of $12,062 and $22,346 (2020 - tax recovery of $1,821 and $9,210, respectively (note 21(b)(ii))
(31,599)
(4,761)
(55,746)
(25,062)
Change in pension and other post-employment benefits, net of tax expense of $97 and $432 (2020 - tax expense of $81 and $72), respectively (note 8)
321
196
2,486
175
OCI, net of tax
(60,182)
6,247
(85,432)
(42,132)
Comprehensive income (loss)
(99,603)
53,569
(43,288)
198,795
Comprehensive loss attributable to the non-controlling interests
(12,801)
(7,055)
(46,476)
(39,986)
Comprehensive income (loss) attributable to shareholders of Algonquin Power & Utilities Corp.
$
(86,802)
$
60,624
$
3,188
$
238,781
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Balance Sheets
(thousands of U.S. dollars)
September 30, 2021
December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
190,835
$
101,614
Accounts receivable, net (note 4)
325,582
325,887
Fuel and natural gas in storage
67,796
30,567
Supplies and consumables inventory
100,035
104,078
Regulatory assets (note 5)
140,661
63,042
Prepaid expenses
69,047
49,640
Derivative instruments (note 21)
9,017
13,106
Other assets
14,835
7,266
917,808
695,200
Property, plant and equipment, net
11,098,380
8,241,838
Intangible assets, net
107,408
114,913
Goodwill
1,204,728
1,208,390
Regulatory assets (note 5)
1,024,687
782,429
Long-term investments (note 6)
Investments carried at fair value
1,787,295
1,839,212
Other long-term investments
419,859
214,583
Derivative instruments (note 21)
16,958
39,001
Deferred income taxes
34,179
21,880
Other assets
87,650
66,703
$
16,698,952
$
13,224,149
See accompanying notes to unaudited interim consolidated financial statements
Pension and other post-employment benefits obligation
319,076
341,502
Other long-term liabilities (note 9)
526,008
339,181
9,812,984
7,234,784
Redeemable non-controlling interests
Redeemable non-controlling interest, held by related party (note 13(b))
306,492
306,316
Redeemable non-controlling interests
14,971
20,859
321,463
327,175
Equity:
Preferred shares
184,299
184,299
Common shares (note 10(a))
5,382,318
4,935,304
Additional paid-in capital
1,959
60,729
Retained earnings (deficit)
(343,974)
45,753
Accumulated other comprehensive loss (“AOCI”) (note 11)
(114,937)
(22,507)
Total equity attributable to shareholders of Algonquin Power & Utilities Corp.
5,109,665
5,203,578
Non-controlling interests
Non-controlling interests
1,407,036
399,487
Non-controlling interest, held by related party (note 13(c))
47,804
59,125
1,454,840
458,612
Total equity
6,564,505
5,662,190
Commitments and contingencies (note 19)
Subsequent events (notes 3, 5, 10 and 13)
$
16,698,952
$
13,224,149
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
(thousands of U.S. dollars)
For the three months ended September 30, 2021
Algonquin Power & Utilities Corp. Shareholders
Common shares
Preferred shares
Additional paid-in capital
Deficit
AOCI
Non- controlling interests
Total
Balance, June 30, 2021
$
5,251,808
$
184,299
$
—
$
(205,764)
$
(56,057)
$
1,474,761
$
6,649,047
Net loss
—
—
—
(27,922)
—
(11,499)
(39,421)
Effect of redeemable non-controlling interests not included in equity (note 14)
—
—
—
—
—
(874)
(874)
OCI
—
—
—
—
(58,880)
(1,302)
(60,182)
Dividends declared and distributions to non-controlling interests
—
—
—
(86,208)
—
(6,246)
(92,454)
Dividends and issuance of shares under dividend reinvestment plan
23,288
—
—
(23,288)
—
—
—
Common shares issued upon public offering, net of tax effected cost
104,326
—
—
—
—
—
104,326
Common shares issued under employee share purchase plan
1,267
—
—
—
—
—
1,267
Share-based compensation
—
—
3,675
—
—
—
3,675
Common shares issued pursuant to share-based awards
1,629
—
(1,716)
(792)
—
—
(879)
Balance, September 30, 2021
$
5,382,318
$
184,299
$
1,959
$
(343,974)
$
(114,937)
$
1,454,840
$
6,564,505
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
(thousands of U.S. dollars)
For the three months ended September 30, 2020
Algonquin Power & Utilities Corp. Shareholders
Common shares
Preferred shares
Additional paid-in capital
Deficit
AOCI
Non- controlling interests
Total
Balance, June 30, 2020
$
4,181,365
$
184,299
$
51,834
$
(323,404)
$
(54,026)
$
483,261
$
4,523,329
Net earnings (loss)
—
—
—
55,851
—
(8,529)
47,322
Redeemable non-controlling interests not included in equity (note 14)
—
—
—
—
—
(1,049)
(1,049)
OCI
—
—
—
—
4,773
1,474
6,247
Dividends declared and distributions to non-controlling interests
—
—
—
(74,885)
—
(4,667)
(79,552)
Dividends and issuance of shares under dividend reinvestment plan
20,047
—
—
(20,047)
—
—
—
Common shares issued upon public offering, net of tax effected cost
705,437
—
—
—
—
—
705,437
Issuance of common shares under employee share purchase plan
1,048
—
—
—
—
—
1,048
Common shares issued upon conversion of convertible debentures
36
—
—
—
—
—
36
Common shares issued pursuant to share-based awards
—
—
—
(55)
—
—
(55)
Share-based compensation
—
—
6,792
—
—
—
6,792
Acquisition of redeemable non-controlling interest
—
—
(1,070)
—
—
—
(1,070)
Balance, September 30, 2020
$
4,907,933
$
184,299
$
57,556
$
(362,540)
$
(49,253)
$
470,490
$
5,208,485
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
(thousands of U.S. dollars)
For the nine months ended September 30, 2021
Algonquin Power & Utilities Corp. Shareholders
Common shares
Preferred shares
Additional paid-in capital
Retained earnings (deficit)
AOCI
Non- controlling interests
Total
Balance, December 31, 2020
$
4,935,304
$
184,299
$
60,729
$
45,753
$
(22,507)
$
458,612
$
5,662,190
Net earnings (loss)
—
—
—
89,247
—
(47,103)
42,144
Effect of redeemable non-controlling interests not included in equity (note 14)
—
—
—
—
—
(2,747)
(2,747)
OCI
—
—
—
—
(86,059)
627
(85,432)
Dividends declared and distributions to non-controlling interests
—
—
—
(244,812)
—
(19,613)
(264,425)
Dividends and issuance of shares under dividend reinvestment plan
69,496
—
—
(69,496)
—
—
—
Contributions received from non-controlling interests (note 3), net of cost
—
—
6,919
—
(6,371)
1,035,923
1,036,471
Common shares issued upon conversion of convertible debentures
16
—
—
—
—
—
16
Common shares issued upon public offering, net of tax effected cost
365,554
—
—
—
—
—
365,554
Contract adjustment payments (note 7(a))
—
—
(62,240)
(160,138)
—
—
(222,378)
Common shares issued under employee share purchase plan
3,839
—
—
—
—
—
3,839
Share-based compensation
—
—
8,749
—
—
—
8,749
Common shares issued pursuant to share-based awards
8,109
—
(12,198)
(4,528)
—
—
(8,617)
Non-controlling interest assumed on asset acquisition (note 3(b))
—
—
—
—
—
29,141
29,141
Balance, September 30, 2021
$
5,382,318
$
184,299
$
1,959
$
(343,974)
$
(114,937)
$
1,454,840
$
6,564,505
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statement of Equity
(thousands of U.S. dollars)
For the nine months ended September 30, 2020
Algonquin Power & Utilities Corp. Shareholders
Common shares
Preferred shares
Additional paid-in capital
Deficit
AOCI
Non- controlling interests
Total
Balance, December 31, 2019
$
4,017,044
$
184,299
$
50,579
$
(367,107)
$
(9,761)
$
531,541
$
4,406,595
Net earnings (loss)
—
—
—
278,273
—
(37,346)
240,927
Redeemable non-controlling interests not included in equity (note 14)
—
—
—
—
—
(4,733)
(4,733)
OCI
—
—
—
—
(39,492)
(2,640)
(42,132)
Dividends declared and distributions to non-controlling interests
—
—
—
(211,696)
—
(19,703)
(231,399)
Dividends and issuance of shares under dividend reinvestment plan
45,869
—
—
(45,869)
—
—
—
Contributions received from non-controlling interests, net of cost
—
—
—
—
—
3,371
3,371
Common shares issued upon conversion of convertible debentures
48
—
—
—
—
—
48
Common shares issued upon public offering, net of tax effected cost
823,737
—
—
—
—
—
823,737
Issuance of common shares under employee share purchase plan
3,006
—
—
—
—
—
3,006
Share-based compensation
—
—
19,301
—
—
—
19,301
Common shares issued pursuant to share-based awards
18,229
—
(11,254)
(16,141)
—
—
(9,166)
Acquisition of redeemable non-controlling interest
—
—
(1,070)
—
—
—
(1,070)
Balance, September 30, 2020
$
4,907,933
$
184,299
$
57,556
$
(362,540)
$
(49,253)
$
470,490
$
5,208,485
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Unaudited Interim Consolidated Statements of Cash Flows
(thousands of U.S. dollars)
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Cash provided by (used in):
Operating Activities
Net earnings (loss)
$
(39,421)
$
47,322
$
42,144
$
240,927
Adjustments and items not affecting cash:
Depreciation and amortization
96,553
71,528
292,153
226,075
Deferred taxes
(23,143)
(19,179)
(56,215)
7,927
Unrealized gain on derivative financial instruments
(11,884)
(2,015)
(11,686)
(4,194)
Share-based compensation expense
3,414
6,588
7,800
18,228
Cost of equity funds used for construction purposes
(275)
134
(406)
(1,903)
Change in value of investments carried at fair value
139,050
23,394
183,452
(95,690)
Pension and post-employment expense in excess of (lower than) contributions
(1,477)
(214)
(7,525)
2,570
Distributions received from equity investments, net of income
6,676
1,494
13,587
3,566
Others
(1,000)
16,075
5,300
14,051
Net change in non-cash operating items (note 20)
6,221
(23,695)
(437,648)
(80,324)
174,714
121,432
30,956
331,233
Financing Activities
Increase in long-term debt
1,824,449
1,450,979
9,175,714
2,787,634
Repayments of long-term debt
(1,535,152)
(1,639,150)
(8,392,109)
(2,712,318)
Issuance of common shares, net of costs
105,229
699,888
367,991
820,145
Cash dividends on common shares
(82,151)
(63,847)
(222,928)
(186,415)
Dividends on preferred shares
(2,267)
(2,102)
(6,757)
(6,259)
Contributions from non-controlling interests and redeemable non-controlling interests (note 3(b), (d) and (e))
—
—
1,032,204
2,649
Production-based cash contributions from non-controlling interest
—
—
4,832
3,371
Distributions to non-controlling interests, related party (note 13(b) and (c))
(5,233)
(4,710)
(19,191)
(20,622)
Distributions to non-controlling interests
(3,449)
(2,462)
(7,447)
(9,687)
Payments upon settlement of derivatives
—
—
(33,782)
—
Shares surrendered to fund withholding taxes on exercised share options
(1,120)
—
(2,984)
(4,644)
Repurchase of non-controlling interest
—
(1,935)
—
(1,935)
Increase in other long-term liabilities
4,986
3,581
61,202
10,782
Decrease in other long-term liabilities
(21,742)
(1,266)
(25,046)
(6,292)
283,550
438,976
1,931,699
676,409
Investing Activities
Additions to property, plant and equipment and intangible assets
(348,050)
(182,662)
(1,051,182)
(524,971)
Increase in long-term investments
(118,764)
(118,031)
(787,149)
(223,198)
Acquisitions of operating entities
—
354
—
(2,697)
Increase in other assets
(9,728)
(7,651)
(37,580)
(15,415)
Receipt of principal on development loans receivable
834
2,789
834
13,743
Proceeds from sale of long-lived assets
1,616
—
5,960
415
(474,092)
(305,201)
(1,869,117)
(752,123)
Effect of exchange rate differences on cash and restricted cash
(1,276)
3,923
(749)
2,173
Increase (decrease) in cash, cash equivalents and restricted cash
(17,104)
259,130
92,789
257,692
Cash, cash equivalents and restricted cash, beginning of period
239,911
85,834
130,018
87,272
Cash, cash equivalents and restricted cash, end of period
$
222,807
$
344,964
$
222,807
$
344,964
Algonquin Power & Utilities Corp. Unaudited Interim Consolidated Statements of Cash Flows (continued)
(thousands of U.S. dollars)
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense
$
50,349
$
43,666
$
162,674
$
143,254
Cash paid during the period for income taxes
$
1,687
$
2,367
$
3,362
$
4,291
Cash received during the period for distributions from equity investments
$
28,139
$
22,200
$
90,779
$
72,541
Non-cash financing and investing activities:
Property, plant and equipment acquisitions in accruals
$
120,640
$
73,117
$
120,640
$
73,117
Issuance of common shares under dividend reinvestment plan and share-based compensation plans
$
26,184
$
21,093
$
81,444
$
67,104
Property, plant and equipment, intangible assets and accrued liabilities in exchange of note receivable
$
3,089
$
—
$
90,821
$
—
See accompanying notes to unaudited interim consolidated financial statements
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
Algonquin Power & Utilities Corp. (“AQN” or the “Company”) is an incorporated entity under the Canada Business Corporations Act. AQN'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, Bermuda, Chile 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 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, 2020.
(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 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. 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 experience greater insolation in summer, weaker in winter.
(c)Foreign currency translation
AQN’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$”, in Chilean pesos with "CLP", in Chilean Unidad de Fomento with "CLF", and in Bermudian dollars with "BMD" immediately prior to the stated amount.
2. Recently issued accounting pronouncements
(a)Recently adopted accounting pronouncements
The Financial Accounting Standards Board ("FASB") issued ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 to address the diversity in practice associated with accounting for certain equity securities upon the application or discontinuation of the equity method of accounting and certain scope considerations for forward contracts and purchased options. The adoption of this update did not have an impact on the unaudited interim consolidated financial statements.
The FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes to reduce complexity in the accounting standards generally. The update removed certain exceptions to the general principles of Topic 740, Income Taxes and made certain amendments to improve consistent application of other areas of Topic 740. The adoption of this update did not have an impact on the unaudited interim consolidated financial statements.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
(b)Recently issued accounting guidance not yet adopted
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 amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently assessing the impact of this update.
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 amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company is currently assessing the impact of this update.
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 amendments in this update are effective for all entities as at March 12, 2020 through December 31, 2022. 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 Company is currently assessing the impact of the reference rate reform and this update.
3.Business and assets acquisitions
(a)Agreement to Acquire Kentucky Power Company and AEP Kentucky Transmission Company
On October 26, 2021, Liberty Utilities Co., an indirect subsidiary of AQN, entered into an agreement with American Electric Power Company, Inc. (“AEP”) and AEP Transmission Company, LLC to acquire Kentucky Power Company (“Kentucky Power”) and AEP Kentucky Transmission Company, Inc. (“Kentucky TransCo”) for a total purchase price of approximately $2,846,000, including the assumption of approximately $1,221,000 in debt (the “Kentucky Power Transaction”).
Kentucky Power is a state rate-regulated electricity generation, distribution and transmission utility operating within the Commonwealth of Kentucky and operating under a cost of service framework. Kentucky TransCo is an electricity transmission business operating in the Kentucky portion of the transmission infrastructure that is part of the Pennsylvania – New Jersey – Maryland regional transmission organization. Kentucky Power and Kentucky TransCo are both regulated by the U.S. Federal Energy Regulatory Commission (“FERC”).
Closing of the Kentucky Power Transaction is subject to receipt of certain regulatory and governmental approvals, including the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, clearance of the Kentucky Power Transaction by the Committee on Foreign Investment in the United States, the approval by each of the Kentucky Public Service Commission and FERC, and the approval of the Public Service Commission of West Virginia with respect to the termination and replacement of the existing operating agreement for the Mitchell coal generating facility (in which Kentucky Power owns a 50% interest, representing 780 MW), and the satisfaction of other customary closing conditions. If the acquisition agreement is terminated in certain circumstances, including due to a failure to receive required regulatory approvals (other than the approval of the Kentucky Public Service Commission, FERC or the Public Service Commission of West Virginia for the termination and replacement of the existing operating agreement for the Mitchell Plant), the Corporation may be required to pay a termination fee of $65,000. The Kentucky Power Transaction is expected to close in mid-2022.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
3.Business and assets acquisitions (continued)
(b)Acquisition of Mid-West Wind Facilities
In 2019, The Empire District Electric Company ("Empire Electric System"), a wholly owned subsidiary of the Company, entered into purchase agreements to acquire, once completed, three wind farms generating up to 600 MW of wind energy located in Barton, Dade, Lawrence, and Jasper Counties in Missouri, and in Neosho County, Kansas (collectively, the “Mid-West Wind Facilities”).
In November 2019, Liberty Utilities Co., a wholly owned subsidiary of the Company, acquired an interest in the entities that own North Fork Ridge and Kings Point, the two Missouri wind projects and, in partnership with a third-party developer, continued development and construction of such projects until acquisition by the Empire Electric System following completion. The Company accounted for its interest in these two projects using the equity method (note 6(b)).
In November 2019, a tax equity agreement was executed for Neosho Ridge, the Kansas wind project and in December 2020, tax equity agreements were executed for North Fork Ridge and Kings Point. These agreements provide that the Class A partnership units will be owned by third-party tax equity investors who will receive the majority of the tax attributes associated with the Mid-West Wind Facilities. Concurrent with the execution of the tax equity agreements in December 2020, the North Fork Ridge Wind Facility reached commercial operation and the tax equity investors provided initial funding of $29,446. The Kings Point Wind and Neosho Ridge Wind Facilities reached commercial operation in 2021.
The Empire Electric System acquired each of the Mid-West Wind Facilities in 2021 for total consideration to third-party developers of $98,011 and obtained control of the facilities. Subsequent to acquisition, the tax equity investors provided additional funding of $530,880 and third-party construction loans of $789,923 were repaid. The Company accounted for these transactions as asset acquisitions since substantially all of the fair value of gross assets acquired is concentrated in a group of similar identifiable assets.
The following table summarizes the allocation of the aggregate assets acquired and liabilities assumed at the acquisition dates.
Mid-West Wind
Working capital
$
(28,630)
Property, plant and equipment
1,137,713
Long-term debt
(789,804)
Asset retirement obligation
(27,053)
Deferred tax liability
(3,284)
Other liabilities
(104,129)
Non-controlling interest (tax equity investors)
(29,141)
Total net assets acquired
155,672
Cash and cash equivalents
15,860
Net assets acquired, net of cash and cash equivalents
$
139,812
(c)Altavista Solar Facility
Up to April 2021, the Company held a 50% interest in Altavista Solar SponsorCo, LLC, an entity that indirectly owns an 80 MW solar power facility located in Campbell County, Virginia. In April 2021, the Company acquired the remaining 50% interest in Altavista for $6,735 and as a result, obtained control of the facility. Subsequent to acquisition, the third-party construction loan of $122,024 was repaid. The Company accounted for the transaction as an asset acquisition since substantially all of the fair value of gross assets acquired is concentrated in a group of similar identifiable assets.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
3.Business and assets acquisitions (continued)
(c) Altavista Solar Facility
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date of the solar facility.
Altavista Solar
Working capital
$
870
Property, plant and equipment
138,598
Long-term debt
(122,024)
Deferred tax liability
(676)
Asset retirement obligation
(3,332)
Total net assets acquired
13,436
Cash and cash equivalents
33
Net assets acquired, net of cash and cash equivalents
$
13,403
(d)Maverick Creek Wind Facility and Sugar Creek Wind Facility
Up to January 2021, the Company held 50% equity interests in Maverick Creek Wind SponsorCo, LLC and AAGES Sugar Creek Wind, LLC (note 6). The two entities indirectly own 492 MW and 202 MW wind development projects in the state of Texas and Illinois ("Maverick Creek Wind Facility" and "Sugar Creek Wind Facility"), respectively. In January 2021, the Company acquired the remaining 50% interests in Maverick Creek Wind SponsorCo, LLC and AAGES Sugar Creek Wind, LLC for $43,797 and obtained control of the facilities. A portion of the consideration in an amount of $18,641 was withheld and remains payable as at September 30, 2021. The Company accounted for the transactions as asset acquisitions since substantially all of the fair value of gross assets acquired is concentrated in a group of similar identifiable assets.
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date of the two wind facilities. The existing loans between the Company and the partnerships of $87,035 were treated as additional consideration incurred to acquire the partnerships.
Maverick Creek and Sugar Creek
Working capital
$
(15,557)
Property, plant and equipment
1,062,818
Long-term debt
(855,409)
Asset retirement obligation
(23,402)
Deferred tax liability
(542)
Derivative instruments
7,575
Total net assets acquired
175,483
Cash and cash equivalents
4,241
Net assets acquired, net of cash and cash equivalents
$
171,242
Tax equity investors provided funding of $73,957 and $380,829 to the Sugar Creek Wind Facility and Maverick Creek Wind Facility, respectively, during the nine months ended September 30, 2021 and third-party construction loans of $284,829 and $570,579, respectively, were repaid subsequent to the acquisition of the remaining 50% interests in the facilities. Subsequent to quarter-end, in November 2021, tax equity investors provided additional funding of $73,957 to the Sugar Creek Wind Facility.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
3.Business and assets acquisitions (continued)
(e)Acquisition of Empresa de Servicios Sanitarios de Los Lagos S.A.
The Company completed the acquisition of 94% of the outstanding shares of Empresa de Servicios Sanitarios de Los Lagos S.A. ("ESSAL") in October 2020 for a total purchase price of $162,086. During the nine months ended September 30, 2021, adjustments were made to the fair value of other assets, accruals and long-term debt, resulting in a net increase of $5,284 (CLP 4,206,510), net of tax, and increase in goodwill by the same amount. The change in foreign exchange during the nine months ended September 30, 2021 reduced goodwill by $9,103.
In January 2021, the Company sold a 32% interest in Eco Acquisitionco SpA, the holding company through which AQN's interest in ESSAL is held, to a third party for consideration of $51,750. This represents an interest of 30% in the aggregate interest in ESSAL, which was reflected by a corresponding increase in non-controlling interest. This transaction resulted in no gain or loss. Following this transaction, AQN owns approximately 64% of the outstanding shares of ESSAL and continues to consolidate ESSAL's operations.
4.Accounts receivable
Accounts receivable as at September 30, 2021 include unbilled revenue of $65,886 (December 31, 2020 - $91,538) from the Company’s regulated utilities. Accounts receivable as at September 30, 2021 are presented net of allowance for doubtful accounts of $16,330 (December 31, 2020 - $19,628).
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
5.Regulatory matters
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, province or country
Regulatory proceeding type
Details
BELCO
Bermuda
General rate review
On May 7, 2021, the regulator issued a final decision, approving a weighted average cost of capital ("WACC") of 7.5% and authorizing $211,432 in revenue with $13,426 in deferred revenue to be collected over 5 years at a minimum WACC of 7.5%. The new rates were effective June 1, 2021.
EnergyNorth Gas System
New Hampshire
General rate review
On July 30, 2021, EnergyNorth Gas System received an order approving an increase of $1,300 in distribution revenues effective August 1, 2021 in excess of the previously authorized temporary increase (total increase of $7,600), a step increase of $3,200 effective August 1, 2022, and a property tax reconciliation mechanism. Additional information requested by the regulator regarding a $4,000 step adjustment for 2021 was filed on August 31, 2021 and will be the subject of an upcoming supplemental hearing.
Recovery of Granite Bridge feasibility costs, which were included in a supplemental filing in November 2020, were separately litigated in hearings in June 2021. An order denying recovery of litigated Granite Bridge costs was received in October 2021. In that order, the New Hampshire Public Utilities Commission denied recovery of the costs related to the Granite Bridge Project based on a legal interpretation of a New Hampshire statute that prohibits recovery of construction work in progress. The Company intends to request rehearing of the matter.
Various
Various
General rate review
Approval of approximately $800 in rate increases for a natural gas and wastewater utility.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
5.Regulatory matters (continued)
Regulatory assets and liabilities consist of the following:
September 30, 2021
December 31, 2020
Regulatory assets
Fuel and commodity cost adjustments (a)
306,127
18,094
Retired generating plant
187,871
194,192
Pension and post-employment benefits
169,646
178,403
Rate adjustment mechanism
118,649
99,853
Environmental remediation
83,398
87,308
Income taxes
81,184
77,730
Deferred capitalized costs
51,681
34,398
Wildfire mitigation and vegetation management
34,942
22,736
Debt premium
32,701
35,688
Asset retirement obligation
26,498
26,546
Clean energy and other customer programs
26,208
26,400
Long-term maintenance contract
10,577
14,405
Rate review costs
8,192
8,054
Other
27,674
21,664
Total regulatory assets
$
1,165,348
$
845,471
Less: current regulatory assets
(140,661)
(63,042)
Non-current regulatory assets
$
1,024,687
$
782,429
Regulatory liabilities
Income taxes
$
304,239
$
322,317
Cost of removal
196,564
200,739
Pension and post-employment benefits
34,903
26,311
Clean energy and other customer programs
15,129
10,440
Fuel and commodity costs adjustments
12,783
20,136
Rate adjustment mechanism
3,758
5,214
Rate base offset
5,518
6,874
Other
10,306
9,487
Total regulatory liabilities
$
583,200
$
601,518
Less: current regulatory liabilities
(44,349)
(38,483)
Non-current regulatory liabilities
$
538,851
$
563,035
(a)Fuel and commodity cost adjustments
In February 2021, the Company's operations were impacted by extreme winter storm conditions experienced in the central U.S. ("Midwest Extreme Weather Event"). As a result of the Midwest Extreme Weather Event, the Company incurred incremental commodity costs during the period of record high pricing and elevated consumption. The Company has commodity cost mechanisms that allow for the recovery of prudently incurred expenses. The Company has made a filing with the Missouri regulator requesting approval to treat the incremental fuel costs incurred in the same manner as normal pass-through fuel costs and proposing to extend the recovery period to mitigate the impact on customer bills.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
6.Long-term investments
Long-term investments consist of the following:
September 30, 2021
December 31, 2020
Long-term investments carried at fair value
Atlantica (a)
$
1,689,711
$
1,706,900
Atlantica share subscription agreement (a)
—
20,015
Atlantica Yield Energy Solutions Canada Inc.
94,962
110,514
Other
2,622
1,783
$
1,787,295
$
1,839,212
Other long-term investments
Equity-method investees (b)
$
378,267
$
186,452
Development loans receivable from equity-method investees (b)
10,908
22,912
Other (c)
30,684
5,219
$
419,859
$
214,583
Income (loss) from long-term investments from the three and nine months ended September 30 is as follows:
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Fair value gain (loss) on investments carried at fair value
Atlantica
$
(132,690)
$
(22,022)
$
(168,234)
$
98,190
Atlantica Yield Energy Solutions Canada Inc.
(6,468)
(1,372)
(15,728)
(2,617)
Other
108
—
510
117
$
(139,050)
$
(23,394)
$
(183,452)
$
95,690
Dividend and interest income from investments carried at fair value
Atlantica
$
21,054
$
18,876
$
62,673
$
55,728
Atlantica Yield Energy Solutions Canada Inc.
2,433
1,877
11,153
10,594
Other
15
—
329
2,113
$
23,502
$
20,753
$
74,155
$
68,435
Other long-term investments
Equity method loss
(3,669)
(1,764)
(12,039)
(3,888)
Interest and other income
4,975
1,338
17,093
8,128
$
(114,242)
$
(3,067)
$
(104,243)
$
168,365
(a)Investment in Atlantica
AAGES (AY Holdings) B.V. (“AY Holdings”), an entity controlled and consolidated by AQN, has a share ownership in Atlantica Sustainable Infrastructure PLC (“Atlantica”) of approximately 44% (December 31, 2020 - 44%). AQN has the flexibility, subject to certain conditions, to increase its ownership of Atlantica up to 48.5%. On December 9, 2020, the Company entered into a subscription agreement to purchase additional ordinary shares of Atlantica at $33.00 per share. The contract was accounted for as a derivative under ASC 815, Derivatives and Hedging. On January 7, 2021, the subscription closed and the Company paid $132,688 for the additional 4,020,860 shares of Atlantica. The shares were purchased at a total cost of $1,167,444. The Company accounts for its investment in Atlantica at fair value, with changes in fair value reflected in the unaudited interim consolidated statements of operations.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
6.Long-term investments (continued)
(b)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 $378,267 (December 31, 2020 - $186,452) including investments in variable interest entities ("VIEs") of $21,654 (December 31, 2020 - $174,685).
During the first quarter of 2021, the Company acquired a 51% interest in three wind facilities from a portfolio of four wind facilities located in Texas ("Texas Coastal Wind Facilities") for $234,274. On August 12, 2021, the Company acquired a 51% interest in the fourth wind facility for $110,609, subject to working capital adjustments. All facilities have achieved commercial operations. The Company does not control the entities and therefore accounts for its 51% interest using the equity method.
During the first quarter of 2021, the Company acquired the remaining 50% equity interest in the Sugar Creek Wind Facility and Maverick Creek Wind Facility for $43,797 and as a result, obtained control of the facilities (note 3(d)).
During the first half of 2021, the Empire Electric System acquired the North Fork Ridge and Kings Point Facilities for total consideration paid to third parties of $31,297 and as a result, obtained control of the facilities (note 3(b)).
During the second quarter of 2021, the Company acquired the remaining 50% equity interest in Altavista, a 80 MW solar power project located in Campbell County, Virginia, for $6,735 and as a result, obtained control of the facility (note 3(c)).
Summarized combined information for AQN's investments in significant partnerships and joint ventures is as follows:
September 30, 2021
December 31, 2020
Total assets
$
1,807,456
$
3,201,967
Total liabilities
727,017
2,913,188
Net assets
$
1,080,439
$
288,779
AQN's ownership interest in the entities
272,589
141,666
Difference between investment carrying amount and underlying equity in net assets(a)
105,678
44,786
AQN's investment carrying amount for the entities
$
378,267
$
186,452
(a) The difference between the investment carrying amount and the underlying equity in net assets relates primarily to the value of tax attributes not reflected in the Texas Coastal Wind Facilities net assets, 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 Abengoa-Algonquin Global Energy Solutions (“AAGES B.V."), 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 September 30, 2021, the Company had issued letters of credit and guarantees of performance obligations: under a security of performance for a development opportunity; wind turbine supply agreements; engineering, procurement and construction agreements; energy purchase agreements; and construction loan agreements. The fair value of the support provided recorded as at September 30, 2021 amounts to $2,481 (December 31, 2020 - $12,273).
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
6.Long-term investments (continued)
(b) Equity-method investees and development loans receivable from equity investees (continued)
Summarized combined information for AQN's VIEs is as follows:
September 30, 2021
December 31, 2020
AQN's maximum exposure in regards to VIEs
Carrying amount
$
21,654
$
174,685
Development loans receivable
10,794
21,804
Performance guarantees and other commitments on behalf of VIEs
164,256
965,291
$
196,704
$
1,161,780
The commitments are presented on a gross basis assuming no recoverable value in the assets of the VIEs.
(c) Other
The Company no longer has significant influence over its 20% interest in the San Antonio Water System ("SAWS"), and therefore has discontinued the equity method of accounting. The investment is accounted for using the cost method prospectively.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
7.Long-term debt
Long-term debt consists of the following:
Borrowing type
Weighted average coupon
Maturity
Par value
September 30, 2021
December 31, 2020
Senior unsecured revolving credit facilities
—
2021-2024
N/A
$
858,814
$
223,507
Senior unsecured bank credit facilities (a)
—
2022-2031
N/A
149,735
152,338
Commercial paper
—
2021
N/A
499,000
122,000
U.S. dollar borrowings
Senior unsecured notes (Green Equity Units) (b)
1.18
%
2026
$
1,150,000
1,140,281
—
Senior unsecured notes
3.46
%
2022-2047
$
1,700,000
1,689,427
1,688,390
Senior unsecured utility notes
6.34
%
2023-2035
$
142,000
155,982
157,212
Senior secured utility bonds
4.71
%
2026-2044
$
556,222
559,007
561,494
Canadian dollar borrowings
Senior unsecured notes (c)
3.81
%
2022-2050
C$
1,400,669
1,093,778
899,710
Senior secured project notes
10.21
%
2027
C$
23,936
18,787
20,315
Chilean Unidad de Fomento borrowings
Senior unsecured utility bonds
4.24
%
2028-2040
CLF 1,811
83,434
92,183
$
6,248,245
$
3,917,149
Subordinated U.S. dollar borrowings
Subordinated unsecured notes
6.50
%
2078-2079
$
637,500
621,802
621,321
$
6,870,047
$
4,538,470
Less: current portion
(516,712)
(139,874)
$
6,353,335
$
4,398,596
Short-term obligations of $473,273 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.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
7.Long-term debt (continued)
Recent financing activities:
(a)Senior unsecured credit facilities
In connection with the Kentucky Power Transaction (note 3(a)), the Company obtained a commitment from lenders to provide syndicated unsecured credit facilities in an aggregate amount of up to $2,725,000. This acquisition financing commitment is subject to customary terms and conditions, including certain commitment reductions upon closing of permanent financing.
(b)U.S. dollar senior unsecured notes (Green Equity Units)
In June 2021, the Company sold 23,000,000 equity units (the "Green Equity Units") for total gross proceeds of $1,150,000. Each Green Equity Unit has a stated amount of $50 and consists of a contract to purchase AQN common shares (the "share purchase contract") and, initially, a 5% undivided beneficial ownership interest in a remarketable senior note due June 15, 2026, issued in the principal amount of $1,000 by AQN.
Total annual distributions on the Green Equity Units are at a rate of 7.75%, consisting of interest on the notes (1.18% per year) and payments under the share purchase contract (6.57% per year). The interest rate on the notes will be reset following a successful marketing, which would occur in 2024. The present value of the contract adjustment payments was estimated at $222,378 and is recorded against additional paid-in capital ("APIC") to the extent of the APIC balance and against retained earnings (deficit) for the remainder. The corresponding amount of $222,378 was recorded in other liabilities and is accreted over the three-year period (note 9).
Each share purchase contract requires the holder to purchase by no later than June 15, 2024 for a price of $50 in cash, a number of AQN common shares ("common shares") based on the applicable market value to be determined using the volume-weighted average price of the common shares over a 20-day trading period ending June 14, 2024. The minimum settlement rate under the purchase contracts is 2.7778 common shares, which is approximately equal to the $50 stated amount per Green Equity Unit, divided by the threshold appreciation price of $18 per common share. The maximum settlement rate under the purchase contracts is 3.3333 common shares, which is approximately equal to the $50 stated amount per Green Equity Unit, divided by $15 per common share.
The common share purchase obligation of holders of Green Equity Units will be satisfied by the proceeds raised from a successful remarketing of the notes, unless a holder has elected to settle with separate cash. Holders’ beneficial ownership interest in each note has been pledged to AQN to secure the holders' obligation to purchase common shares under the related share purchase contract.
Prior to the issuance of common shares, the share purchase contracts, if dilutive, will be reflected in the Company's diluted earnings per share calculations using the treasury stock method.
(c)Canadian dollar senior unsecured notes
On February 15, 2021, the Renewable Energy Group repaid a C$150,000 unsecured note upon its maturity. Concurrent with the repayment, the Renewable Energy Group unwound and settled the related cross-currency fixed-for-fixed interest rate swap (note 21(b)(iii)).
On April 9, 2021, the Renewable Energy Group issued C$400,000 senior unsecured debentures bearing interest at 2.85% with a maturity date of July 15, 2031. The notes were sold at a price of C$999.92 per C$1,000.00 principal amount. Concurrent with the offering, the Renewable Energy Group entered into a fixed-for-fixed cross-currency interest rate swap to convert the Canadian-dollar-denominated coupon and principal payments from the offering into U.S. dollars (note 21(b)(iii)).
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
8.Pension and other post-employment benefits
The following table lists the components of net benefit costs for the pension plans and other post-employment benefits (“OPEB”) in the unaudited interim consolidated statements of operations for the three and nine months ended September 30:
Pension benefits
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Service cost
$
3,987
$
3,607
$
12,323
$
11,310
Non-service costs
Interest cost
4,909
3,808
15,126
12,711
Expected return on plan assets
(8,890)
(6,279)
(26,670)
(18,789)
Amortization of net actuarial loss
2,431
1,782
7,243
4,072
Amortization of prior service credits
(407)
(403)
(1,220)
(1,207)
Impact of regulatory accounts
5,653
3,169
16,662
11,476
$
3,696
$
2,077
$
11,141
$
8,263
Net benefit cost
$
7,683
$
5,684
$
23,464
$
19,573
OPEB
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Service cost
$
1,942
$
1,626
$
5,486
$
4,559
Non-service costs
Interest cost
2,097
2,307
6,149
5,881
Expected return on plan assets
(2,518)
(2,176)
(7,539)
(6,561)
Amortization of net actuarial loss (gain)
643
409
1,516
382
Amortization of prior service credits
18
—
18
—
Impact of regulatory accounts
(61)
(248)
135
1,377
$
179
$
292
$
279
$
1,079
Net benefit cost
$
2,121
$
1,918
$
5,765
$
5,638
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.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
9.Other long-term liabilities
Other long-term liabilities consist of the following:
September 30, 2021
December 31, 2020
Contract adjustment payments (note 7(a))
$
205,871
$
—
Asset retirement obligations
142,547
79,968
Advances in aid of construction
83,182
79,864
Environmental remediation obligation
60,449
69,383
Customer deposits
32,263
31,939
Unamortized investment tax credits
17,592
17,893
Deferred credits
16,961
21,399
Preferred shares, Series C
13,387
13,698
Hook-up fees
21,195
17,704
Lease liabilities
22,142
14,288
Contingent development support obligations
2,481
12,273
Hedge settlement obligation
31,341
—
Note payable to related party
—
30,493
Other
37,112
23,027
$
686,523
$
411,929
Less: current portion
(160,515)
(72,748)
$
526,008
$
339,181
10.Shareholders’ capital
(a)Common shares
Number of common shares
Nine months ended September 30
2021
2020
Common shares, beginning of period
597,142,219
524,223,323
Public offering
23,531,465
66,130,063
Dividend reinvestment plan
4,560,456
3,532,823
Exercise of share-based awards (b)
909,762
1,421,766
Conversion of convertible debentures
1,886
6,225
Common shares, end of period
626,145,788
595,314,200
In conjunction with the announcement of the Kentucky Power Transaction (note 3(a)), the Company announced a C$800,000 bought deal offering of 44,080,000 common shares at an offering price of C$18.15 per share to fund a portion of the purchase price. The offering closed on November 8, 2021. The underwriters for the offering were also granted a 15% over allotment option, which if exercised in full would bring the total gross proceeds to C$920 million.
AQN's at-the-market equity program (“ATM program”) allows the Company to issue up to $500,000 of common shares from treasury to the public from time to time, at the Company's discretion, at the prevailing market price when issued on the TSX, the NYSE, or any other existing trading market for the common shares of the Company in Canada or the United States. During the nine months ended September 30, 2021, the Company issued 23,531,465 common shares under the ATM program at an average price of $15.70 per common share for gross proceeds of $369,495 ($364,876 net of commissions). Other related costs were $740.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
10.Shareholders’ capital (continued)
(a)Common shares (continued)
As at November 11, 2021, the Company has issued since the inception of 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 $4,153.
(b)Share-based compensation
For the three and nine months ended September 30, 2021, AQN recorded $3,414 and $7,800, respectively (2020 - $6,588 and $18,228, 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 September 30, 2021, total unrecognized compensation costs related to non-vested share-based awards was $16,052 and is expected to be recognized over a period of 1.77 years.
Share option plan
During the nine months ended September 30, 2021, the Board of Directors of the Company (the "Board") approved the grant of 437,006 options to executives of the Company. The options allow for the purchase of common shares at a weighted average price of C$19.64, the market price of the underlying common share at the date of grant. One-third of the options vest on each of December 31, 2021, 2022 and 2023. 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:
2021
Risk-free interest rate
1.1
%
Expected volatility
23
%
Expected dividend yield
4.1
%
Expected life
5.50 years
Weighted average grant date fair value per option
$
2.46
During the nine months ended September 30, 2021, 61,225 share options were exercised at a weighted average price of C$14.75 in exchange for 12,021 common shares issued from treasury, and 49,204 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 nine months ended September 30, 2021, a total of 734,690 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 2022 to January 2024. During the nine months ended September 30, 2021, the Company settled 815,729 PSUs and RSUs in exchange for 422,514 common shares issued from treasury, and 393,215 PSUs and RSUs were settled at their cash value as payment for tax withholding related to the settlement of the awards.
During the nine months ended September 30, 2021, the Company settled 148,459 bonus deferral RSUs in exchange for 68,841 common shares issued from treasury, and 79,618 RSUs were settled at their cash value as payment for tax withholding related to the settlement of the awards. During the quarter, on April 15, 2021, 44,528 bonus deferral RSUs were granted to employees of the Company. The RSUs are 100% vested.
Director's deferred share units
During the nine months ended September 30, 2021, 54,447 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. In addition, the Company settled 87,306 DSUs in exchange for 40,887 common shares issued from treasury, and 46,418 DSUs were settled at their cash value as payment for tax withholding related to the settlement of the awards.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(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:
Foreign currency cumulative translation
Unrealized gain on cash flow hedges
Pension and post-employment actuarial changes
Total
Balance, January 1, 2020
$
(68,822)
$
75,099
$
(16,038)
$
(9,761)
OCI
25,643
(13,418)
(20,964)
(8,739)
Amounts reclassified from AOCI to the unaudited interim consolidated statements of operations
2,763
(10,864)
3,403
(4,698)
Net current period OCI
$
28,406
$
(24,282)
$
(17,561)
$
(13,437)
OCI attributable to the non-controlling interests
691
—
—
691
Net current period OCI attributable to shareholders of AQN
$
29,097
$
(24,282)
$
(17,561)
$
(12,746)
Balance, December 31, 2020
$
(39,725)
$
50,817
$
(33,599)
$
(22,507)
OCI
(34,186)
(94,490)
—
(128,676)
Amounts reclassified from AOCI to the unaudited interim consolidated statements of operations
2,014
38,744
2,486
43,244
Net current period OCI
$
(32,172)
$
(55,746)
$
2,486
$
(85,432)
OCI attributable to the non-controlling interests
(6,998)
—
—
(6,998)
Net current period OCI attributable to shareholders of AQN
$
(39,170)
$
(55,746)
$
2,486
$
(92,430)
Balance, September 30, 2021
$
(78,895)
$
(4,929)
$
(31,113)
$
(114,937)
Amounts reclassified from AOCI for foreign currency cumulative translation affected interest expense and derivative gain (loss); those for unrealized gain (loss) on cash flow hedges affected revenue from non-regulated energy sales, interest expense and derivative gain (loss), while those for pension and other post-employment actuarial changes affected pension and other post-employment non-service costs.
12.Dividends
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 September 30
2021
2020
Dividend
Dividend per share
Dividend
Dividend per share
Common shares
$
107,229
$
0.1706
$
92,830
$
0.1551
Series A preferred shares
C$
1,549
C$
0.3226
C$
1,549
C$
0.3226
Series D preferred shares
C$
1,273
C$
0.3182
C$
1,273
C$
0.3182
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
12.Dividends (continued)
Nine months ended September 30
2021
2020
Dividend
Dividend per share
Dividend
Dividend per share
Common shares
$
307,551
$
0.4963
$
251,282
$
0.4512
Series A preferred shares
C$
4,646
C$
0.9679
C$
4,646
C$
0.9679
Series D preferred shares
C$
3,818
C$
0.9546
C$
3,818
C$
0.9546
13.Related party transactions
(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 nine months ended September 30, 2021, the Company charged its equity-method investees $6,879 and $19,199, respectively (2020 - $6,315 and $16,539, respectively). Additionally, one of the equity-method investees provides development services to the Company on specified projects, for which it earns a development fee upon reaching certain milestones. During the three and nine months ended September 30, 2021, the development fees charged to the Company were $nil and $738 (2020 - $34 and $495).
In 2020, the Company issued a promissory note of $30,493 payable to Altavista, an equity investee of the Company at the time. The note was repaid in full during the second quarter of 2021.
During the third quarter of 2021, the Company paid $1,500 to Abengoa S.A. ("Abengoa") to purchase all of Abengoa's interests in the AAGES, AAGES Development Canada Inc., and AAGES Development Spain, S.A. joint ventures. The assets acquired for AAGES Development Spain S.A. included project development assets for $2,662 and working capital of $1,507. The existing loan between the Company and AAGES Development Spain S.A. of $3,089 was treated as additional consideration incurred to acquire the partnership. Pursuant to an agreement between AQN and funds managed by the Infrastructure and Power strategy of Ares Management, LLC (“Ares”), in November 2021, Ares became AQN’s new partner in its non-regulated development platform for renewable energy, water and other sections through an investment in the AAGES and AAGES Development Canada Inc. joint ventures.
(b)Redeemable non-controlling interest held by related party
On November 28, 2018, AAGES B.V., an equity investee of the Company, obtained a three-year secured credit facility in the amount of $306,500 and subscribed to a $305,000 preference share ownership interest in AY Holdings. The AAGES B.V. secured credit facility is collateralized through a pledge of Atlantica shares held by AY Holdings. 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 stock to eliminate the collateral shortfall. The AAGES B.V. secured credit facility is repayable on demand if Atlantica ceases to be a public company. AQN reflects the preference share ownership issued by AY Holdings as redeemable non-controlling interest held by related party. Redemption is not considered probable as at September 30, 2021. During the three and nine months ended September 30, 2021, the Company incurred non-controlling interest attributable to AAGES B.V. of $2,588 and $7,886, respectively (2020 - $2,765 and $9,924, respectively) and recorded distributions of $2,663 and $7,709, respectively (2020 - $2,680 and $9,552, 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). During the three and nine months ended September 30, 2021, the Company recorded distributions to AYES of $2,570 and $11,482, respectively (2020 - $2,030 and $11,069, respectively).
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
13.Related party transactions (continued)
(d) Transactions with Atlantica
During the nine months ended September 30, 2021, the Company sold Colombian solar assets to Atlantica for consideration of $1,265, representing the cost of the assets, and contingent consideration of $2,600, if certain milestones are met. As at September 30, 2021 no contingent consideration or gain on the sale has been recognized.
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 interests
Net effect attributable to non-controlling interests for the three and nine months ended September 30 consists of the following:
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
HLBV and other adjustments attributable to:
Non-controlling interests - tax equity partnership units
$
14,264
$
10,135
$
55,785
$
43,870
Non-controlling interests - redeemable tax equity partnership units
1,696
1,716
5,121
5,191
Other net earnings attributable to:
Non-controlling interests
(1,873)
(557)
(5,917)
(1,791)
$
14,087
$
11,294
$
54,989
$
47,270
Redeemable non-controlling interest, held by related party
(2,588)
(2,765)
(7,886)
(9,924)
Net effect of non-controlling interests
$
11,499
$
8,529
$
47,103
$
37,346
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.
The Company obtained control of the three Mid-West Wind Facilities, and the Sugar Creek Wind Facility and Maverick Creek Wind Facility during the nine months ended September 30, 2021 (notes 3(a) and 3(c)). During the nine months ended September 30, 2021, third-party tax equity investors funded $530,880, $73,957 and $380,829 to the Mid-West Wind Facilities, the Sugar Creek Wind Facility and the Maverick Creek Wind Facility, respectively, in exchange for Class A partnership units in the entities.
15.Income taxes
For the three months ended September 30, 2021, the Company's tax rate varied from the statutory rate of 26.5% partially due to the tax benefits from tax credits accrued of $8,800. The Company’s tax rate also varied during this period due to the beneficial impact of differences in effective tax rates on transactions in foreign jurisdictions, partially offset by the tax impact on the income associated with its investment in Atlantica, and deferred tax expense associated with the non-controlling interest share of income.
For the nine months ended September 30, 2021, the Company's tax rate varied from the statutory rate of 26.5% partially due to the tax benefits from tax credits accrued of $35,320. The Company’s tax rate also varied during this period due to the beneficial impact of differences in effective tax rates on transactions in foreign jurisdictions, partially offset by the tax impact on the income associated with its investment in Atlantica, and deferred tax expense associated with the non-controlling interest share of income.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
15.Income taxes (continued)
For the three months ended September 30, 2020, the Company's tax rate varied from the statutory rate of 26.5% primarily due to the tax benefits from tax credits accrued of $14,618. The Company’s tax rate also varied during this period due to favorable impact of differences in effective tax rates on transactions in foreign jurisdictions, and amortization and settlement of excess deferred income tax. These adjustments are partially offset by deferred tax expense associated with the non-controlling interest share of income.
For the nine months ended September 30, 2020, the Company's tax rate varied from the statutory rate of 26.5% due primarily to the tax benefit from tax credits accrued of $24,522. The Company’s tax rate also varied during this period due to the beneficial impact of differences in effective tax rates on transactions in foreign jurisdictions, and the favorable tax impact on the income associated with its investment in Atlantica. These adjustments are partially offset by deferred tax expense associated with the non-controlling interest share of income, and the impact of the finalization of certain regulations related to U.S. Tax Reform.
On April 8, 2020, the IRS 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 recorded a one-time income tax expense of $9,300 to reverse the benefit of deductions taken in the prior year.
16.Other net losses
Other net losses consist of the following:
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Acquisition and transition-related costs
$
1,725
$
2,908
$
4,709
$
6,050
Tax reform
—
—
—
11,728
Management succession and executive retirement
—
3,169
—
10,121
Other
(836)
10,851
6,377
16,859
$
889
$
16,928
$
11,086
$
44,758
Other losses primarily consist of an adjustment to a regulatory liability pertaining to the true-up of prior period tracking accounts, costs pertaining to condemnation proceeding, and other miscellaneous asset write-downs.
On July 26, 2021 the Company paid $2,250 to Abengoa as settlement for contingent consideration on its purchase of a 20% interest in SAWS (note 6(c)). This settlement resulted in a gain of $2,750.
17.Basic and diluted net earnings per share
Basic and diluted earnings per share have been calculated on the basis of net earnings attributable to the common shareholders of the Company and the weighted average number of common shares and bonus deferral restricted share units outstanding. Diluted net earnings per share is computed using 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(a)).
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
17.Basic and diluted net earnings per share (continued)
The reconciliation of the net earnings and the weighted average shares used in the computation of basic and diluted earnings per share are as follows:
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Net earnings (loss) attributable to shareholders of AQN
$
(27,922)
$
55,851
$
89,247
$
278,273
Series A preferred shares dividend
1,244
1,154
3,709
3,435
Series D preferred shares dividend
1,022
948
3,048
2,823
Net earnings (loss) attributable to common shareholders of AQN – basic and diluted
$
(30,188)
$
53,749
$
82,490
$
272,015
Weighted average number of shares
Basic
621,405,414
585,403,736
611,772,460
547,031,170
Effect of dilutive securities
—
5,291,986
6,300,009
5,096,871
Diluted
621,405,414
590,695,722
618,072,469
552,128,041
This calculation of diluted shares for the three and nine months ended September 30, 2021 excludes potential incremental shares related to 9,360,556 and 437,006 securities, respectively (2020 - 51,615 and 51,615, respectively) as they are anti-dilutive.
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, Canada, Chile and Bermuda; 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.
Beginning in the first quarter of 2021, the Company reported income and losses associated with development activities under corporate, as these are no longer considered in management’s evaluation of the Renewable Energy Group where it was reported previously. Comparative figures have been reclassified to conform to presentation adopted in the current period.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
18.Segmented information (continued)
Three months ended September 30, 2021
Regulated Services Group
Renewable Energy Group
Corporate
Total
Revenue (1)(2)
$
449,198
$
78,989
$
388
$
528,575
Fuel, power and water purchased
112,820
11,898
—
124,718
Net revenue
336,378
67,091
388
403,857
Operating expenses
150,934
26,270
—
177,204
Administrative expenses
7,547
6,026
1,592
15,165
Depreciation and amortization
71,430
24,858
265
96,553
Loss on foreign exchange
—
—
1,267
1,267
Operating income (loss)
106,467
9,937
(2,736)
113,668
Interest expense
(22,300)
(17,461)
(11,893)
(51,654)
Income (loss) from long-term investments
4,470
22,126
(140,838)
(114,242)
Other expenses (recovery)
(3,462)
(4,770)
1,651
(6,581)
Earnings (loss) before income taxes
$
85,175
$
9,832
$
(153,816)
$
(58,809)
Capital expenditures
$
263,711
$
84,339
$
—
$
348,050
(1) Renewable Energy Group revenue includes $1,160 related to net hedging loss from energy derivative contracts and availability credits for the three-months period ended September 30, 2021 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $5,324 related to alternative revenue programs for the three-months period ended September 30, 2021 that do not represent revenue recognized from contracts with customers.
Three months ended September 30, 2020
Regulated Services Group
Renewable Energy Group
Corporate
Total
Revenue (1)(2)
$
316,696
$
59,419
$
366
$
376,481
Fuel, power and water purchased
75,107
4,969
—
80,076
Net revenue
241,589
54,450
366
296,405
Operating expenses
97,524
18,513
—
116,037
Administrative expenses (recovery)
9,922
7,085
(2,473)
14,534
Depreciation and amortization
51,520
18,885
1,123
71,528
Gain on foreign exchange
—
—
(936)
(936)
Operating income
82,623
9,967
2,652
95,242
Interest expense
(25,224)
(12,077)
(8,259)
(45,560)
Income (loss) from long-term investments
300
21,324
(24,691)
(3,067)
Other expenses
(11,209)
(2,291)
(5,496)
(18,996)
Earnings (loss) before income taxes
$
46,490
$
16,923
$
(35,794)
$
27,619
Capital expenditures
$
161,285
$
10,636
$
10,741
$
182,662
(1) Renewable Energy Group revenue includes $3,661 related to net hedging gain from energy derivative contracts for the three-months period ended September 30, 2020 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $12,673 related to alternative revenue programs for the three-months period ended September 30, 2020 that do not represent revenue recognized from contracts with customers.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
18.Segmented information (continued)
Nine months ended September 30, 2021
Regulated Services Group
Renewable Energy Group
Corporate
Total
Revenue (1)(2)
$
1,492,665
$
196,804
$
1,171
$
1,690,640
Fuel, power and water purchased
506,745
25,887
—
532,632
Net revenue
985,920
170,917
1,171
1,158,008
Operating expenses
448,844
79,499
—
528,343
Administrative expenses
26,648
19,512
2,770
48,930
Depreciation and amortization
206,517
84,805
831
292,153
Loss on foreign exchange
—
—
3,412
3,412
Operating income (loss)
303,911
(12,899)
(5,842)
285,170
Interest expense
(73,715)
(54,206)
(31,495)
(159,416)
Income (loss) from long-term investments
14,937
70,531
(189,711)
(104,243)
Other expenses
(16,108)
(8,424)
(56)
(24,588)
Earnings (loss) before income taxes
$
229,025
$
(4,998)
$
(227,104)
$
(3,077)
Property, plant and equipment
$
7,238,320
$
3,829,641
$
30,419
$
11,098,380
Investments carried at fair value
2,622
1,784,673
—
1,787,295
Equity-method investees
11,156
366,846
265
378,267
Total assets
10,349,178
6,218,144
131,630
16,698,952
Capital expenditures
$
817,661
$
225,968
$
7,553
$
1,051,182
(1) Renewable Energy Group revenue includes $45,748 related to net hedging loss from energy derivative contracts and availability credits for the nine-months period ended September 30, 2021 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $12,803 related to alternative revenue programs for the nine-months period ended September 30, 2021 that do not represent revenue recognized from contracts with customers.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
18.Segmented information (continued)
Nine months ended September 30, 2020
Regulated Services Group
Renewable Energy Group
Corporate
Total
Revenue (1)(2)
$
992,214
$
192,440
$
1,082
$
1,185,736
Fuel, power and water purchased
263,562
11,714
—
275,276
Net revenue
728,652
180,726
1,082
910,460
Operating expenses
309,774
54,631
—
364,405
Administrative expenses (recovery)
29,791
21,149
(383)
50,557
Depreciation and amortization
157,159
67,316
1,600
226,075
Gain on foreign exchange
—
—
(5,630)
(5,630)
Operating income
231,928
37,630
5,495
275,053
Interest expense
(74,161)
(40,174)
(22,291)
(136,626)
Income from long-term investments
5,910
68,928
93,527
168,365
Other expenses
(35,901)
(2,340)
(14,112)
(52,353)
Earnings before income taxes
$
127,776
$
64,044
$
62,619
$
254,439
Capital expenditures
$
458,558
$
55,672
$
10,741
$
524,971
December 31, 2020
Property, plant and equipment
$
5,757,532
$
2,451,706
$
32,600
$
8,241,838
Investments carried at fair value
—
1,839,212
—
1,839,212
Equity-method investees
74,673
110,414
1,365
186,452
Total assets
8,528,415
4,586,878
108,856
13,224,149
(1) Renewable Energy Group revenue includes $20,400 related to net hedging gain from energy derivative contracts for the nine-months period ended September 30, 2020 that do not represent revenue recognized from contracts with customers.
(2) Regulated Services Group revenue includes $20,403 related to alternative revenue programs for the nine-months period ended September 30, 2020 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 September 30
Nine months ended September 30
2021
2020
2021
2020
Revenue
United States
$
408,419
$
348,703
$
1,335,677
$
1,075,574
Canada
28,845
27,778
112,648
110,162
Other regions
91,311
—
242,315
—
$
528,575
$
376,481
$
1,690,640
$
1,185,736
Revenue is attributed to the regions based on the location of the underlying generating and utility facilities.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
19.Commitments and contingencies
(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 consolidated financial statements at the time it is concluded that their 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 AQN and certain of its subsidiaries, claiming damages and punitive damages. The action arose from Gaia’s 2010 sale, to a subsidiary of AQN, 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.
The parties agreed to arbitrate the dispute, and concluded hearings on March 17, 2021. The arbitrator released his decision on August 6, 2021, dismissing Gaia's damages claims for oppression and conspiracy, and also dismissing Gaia's punitive damages claim. The arbitrator confirmed that development fees and royalties, calculated as a sliding percentage of the facility's EBITDA (as argued for by the Company), are payable to Gaia in connection with the Company's 74 MW Amherst Island Wind Facility in Ontario. The arbitrator also found that development fees and royalties, calculated on substantially the same basis as the royalties for Amherst Island, are payable to Gaia in connection with the Company's 175 MW Blue Hill Wind Project in Saskatchewan.
Condemnation expropriation proceedings
Liberty Utilities (Apple Valley Ranchos Water) Corp. ("Liberty Apple Valley") was the subject of a condemnation lawsuit filed by the Town of Apple Valley (the “Town”). On May 7, 2021, the Court issued a tentative statement of decision denying the Town’s attempt to take the Apple Valley water system by eminent domain. The ruling confirmed that Liberty Apple Valley’s continued ownership and operation of the water system is in the best interest of the community. On October 14 2021, the Court denied the Town’s objections and issued the Final Statement of Decision. A final judgment is expected to be entered in November 2021 and, upon entry of final judgment, the Town’s lawsuit will be dismissed, and the Town will be required to compensate Liberty Apple Valley for litigation expenses following filing of motions. The Court’s ruling is subject to appeal by the Town.
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. The cause of the fire is undetermined at this time, and CAL FIRE has not yet issued a report. There are currently active lawsuits that name the Company and/or certain of its subsidiaries as defendants in connection with the Mountain View fire. The likelihood of success in these lawsuits cannot be reasonably predicted. Liberty Utilities (CalPeco Electric) LLC 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 September 30, 2021.
AQN has outstanding purchase commitments for power purchases, gas supply and service agreements, service agreements, capital project commitments and land easements.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
19.Commitments and contingencies (continued)
(b)Commitments (continued)
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)
$
44,508
$
30,079
$
29,794
$
30,028
$
17,675
$
158,216
$
310,300
Gas supply and service agreements (ii)
80,472
69,493
46,502
43,917
25,532
139,043
404,959
Service agreements
61,959
58,754
57,728
55,126
51,823
356,231
641,621
Capital projects
86,865
—
—
—
—
—
86,865
Land easements and others
12,913
12,995
13,164
13,343
13,511
474,918
540,844
Total
$
286,717
$
171,321
$
147,188
$
142,414
$
108,541
$
1,128,408
$
1,984,589
(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 September 30, 2021. 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.
20.Non-cash operating items
The changes in non-cash operating items consist of the following:
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Accounts receivable
$
(7,006)
$
(13,024)
$
26,969
$
43,922
Fuel and natural gas in storage
(43,158)
(5,295)
(37,229)
(2,236)
Supplies and consumables inventory
8,363
(377)
3,977
(21,335)
Income taxes recoverable
1,547
(1,464)
380
(3,353)
Prepaid expenses
(6,083)
(4,680)
(15,126)
(12,024)
Accounts payable
25,731
68,585
(22,123)
5,248
Accrued liabilities
90,745
(36,400)
(676)
(76,439)
Current income tax liability
1,499
3,264
7,124
4,980
Asset retirements and environmental obligations
(957)
(1,475)
(1,488)
(2,174)
Net regulatory assets and liabilities
(64,460)
(32,829)
(399,456)
(16,913)
$
6,221
$
(23,695)
$
(437,648)
$
(80,324)
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
21.Financial instruments
(a)Fair value of financial instruments
September 30, 2021
Carrying amount
Fair value
Level 1
Level 2
Level 3
Long-term investments carried at fair value
$
1,787,295
$
1,787,295
$
1,692,333
$
—
$
94,962
Development loans and other receivables
10,908
12,112
—
12,112
—
Derivative instruments:
Energy contracts designated as a cash flow hedge
15,487
15,487
—
—
15,487
Energy contracts not designated as cash flow hedge
202
202
—
—
202
Interest rate swap designated as a hedge
2,981
2,981
—
2,981
—
Commodity contracts for regulated operations
7,305
7,305
—
7,305
—
Total derivative instruments
25,975
25,975
—
10,286
15,689
Total financial assets
$
1,824,178
$
1,825,382
$
1,692,333
$
22,398
$
110,651
Long-term debt
$
6,870,047
$
7,255,724
$
2,437,402
$
4,818,322
$
—
Convertible debentures
277
412
412
—
—
Preferred shares, Series C
13,386
14,653
—
14,653
—
Derivative instruments:
Energy contracts designated as a cash flow hedge
52,333
52,333
—
—
52,333
Energy contracts not designated as a cash flow hedge
4,129
4,129
—
—
4,129
Cross-currency swap designated as a net investment hedge
60,540
60,540
—
60,540
—
Interest rate swaps designated as a hedge
8,134
8,134
—
8,134
—
Total derivative instruments
125,136
125,136
—
68,674
56,462
Total financial liabilities
$
7,008,846
$
7,395,925
$
2,437,814
$
4,901,649
$
56,462
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
21.Financial instruments (continued)
(a)Fair value of financial instruments (continued)
December 31, 2020
Carrying amount
Fair value
Level 1
Level 2
Level 3
Long-term investment carried at fair value
$
1,839,212
$
1,839,212
$
1,708,683
$
20,015
$
110,514
Development loans and other receivables
23,804
31,088
—
31,088
—
Derivative instruments:
Energy contracts designated as a cash flow hedge
51,525
51,525
—
—
51,525
Energy contracts not designated as a cash flow hedge
388
388
—
—
388
Commodity contracts for regulatory operations
194
194
—
194
—
Total derivative instruments
52,107
52,107
—
194
51,913
Total financial assets
$
1,915,123
$
1,922,407
$
1,708,683
$
51,297
$
162,427
Long-term debt
$
4,538,470
$
5,140,059
$
2,316,586
$
2,823,473
—
Notes payable to related party
30,493
30,493
—
30,493
—
Convertible debentures
295
623
623
—
—
Preferred shares, Series C
13,698
15,565
—
15,565
—
Derivative instruments:
Energy contracts designated as a cash flow hedge
5,597
5,597
—
—
5,597
Energy contracts not designated as a cash flow hedge
332
332
—
—
332
Cross-currency swap designated as a net investment hedge
84,218
84,218
—
84,218
—
Interest rate swaps designated as a hedge
19,649
19,649
—
19,649
—
Commodity contracts for regulated operations
614
614
—
614
—
Total derivative instruments
110,410
110,410
—
104,481
5,929
Total financial liabilities
$
4,693,366
$
5,297,150
$
2,317,209
$
2,974,012
$
5,929
The Company has determined that the carrying value of its short-term financial assets and liabilities approximates fair value as at September 30, 2021 and December 31, 2020 due to the short-term maturity of these instruments.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(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 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 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 $16.15 to $185.08 with a weighted average of $29.92 as at September 30, 2021. 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 9.03% to 9.53% with a weighted average of 9.44%, and the expected volatility of Atlantica's share price ranging from 22% to 46% as at September 30, 2021. 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. The increase in value and volatility of the Atlantica shares during the year resulted in a significant increase in the 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:
September 30, 2021
Financial contracts: Swaps
2,956,308
Options
193,619
3,149,927
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.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
The following table presents the impact of the change in the fair value of the Company’s natural gas derivative contracts on the unaudited interim consolidated balance sheets:
September 30, 2021
December 31, 2020
Regulatory assets:
Swap contracts
$
—
$
228
Option contracts
$
—
$
50
Forward contracts
$
—
$
693
Regulatory liabilities:
Swap contracts
$
7,087
$
271
Option contracts
$
279
$
76
Forward contracts
$
—
$
—
(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 Shady Oaks II 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)
2,479,234
December 2031
$23.50
NI HUB
4,729,287
September 2030
$24.54
Illinois Hub
560,010
December 2028
$32.72
PJM Western HUB
2,611,114
December 2027
$24.04
NI HUB
2,097,657
December 2027
$36.46
ERCORT North HUB
Upon the acquisition of the Sugar Creek Wind Facility (note 3(d)), the Company redesignated a long-term energy derivative contract to mitigate the price risk on the expected future sale of power generation. The fair value of the derivative on the redesignation date will be amortized into earnings over the remaining life of the contract.
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 designated a contract with a notional quantity of 29,000 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 November 2020, upon the acquisition of Liberty Group Limited (formerly Ascendant Group Limited, "Ascendant"), the Company redesignated two interest rate swap contracts as cash flow hedges to mitigate the risk that LIBOR-based interest rates will increase over the life of Ascendant's 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 redesignation date will be amortized into earnings over the remaining life of the contract.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(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 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. 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.
The following table summarizes OCI attributable to derivative financial instruments designated as a cash flow hedge:
Three months ended September 30
Nine months ended September 30
2021
2020
2021
2020
Effective portion of cash flow hedge
$
(31,323)
$
(3,042)
$
(94,490)
$
(15,932)
Amortization of cash flow hedge
(545)
(555)
(1,657)
(1,663)
Amounts reclassified from AOCI
269
(1,164)
40,401
(7,467)
OCI attributable to shareholders of AQN
$
(31,599)
$
(4,761)
$
(55,746)
$
(25,062)
The Company expects $12,767, $1,855 and $1,206 of unrealized gains and losses currently in AOCI to be reclassified, net of taxes into non-regulated energy sales, interest expense and derivative gains, respectively, 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 $338 and loss of $108 for the three and nine months ended September 30, 2021, respectively (2020 - loss of $278 and $83, 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 $12,284 and $817 for the three and nine months ended September 30, 2021, respectively (2020 - loss of $10,080 and gain of $9,503, respectively) was recorded in OCI.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(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)
Canadian operations
The Company is exposed to currency fluctuations from its Canadian-based operations. AQN 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 is reported in the same manner as the translation adjustment (in OCI) related to the net investment. A foreign currency loss of $744 and gain of $1,247 for the three and nine months ended September 30, 2021 (2020 - $Nil and loss of $3,581) was recorded in OCI.
The Company was party to C$650,000 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 $11,644 and gain of $1,630 for the three and nine months ended September 30, 2021, respectively (2020 - gain of $15,472 and loss of $11,719, respectively) was recorded in OCI. On February 15, 2021, the Renewable Energy Group settled the related cross-currency swap related to its C$150,000 debenture that was repaid (note 7(b)).
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 $10,135 and $12,788 for the three and nine months ended September 30, 2021 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.
In 2020, the Company executed on currency forward contracts to purchase in total $682,500 for approximately C$923,243 in order to manage the currency exposure to the Canadian dollar shares issuance.
For derivatives that are not designated as hedges, the changes in the fair value are immediately recognized in earnings.
Algonquin Power & Utilities Corp.
Notes to the Unaudited Interim Consolidated Financial Statements
September 30, 2021 and 2020
(in thousands of U.S. dollars, except as noted and per share amounts)
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 September 30
Nine months ended September 30
2021
2020
2021
2020
Change in unrealized gain (loss) on derivative financial instruments:
Energy derivative contracts
$
(2,176)
$
(165)
$
(4,803)
$
462
Total change in unrealized gain (loss) on derivative financial instruments
$
(2,176)
$
(165)
$
(4,803)
$
462
Realized loss on derivative financial instruments:
Energy derivative contracts
(485)
(289)
(126)
(970)
Total realized loss on derivative financial instruments
$
(485)
$
(289)
$
(126)
$
(970)
Loss on derivative financial instruments not accounted for as hedges
(2,661)
(454)
(4,929)
(508)
Amortization of AOCI gains frozen as a result of hedge dedesignation
844
755
2,847
2,255
$
(1,817)
$
301
$
(2,082)
$
1,747
Amounts recognized in the consolidated statements of operations consist of:
Gain (loss) on derivative financial instruments
$
(1,817)
$
301
$
(2,082)
$
1,747
(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 of mitigating these risks to the extent possible on a cost-effective basis. Derivative financial instruments are used to manage certain exposures to fluctuations in exchange rates, interest rates and commodity prices. The Company does not enter into derivative financial agreements for speculative purposes.
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.
22.Comparative figures
Certain of the comparative figures have been reclassified to conform to the unaudited interim consolidated financial statement presentation adopted in the current period.
