Form 6-K Algonquin Power & Utilities Corp.

6-K - Report of foreign issuer [Rules 13a-16 and 15d-16]

Published: 2018-08-09 20:21:24
Submitted: 2018-08-10
Period Ending In: 2018-07-03
a2017q4usd-6kcoverpage.htm 6-K COVER




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 6-K
_______________________
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934

Date: August
, 2018
Commission File Number:
001-37946
_______________________
Algonquin Power & Utilities Corp.
(Translation of registrant’s name into English)
_______________________
354 Davis Road
Oakville, Ontario, L6J 2X1, Canada
(Address of principal executive offices)
_______________________
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F
    
Form 40-F x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Indicate by check mark whether by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes
    
No x
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-













EXPLANATORY NOTE

Effective January 1, 2018, Algonquin Power & Utilities Corp. (the “Company”) revised its financial statements to use U.S. dollars as its reporting currency. Consistent with this change, the Company is amending and refiling its financial statements and MD&A as reported in its Annual Report on Form 40-F, filed on March 8, 2018, to retrospectively apply the revisions to its reporting currency. Note 1(a) to the amended financial statements describes the revisions to the financial statements due to the effects of changes in the Company’s reporting currency, adoption of the applicable new accounting principles and updates to subsequent events disclosure.

This Report on Form 6-K shall be deemed to be incorporated by reference into the Company’s registration statements on Form S-8 (Nos. 333-177418, 333-213648, 333-213650 and 333-218810), Form F-10 (No. 333-216616) and Form F-3D (No. 333-220059) and be deemed a part thereof from the date on which this report is furnished, except to the extent superseded by documents or reports subsequently filed or furnished.


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 
 
ALGONQUIN POWER & UTILITIES CORP.
(Registrant)
 
 
 
Date: August 9, 2018
 
By:
 
/s/ David Bronicheski
 
 
Name:
 
David Bronicheski
 
 
Title:
 
Chief Financial Officer





EXHIBIT INDEX

99.1

 
 
Audited Annual Financial Statements of the Registrant for the years ended December 31, 2017 and 2016, reissued to reflect the change in reporting currency to the U.S. dollar
 
 
99.2

 
 
Management’s Discussion and Analysis for the years ended December 31, 2017 and 2016
 
 
99.3

 
 
Consent Letter from Ernst & Young, LLP
 
 
 
 
99.4

 
 
Interactive Data File
 
 




a2017q4usd-exhibit991xfina.htm EXHIBIT 99.1 REISSUED FINANCIAL STATEMENTS FOR 2016 AND 2017


Consolidated Financial Statements of
Algonquin Power & Utilities Corp.
For the years ended December 31, 2017 and 2016

Reissued to reflect the change in reporting currency to the U.S. dollar (note 1(a))



MANAGEMENT’S REPORT
Financial Reporting
The preparation and presentation of the accompanying Consolidated Financial Statements, MD&A and all financial information in the Financial Statements are the responsibility of management and have been approved by the Board of Directors. The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. Financial statements, by nature include amounts based upon estimates and judgments. When alternative accounting methods exist, management has chosen those it deems most appropriate in the circumstances. Management has prepared the financial information presented elsewhere in this document and has ensured that it is consistent with that in the consolidated financial statements.
The Board of Directors and its committees are responsible for all aspects related to governance of the Company. The Audit Committee of the Board of Directors, composed of directors who are unrelated and independent, has a specific responsibility to oversee management’s efforts to fulfill its responsibilities for financial reporting and internal controls related thereto. The Committee meets with management and independent auditors to review the consolidated financial statements and the internal controls as they relate to financial reporting. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to the shareholders.
Internal Control over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on the framework established in
Internal Control
Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017.
During the year ended December 31, 2017, APUC acquired The Empire District Electric Company and its subsidiaries ("Empire"). The financial information for this acquisition is included in note 3(a) to the consolidated financial statements. As permitted by National Instrument 52-109 and published guidance of the U.S. Securities and Exchange Commission (SEC), management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Empire, which are included in the 2017 consolidated financial statements of Algonquin Power and Utilities Corp. and constituted
$2,495,138
of total assets as at December 31, 2017 and
$627,023
of revenues for the year then ended.
March 7, 2018
 
/s/ Ian Robertson            
 
/s/ David Bronicheski        
Chief Executive Officer
 
Chief Financial Officer




REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of Algonquin Power & Utilities Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Algonquin Power & Utilities Corp. (the “Company”), which comprise the consolidated balance sheets as at December 31, 2017 and December 31, 2016, the consolidated statements of operations, comprehensive income, equity and cash flows for the years then ended, and the related notes, comprising a summary of significant accounting policies and other explanatory information (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2017 and December 31, 2016, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with United States generally accepted accounting principles.
Report on internal control over financial reporting
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 7, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with United States generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement, whether due to error or fraud. Those standards also require that we comply with ethical requirements, including independence. We are required to be independent with respect to the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We are a public accounting firm registered with the PCAOB.
An audit includes performing procedures to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included obtaining and examining, on a test basis, audit evidence regarding the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances.
An audit also includes evaluating the appropriateness of accounting policies and principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a reasonable basis for our audit opinion.
/s/ Ernst & Young LLP        
 
 
 
 
 
We have served as the Company‘s auditor since 2013.
 
 
Toronto, Canada
 
 
March 7, 2018
 
 
(except for note 1(a) and the post March 7, 2018 subsequent events discussed in notes 3, 7, 8, 9, 15, 19, 20 and 25, as to which the date is August 9, 2018)
 
 



REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of Algonquin Power & Utilities Corp.
Opinion on Internal Control over Financial Reporting
We have audited Algonquin Power & Utilities Corp.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, Algonquin Power & Utilities Corp. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as at December 31, 2017 and December 31, 2016, the consolidated statements of operations, comprehensive income, equity and cash flows for the years then ended, and the related notes, comprising a summary of significant accounting policies and other explanatory information and our report dated March 7, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated under the heading Internal Controls over Financial Reporting in Management’s Report, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Empire District Electric Corp. and its subsidiaries (“Empire”), which are included in the 2017 consolidated financial statements of the Company and constituted
$2,495,138
of total assets as at December 31, 2017 and
$627,023
of revenues, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Empire.
/s/ Ernst & Young LLP        
 
 
Toronto, Canada
 
 
March 7, 2018
 
 




Algonquin Power & Utilities Corp.
Consolidated Balance Sheets

(thousands of U.S. dollars - note 1(a))
 
 
 
 
December 31, 2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
43,484

 
$
82,235

Accounts receivable, net (note 4)
244,617

 
141,251

Fuel and natural gas in storage (note 1(h))
44,414

 
16,105

Supplies and consumables inventory
45,074

 
11,595

Regulatory assets (note 7)
66,567

 
36,077

Prepaid expenses
31,005

 
19,783

Derivative instruments (note 25)
16,099

 
57,072

Other assets (note 12)
7,110

 
2,198

 
498,370

 
366,316

Property, plant and equipment, net (note 5)
6,304,897

 
3,641,865

Intangible assets, net (note 6)
51,103

 
48,401

Goodwill (note 6)
954,282

 
228,377

Regulatory assets (note 7)
372,759

 
181,368

Derivative instruments (note 25)
54,115

 
55,524

Long-term investments (note 8)
67,331

 
78,523

Deferred income taxes (note 20)
61,357

 
22,281

Restricted cash (note 1(f))
15,939

 
1,509,036

Other assets (note 12)
17,255

 
12,165

 
$
8,397,408

 
$
6,143,856





Algonquin Power & Utilities Corp.
Consolidated Balance Sheets

(thousands of U.S. dollars - note 1(a))
 
 
 
 
December 31, 2017
 
December 31, 2016
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
119,887

 
$
67,449

Accrued liabilities
280,144

 
229,600

Dividends payable (note 17)
50,445

 
29,026

Regulatory liabilities (note 7)
37,687

 
35,577

Long-term debt (note 9)
12,364

 
7,503

Other long-term liabilities (note 13)
45,903

 
32,141

Derivative instruments (note 25)
14,126

 
3,111

Other liabilities
3,474

 
2,644

 
564,030

 
407,051

Long-term debt (note 9)
3,067,187

 
2,907,083

Convertible debentures (note 14)
971

 
267,088

Regulatory liabilities (note 7)
540,278

 
100,517

Deferred income taxes (note 20)
399,148

 
214,639

Derivative instruments (note 25)
54,818

 
77,938

Pension and other post-employment benefits obligation (note 10)
168,189

 
110,110

Other long-term liabilities (note 13)
227,267

 
173,120

Preferred shares, Series C (note 11)
13,867

 
13,072

 
4,471,725

 
3,863,567

Redeemable non-controlling interest (note 19)
41,553

 
21,922

Equity:
 
 
 
Preferred shares (note 15(b))
184,299

 
184,299

Common shares (note 15(a))
3,021,699

 
1,674,591

Additional paid-in capital
38,569

 
34,892

Deficit
(524,311
)
 
(478,343
)
Accumulated other comprehensive income (loss) (note 16)
(2,792
)
 
17,051

Total equity attributable to shareholders of Algonquin Power & Utilities Corp.
2,717,464

 
1,432,490

Non-controlling interests (note 19)
602,636

 
418,826

Total equity
3,320,100

 
1,851,316

Commitments and contingencies (note 23)

 

Subsequent events (notes 3, 7, 8, 9, 15, 19, 20 and 25)

 

 
$
8,397,408

 
$
6,143,856

See accompanying notes to consolidated financial statements





Algonquin Power & Utilities Corp.
Consolidated Statements of Operations
 
(thousands of U.S. dollars (note 1(a)), except per share amounts)
Year ended December 31
 
2017
 
2016
Revenue
 
 
 
Regulated electricity distribution
$
763,501

 
$
171,676

Regulated gas distribution
378,651

 
302,447

Regulated water reclamation and distribution
140,082

 
137,437

Non-regulated energy sales
217,542

 
183,338

Other revenue
24,007

 
28,106

 
1,523,783

 
823,004

Expenses
 
 
 
Operating expenses
461,111

 
251,152

Regulated electricity purchased
222,443

 
89,998

Regulated gas purchased
141,689

 
105,006

Regulated water purchased
9,503

 
9,241

Non-regulated energy purchased
19,590

 
15,988

Administrative expenses
49,640

 
35,118

Depreciation and amortization
251,314

 
141,016

Loss (gain) on foreign exchange
323

 
(438
)
 
1,155,613

 
647,081

Operating income
368,170

 
175,923

Interest expense on long-term debt and others
142,439

 
55,665

Interest expense on convertible debentures and amortization of acquisition financing (notes 9(b) and 14)
13,383

 
43,915

Interest, dividend, equity and other income
(9,238
)
 
(7,964
)
Other losses (gains) (note 23(a))
664

 
(9,126
)
Acquisition-related costs
47,708

 
8,993

Gain on derivative financial instruments (note 25(b)(iv))
(1,918
)
 
(11,889
)
 
193,038

 
79,594

Earnings before income taxes
175,132

 
96,329

Income tax expense (note 20)
 
 
 
Current
7,517

 
6,363

Deferred
65,910

 
21,380

 
73,427

 
27,743

Net earnings
101,705

 
68,586

Net effect of non-controlling interests (note 19)
47,770

 
29,284

Net earnings attributable to shareholders of Algonquin Power & Utilities Corp.
$
149,475

 
$
97,870

Series A and D Preferred shares dividend (note 17)
8,020

 
7,933

Net earnings attributable to common shareholders of Algonquin Power & Utilities Corp.
$
141,455

 
$
89,937

Basic net earnings per share (note 21)
$
0.37

 
$
0.33

Diluted net earnings per share (note 21)
$
0.37

 
$
0.33

See accompanying notes to consolidated financial statements




Algonquin Power & Utilities Corp.
Consolidated Statements of Comprehensive Income
 
(thousands of U.S. dollars -note 1(a))
Year ended December 31
 
2017
 
2016
Net earnings
$
101,705

 
$
68,586

Other comprehensive income (loss):
 
 
 
Foreign currency translation adjustment, net of tax recovery of $169 and $nil, respectively (notes 1(v), 25(b)(iii) and 25(b)(iv))
(21,753
)
 
(1,271
)
Change in fair value of cash flow hedges, net of tax expense of $599 and $13,344, respectively (note 25(b)(ii))
1,626

 
19,715

Change in value of available-for-sale investments
(65
)
 
121

Change in pension and other post-employment benefits, net of tax expense of $512 and $1,043, respectively (note 10)
376

 
1,695

Other comprehensive income (loss), net of tax
(19,816
)
 
20,260

Comprehensive income
81,889

 
88,846

Comprehensive loss attributable to the non-controlling interests
(47,743
)
 
(29,293
)
Comprehensive income attributable to shareholders of Algonquin Power & Utilities Corp.
$
129,632

 
$
118,139

See accompanying notes to consolidated financial statements
Algonquin Power & Utilities Corp.
Consolidated Statement of Equity

 
(thousands of U.S. dollars - note 1(a))
For the year ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, December 31, 2016
$
1,674,591

 
$
184,299

 
$
34,892

 
$
(478,343
)
 
$
17,051

 
$
418,826

 
$
1,851,316

Net earnings (loss)

 

 

 
149,475

 

 
(47,770
)
 
101,705

Redeemable non-controlling interests not included in equity (note 19)

 

 

 

 

 
10,358

 
10,358

Other comprehensive loss

 

 

 

 
(19,843
)
 
27

 
(19,816
)
Dividends declared and distributions to non-controlling interests

 

 

 
(158,064
)
 

 
(3,860
)
 
(161,924
)
Dividends and issuance of shares under dividend reinvestment plan (note 15(a)(iii))
35,873

 

 

 
(35,873
)
 

 

 

Common shares issued pursuant to public offering, net of costs (note 15(a)(i))
440,024

 

 

 

 

 

 
440,024

Common shares issued upon conversion of convertible debentures (note 14)
855,691

 

 

 

 

 

 
855,691

Common shares issued pursuant to share-based awards (note 15(c))
15,520

 

 
(4,910
)
 
(1,506
)
 

 

 
9,104

Share-based compensation (note 15(c))

 

 
8,587

 

 

 

 
8,587

Contributions received from non-controlling interests (notes 3(c), 3(g) and 8(b))

 

 

 

 

 
225,055

 
225,055

Balance, December 31, 2017
$
3,021,699

 
$
184,299

 
$
38,569

 
$
(524,311
)
 
$
(2,792
)
 
$
602,636

 
$
3,320,100






Algonquin Power & Utilities Corp.
Consolidated Statement of Equity

 
(thousands of U.S. dollars -note 1(a))
For the year ended December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Algonquin Power & Utilities Corp. Shareholders
 
 
 
 
 
Common
shares
 
Preferred
shares
 
Subscription
receipts
 
Additional
paid-in
capital
 
Accumulated
deficit
 
Accumulated
OCI
 
Non-
controlling
interests
 
Total
Balance, December 31, 2015
$
1,538,738

 
$
184,299

 
$
95,253

 
$
34,654

 
$
(451,745
)
 
$
(3,218
)
 
$
257,803

 
$
1,655,784

Net earnings (loss)

 

 

 

 
97,870

 

 
(29,284
)
 
68,586

Redeemable non-controlling interests not included in equity (note 19)

 

 

 

 

 

 
3,767

 
3,767

Other comprehensive income

 

 

 

 

 
20,269

 
(9
)
 
20,260

Dividends declared and distributions to non-controlling interests

 

 

 

 
(95,170
)
 

 
(2,808
)
 
(97,978
)
Dividends and issuance of shares under dividend reinvestment plan
26,022

 

 

 

 
(26,022
)
 

 

 

Common shares issued upon conversion of subscription receipts
95,253

 

 
(95,253
)
 

 

 

 

 

Common shares issued pursuant to share-based awards (note 15(c))
14,578

 

 

 
(4,247
)
 
(3,276
)
 

 

 
7,055

Share-based compensation

 

 

 
4,485

 

 

 

 
4,485

Contributions received from non-controlling interests

 

 

 

 

 

 
9,147

 
9,147

Non-controlling interest of acquired operating entity (note 8(e))

 

 

 

 

 

 
180,210

 
180,210

Balance, December 31, 2016
$
1,674,591

 
$
184,299

 
$

 
$
34,892

 
$
(478,343
)
 
$
17,051

 
$
418,826

 
$
1,851,316

See accompanying notes to consolidated financial statements





Algonquin Power & Utilities Corp.
Consolidated Statements of Cash Flows
(thousands of U.S. dollars - note 1(a))
Year ended December 31
 
2017
 
2016
Cash provided by (used in):
 
 
 
Operating Activities
 
 
 
Net earnings from continuing operations
$
101,705

 
$
68,586

Adjustments and items not affecting cash:

 

Depreciation and amortization
256,775

 
147,748

Deferred taxes
65,910

 
21,380

Unrealized loss (gain) on derivative financial instruments
1,466

 
(13,910
)
Share-based compensation expense
8,292

 
4,485

Cost of equity funds used for construction purposes
(2,335
)
 
(2,100
)
Pension and post-employment contributions in excess of expense
(20,687
)
 
(10,179
)
Non-cash revenue and other income

 
(7,898
)
Distributions received from equity investments, net of income
2,420

 
485

Write-down of long-lived assets
740

 
4,731

Changes in non-cash operating items (note 24)
(85,011
)
 
16,146

 
329,275

 
229,474

Financing Activities
 
 
 
Increase in long-term debt
1,386,743

 
1,771,051

Decrease in long-term debt
(2,365,805
)
 
(51,678
)
Issuance of convertible debentures, net of costs
571,642

 
266,889

Cash dividends on common shares
(127,530
)
 
(88,491
)
Dividends on preferred shares
(8,020
)
 
(7,933
)
Contributions from non-controlling interests
248,229

 
9,990

Production-based cash contributions from non-controlling interest
7,930

 
6,857

Distributions to non-controlling interests
(3,186
)
 
(3,263
)
Issuance of common shares, net of costs
438,810

 
1,248

Proceeds from settlement of derivative assets
36,676

 

Proceeds from exercise of share options
9,563

 
14,215

Shares surrendered to fund withholding taxes on exercised share options
(3,310
)
 
(4,020
)
Increase in other long-term liabilities
25,448

 
4,894

Decrease in other long-term liabilities
(6,709
)
 
(3,221
)
 
210,481

 
1,916,538

Investing Activities
 
 
 
Decrease (increase) in restricted cash
1,497,756

 
(1,495,345
)
Acquisitions of operating entities
(1,524,725
)
 
(311,045
)
Divestiture of operating entity
83,863

 

Additions to property, plant and equipment
(565,103
)
 
(311,855
)
Increase in other assets
(7,239
)
 
(15,429
)
Receipt of principal on notes receivable

 
239,970

Increase in long-term investments
(63,656
)
 
(261,423
)
 
(579,104
)
 
(2,155,127
)
Effect of exchange rate differences on cash
597

 
1,164

Decrease in cash and cash equivalents
(38,751
)
 
(7,951
)
Cash and cash equivalents, beginning of year
82,235

 
90,186

Cash and cash equivalents, end of year
$
43,484

 
$
82,235

 
 
 
 
Supplemental disclosure of cash flow information:
2017
 
2016
Cash paid during the year for interest expense
$
166,773

 
$
99,836

Cash paid during the year for income taxes
$
8,633

 
$
9,955

Non-cash financing and investing activities:
 
 
 
Property, plant and equipment acquisitions in accruals
$
112,959

 
$
108,960

Issuance of common shares under dividend reinvestment plan and share-based compensation plans
$
38,724

 
$
27,193

Issuance of common shares upon conversion of convertible debentures
$
846,271

 
$

Issuance of common shares upon conversion of subscription receipts
$

 
$
95,253

Acquisition of equity investments in exchange for loan receivable and payable
$
1,813

 
$
19,601

See accompanying notes to consolidated financial statements


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

Algonquin Power & Utilities Corp. (“APUC” or the “Company”) is an incorporated entity under the Canada Business Corporations Act. APUC's operations are organized across
two
primary North American business units consisting of the
Liberty Power Group
and the
Liberty Utilities Group
. The
Liberty Power Group
("
Liberty Power Group
") owns and operates a diversified portfolio of non-regulated renewable and thermal electric generation utility assets; the
Liberty Utilities Group
("Liberty Utilities Group") owns and operates a portfolio of regulated electric, natural gas, water distribution and wastewater collection utility systems and transmission operations.
1.
Significant accounting policies
(a)
Basis of preparation
The accompanying 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.
The reporting currency used to prepare these consolidated financial statements and notes is U.S. dollars. Amounts denominated in Canadian dollars within the notes to these consolidated financial statements are denoted with "C$" immediately prior to the stated amount. The 2017 and 2016 financial statements were translated as if the U.S. dollar had been used as the reporting currency since the beginning of 2015. The previously issued 2017 and 2016 consolidated financial statements were prepared using the Canadian dollar as the reporting currency. The Company believes that the change in reporting currency to U.S. dollars provides more relevant information for the users of the consolidated financial statements as over 90% of the Company's consolidated revenues and assets are derived from operations in the United States.  
(b)
Basis of consolidation
The accompanying consolidated financial statements of APUC include the accounts of APUC, its wholly owned subsidiaries and variable interest entities (“VIEs”) where the Company is the primary beneficiary (note 1(m)). Intercompany transactions and balances have been eliminated. Interests in subsidiaries owned by third parties are included in non-controlling interests (note 1(r)).
(c)
Business combinations, intangible assets and goodwill
The Company accounts for acquisitions of entities or assets which meet the definition of a business as business combinations. The determination of whether the definition of a business has been met for a development stage project depends on the stage of development (permitting, customer contracting, financing, construction) and the significance of the development risk with respect to achieving commercial operation. Business combinations are accounted for using the acquisition method. Assets acquired and liabilities assumed are measured at their fair value at the acquisition date. Acquisition costs are expensed in the period incurred. When the set of activities does not represent a business, the transaction is accounted for as an asset acquisition and includes acquisitions costs.
Intangible assets acquired are recognized separately at fair value if they arise from contractual or other legal rights or are separable. Power sales contracts are amortized on a straight-line basis over the remaining term of the contract ranging from
6
to
25
years from the date of acquisition. Interconnection agreements are amortized on a straight-line basis over their estimated life of
40
years. Customer relationships are amortized on a straight-line basis over their estimated life of
40
years.
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net assets acquired. Goodwill is not included in the rate-base on which regulated utilities are allowed to earn a return and is not amortized.
As at September 30 of each year, the Company assesses qualitative and quantitative factors to determine whether it is more likely than not that the fair value of a reporting unit to which goodwill is attributed is less than its carrying amount. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount or if a quantitative assessment is elected, the Company calculates the fair value of the reporting unit. The carrying amount of the reporting unit’s goodwill is considered not recoverable if the carrying amount of the reporting unit as a whole exceeds the reporting unit’s fair value. An impairment charge is recorded for any excess of the carrying value of the goodwill over the implied fair value. Goodwill is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(d)
Accounting for rate regulated operations
The regulated utility operating companies owned by the Company are subject to rate regulation generally overseen by the public utility commission of the states in which they operate (the “Regulator”). The Regulator provides the final determination of the rates charged to customers. APUC’s regulated utility operating companies are accounted for under the principles of U.S. Financial Accounting Standards Board (“FASB”) ASC Topic 980, Regulated Operations (“ASC 980”). Under ASC 980, regulatory assets and liabilities 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 making process. Included in note 7 “Regulatory matters” are details of regulatory assets and liabilities, and their current regulatory treatment.
In the event the Company determines that its net regulatory assets are not probable of recovery, it would no longer apply the principles of the current accounting guidance for rate regulated enterprises and would be required to record an after-tax, non-cash charge or credit against earnings for any remaining regulatory assets or liabilities. The impact could be material to the Company’s reported financial condition and results of operations.
The electric, gas and water utilities’ accounts are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (“FERC”), the Regulator and National Association of Regulatory Utility Commissioners. 
(e)
Cash and cash equivalents
Cash and cash equivalents include all highly liquid instruments with an original maturity of three months or less.
(f)
Restricted cash
Restricted cash represents reserves and amounts set aside pursuant to requirements of various debt agreements and requirements of ISO New England, Inc. As of December 31, 2016, restricted cash also included cash of
$1,495,774
transferred to a paying agent for purposes of distribution to holders of common shares of The Empire District Electric Company and its subsidiaries (“Empire”) on January 1, 2017 (note 3(a)). Cash reserves segregated from APUC’s cash balances are maintained in accounts administered by a separate agent and disclosed separately as restricted cash in these consolidated financial statements. APUC cannot access restricted cash without the prior authorization of parties not related to APUC.
(g)
Accounts receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount of receivables in dispute, and the receivables aging and current payment patterns. Account balances are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.
(h)
Fuel and natural gas in storage
Fuel and natural gas in storage is reflected at weighted average cost or first-in-first-out as required by regulators and represents fuel, natural gas and liquefied natural gas that will be utilized in the ordinary course of business of the gas utilities and some generating facilities. Existing rate orders (note 7(d)) and other contracts allow the Company to pass through the cost of gas purchased directly to the customers along with any applicable authorized delivery surcharge adjustments. Accordingly, the net realizable value of fuel and gas in storage does not fall below the cost to the Company.




Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(i)
Supplies and consumables inventory
Supplies and consumables inventory (other than capital spares and rotatable spares, which are included in property, plant and equipment) are charged to inventory when purchased and then capitalized to plant or expensed, as appropriate, when installed, used or become obsolete. These items are stated at the lower of cost and net realizable value. Through rate orders and the regulatory environment, capitalized construction jobs are recovered through rate base and repair and maintenance expenses are recovered through a cost of service calculation. Accordingly, the cost usually reflects the net realizable value.
(j)
Property, plant and equipment
Property, plant and equipment are recorded at cost. Capitalization of development projects begins when management, together with the relevant authority, has authorized and committed to the funding of a project and it is probable that costs will be realized through the use of the asset or ultimate construction and operation of a facility. Project development costs for rate-regulated entities, including expenditures for preliminary surveys, plans, investigations, environmental studies, regulatory applications and other costs incurred for the purpose of determining the feasibility of capital expansion projects, are capitalized either as property, plant and equipment or regulatory asset when it is determined that recovery of such costs through regulated revenue of the completed project is probable.
The costs of acquiring or constructing property, plant and equipment include the following: materials, labour, contractor and professional services, construction overhead directly attributable to the capital project (where applicable), interest for non-regulated property and allowance for funds used during construction (“AFUDC”) for regulated property. Where possible, individual components are recorded and depreciated separately in the books and records of the Company. Plant and equipment under capital leases are initially recorded at cost determined as the present value of minimum lease payments.
AFUDC represents the cost of borrowed funds and a return on other funds. Under ASC 980, an allowance for funds used during construction projects that are included in rate base is capitalized. This allowance is designed to enable a utility to capitalize financing costs during periods of construction of property subject to rate regulation. For operations that do not apply regulatory accounting, interest related only to debt is capitalized as a cost of construction in accordance with ASC 835, Interest. The interest capitalized that relates to debt reduces interest expense on the consolidated statements of operations. The AFUDC capitalized that relates to equity funds is recorded as interest, dividend, equity and other income on the consolidated statements of operations. 
 
2017
 
2016
Interest capitalized on non-regulated property
$
4,325

 
$
2,457

AFUDC capitalized on regulated property:
 
 
 
Allowance for borrowed funds
1,297

 
884

Allowance for equity funds
2,335

 
2,100

Total
$
7,957

 
$
5,441

Improvements that increase or prolong the service life or capacity of an asset are capitalized. Cost incurred for major expenditures or overhauls that occur at regular intervals over the life of an asset are capitalized and depreciated over the related interval. Maintenance and repair costs are expensed as incurred.
Investment tax credits and government grants related to capital expenditures are recorded as a reduction to the cost of assets and are amortized at the rate of the related asset as a reduction to depreciation expense. Contributions in aid of construction represent amounts contributed by customers, governments and developers to assist with the funding of some or all of the cost of utility capital assets. It also includes amounts initially recorded as advances in aid of construction (note 13(a)) but where the advance repayment period has expired. These contributions are recorded as a reduction in the cost of utility assets and are amortized at the rate of the related asset as a reduction to depreciation expense. Investment tax credits and government grants related to operating expenses such as maintenance and repairs costs are recorded as a reduction of the related expense.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(j)
Property, plant and equipment (continued)
The Company’s depreciation is based on the estimated useful lives of the depreciable assets in each category and is determined using the straight-line method with the exception of certain wind assets, as described below. The ranges of estimated useful lives and the weighted average useful lives are summarized below:
 
Range of useful lives
 
Weighted average
useful lives
 
2017
 
2016
 
2017
 
2016
Generation
3 - 60
 
3 - 60
 
33
 
32
Distribution
5 - 100
 
5 - 100
 
40
 
41
Equipment
5 - 50
 
5 - 50
 
13
 
11
The Company uses the unit-of-production method for certain components of its wind generating facilities where the useful life of the component is directly related to the amount of production. The benefits of components subject to wear and tear from the power generation process are best reflected through the unit-of-production method. The Company generally uses wind studies prepared by third parties to estimate the total expected production of each component.
In accordance with regulator-approved accounting policies, when depreciable property, plant and equipment of
the Liberty Utilities Group
are replaced or retired, the original cost plus any removal costs incurred (net of salvage) are charged to accumulated depreciation with no gain or loss reflected in results of operations. Gains and losses will be charged to results of operations in the future through adjustments to depreciation expense. In the absence of regulator-approved accounting policies, gains and losses on the disposition of property, plant and equipment are charged to earnings as incurred. 
(k)
Commonly owned facilities
The Company owns undivided interests in
three
electric generating facilities with ownership interest ranging from
7.52%
to
60%
with a corresponding share of capacity and generation from the facility used to serve certain of its utility customers. The Company's investment in the undivided interest is recorded as plant in service and recovered through rate base. The Company's share of operating costs are recognized in operating, maintenance and fuel expenditures excluding depreciation expense.
As at December 31, 2017, the Company's consolidated balance sheet includes
$664,470
of cost of plant in service of and
$179,478
of accumulated depreciation related to commonly owned facilities. Total expenditures for the year ended December 31, 2017 were
$79,657
.
(l)
Impairment of long-lived assets
APUC reviews property, plant and equipment and intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.
Recoverability of assets expected to be held and used is measured by comparing the carrying amount of an asset to undiscounted expected future cash flows. If the carrying amount exceeds the recoverable amount, the asset is written down to its fair value.
(m)
Variable interest entities
The Company performs analysis to assess whether its operations and investments represent VIEs. To identify potential VIEs, management reviews contracts under leases, long-term purchase power agreements and jointly-owned facilities. VIEs of which the Company is deemed the primary beneficiary are consolidated. In circumstances where APUC is not deemed the primary beneficiary, the VIE is not consolidated (note 8).







Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(m)
Variable interest entities (continued)
The Company has equity and notes receivable interests in
two
power generating facilities. APUC has determined that both entities are considered a VIE mainly based on total equity at risk not being sufficient to permit the legal entity to finance its activities without additional subordinated financial support. The key decisions that affect the generating facilities’ economic performance relate to siting, permitting, technology, construction, operations and maintenance and financing. As APUC has both the power to direct the activities of the entities that most significantly impact its economic performance and the right to receive benefits or the obligation to absorb losses of the entities that could potentially be significant to the entity, the Company is considered the primary beneficiary.
Total net book value of generating assets and long-term debt of these facilities amounts to
$67,398
(2016 -
$64,935
) and
$28,628
(2016 -
$30,087
), respectively. The portion of long-term debt which has recourse to the Company is
$3,109
(2016 -
$5,139
). The financial performance of these facilities reflected on the consolidated statements of operations includes non-regulated energy sales of
$17,508
(2016 -
$22,013
), operating expenses and amortization of
$4,289
(2016 -
$4,667
) and interest expense of
$2,755
(2016 -
$3,070
).
(n)
Long-term investments and notes receivable
Investments in which APUC has significant influence but not control are accounted using the equity method. Equity-method investments are initially measured at cost including transaction costs and interest when applicable. APUC records its share in the income or loss of its investees in interest, dividend, equity and other income in the consolidated statements of operations.
Notes receivable are financial assets with fixed or determined payments that are not quoted in an active market. Notes receivable are initially recorded at cost, which is generally face value. Subsequent to acquisition, the notes receivable are recorded at amortized cost using the effective interest method. The Company acquired these notes receivable as long-term investments and does not intend to sell these instruments prior to maturity. Interest from long-term investments is recorded as earned and collectability of both the interest and principal are reasonably assured.
If a loss in value of a long-term investment is considered other than temporary, an allowance for impairment on the investment is recorded for the amount of that loss. An allowance for impairment loss on notes receivable is recorded if it is expected that the Company will not collect all principal and interest contractually due. The impairment is measured based on the present value of expected future cash flows discounted at the note’s effective interest rate.
(o)
Pension and other post-employment plans
The Company has established defined contribution pension plans, defined benefit pension plans, other post-employment benefit (“OPEB”), supplemental retirement program (“SERP”) plans for its various employee groups in Canada and the United States. Employer contributions to the defined contribution pension plans are expensed as employees render service. The Company recognizes the funded status of its defined benefit pension plans, OPEB and SERP plans on the consolidated balance sheets. The Company’s expense and liabilities are determined by actuarial valuations, using assumptions that are evaluated annually as of December 31, including discount rates, mortality, assumed rates of return, compensation increases, turnover rates and healthcare cost trend rates. The impact of modifications to those assumptions and modifications to prior services are recorded as actuarial gains and losses in accumulated other comprehensive income (“AOCI”) and amortized to net periodic cost over future periods using the corridor method. The costs of the Company’s pension for employees are expensed over the periods during which employees render service and are recognized as part of administrative expenses in the consolidated statements of operations.








Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(p)
Asset retirement obligations
The Company recognizes a liability for asset retirement obligations based on the fair value of the liability when incurred, which is generally upon acquisition, during construction or through the normal operation of the asset. Concurrently, the Company also capitalizes an asset retirement cost, equal to the estimated fair value of the asset retirement obligation, by increasing the carrying value of the related long-lived asset. The asset retirement costs are depreciated over the asset’s estimated useful life and are included in depreciation and amortization expense on the consolidated statements of operations, or regulatory assets when the amount is recoverable through rates. Increases in the asset retirement obligation resulting from the passage of time are recorded as accretion of asset retirement obligation in the consolidated statements of operations, or regulatory assets when the amount is recoverable through rates. Actual expenditures incurred are charged against the obligation.
(q)
Share-based compensation
The Company has several share-based compensation plans: a share option plan; an employee share purchase plan (“ESPP”); a deferred share unit (“DSU”) plan; and a performance share unit (“PSU”) plan. Equity classified awards are measured at the grant date fair value of the award. The Company estimates grant date fair value of options using the Black-Scholes option pricing model. The fair value is recognized over the vesting period of the award granted, adjusted for estimated forfeitures. The compensation cost is recorded as administrative expense in the consolidated statements of operations and additional paid-in capital in equity. Additional paid-in capital is reduced as the awards are exercised, and the amount initially recorded in additional paid-in capital is credited to common shares.
(r)
Non-controlling interests
Non-controlling interests represent the portion of equity ownership in subsidiaries that is not attributable to the equity holders of APUC. Non-controlling interests are initially recorded at fair value and subsequently adjusted for the proportionate share of earnings and other comprehensive income (“OCI”) attributable to the non-controlling interests and any dividends or distributions paid to the non-controlling interests.
If a transaction results in the acquisition of all, or part, of a non-controlling interest in a consolidated subsidiary, the acquisition of the non-controlling interest is accounted for as an equity transaction.
No
gain or loss is recognized in net earnings or comprehensive income as a result of changes in the non-controlling interest, unless a change results in the loss of control by the Company.
Certain of the Company’s U.S. based wind and solar businesses are organized as limited liability corporations ("LLC") and partnerships and have non-controlling Class A membership equity investors (“Class A partnership units” or "Class A Equity Investors") which are entitled to allocations of earnings, tax attributes and cash flows in accordance with contractual agreements. These LLC and partnership's agreements have liquidation rights and priorities that are different from the underlying percentages ownership interests. In those situations,
simply applying the percentage ownership interest to GAAP net income in order to determine earnings or losses would not accurately represent the income allocation and cash flow distributions that will ultimately be received by the investors. As such, the share of earnings attributable to the non-controlling interest holders in these entities is calculated using the Hypothetical Liquidation at Book Value (“HLBV”) method of accounting (note 19).
The HLBV method uses a balance sheet approach. A calculation is prepared at each balance sheet date to determine the amount that Class A Equity Investors would receive if an equity investment entity were to liquidate all of its assets and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period is the Class A Equity Investors' share of the earnings or losses from the investment for that period. Due to certain mandatory liquidation provisions of the LLC and partnership agreements, this could result in a net loss to APUC’s consolidated results in periods in which the Class A Equity Investors report net income. The calculation varies in its complexity depending on the capital structure and the tax considerations of the investments.




Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(r)
Non-controlling interests (continued)
Equity instruments subject to redemption upon the occurrence of uncertain events not solely within APUC’s control are classified as temporary equity on the consolidated balance sheets. The Company records temporary equity at issuance based on cash received less any transaction costs. As needed, the Company reevaluates the classification of its redeemable instruments, as well as the probability of redemption. If the redemption amount is probable or currently redeemable, the Company records the instruments at their redemption value. Increases or decreases in the carrying amount of a redeemable instrument are recorded within deficit. When the redemption feature lapses or other events cause the classification of an equity instrument as temporary equity to be no longer required, the existing carrying amount of the equity instrument is reclassified to permanent equity at the date of the event that caused the reclassification.
(s)
Recognition of revenue
Revenue derived from non-regulated energy generation sales, which are mostly under long-term power purchase contracts, is recorded at the time electrical energy is delivered.
Qualifying renewable energy projects receive renewable energy credits ("REC") and solar renewable energy credits (“SRECs”) for the generation and delivery of renewable energy to the power grid. The energy credit certificates represent proof that
1
MW of electricity was generated from an eligible energy source. The REC and SREC can be traded and the owner of the REC or SREC can claim to have purchased renewable energy. RECs and SRECs are primarily sold under fixed contracts, and revenue for these contracts is recognized at the time of generation. Any REC's or SRECs generated above contracted amounts are held in inventory, with the offset recorded as a decrease in operating expenses.
Revenue related to utility electricity and natural gas sales and distribution are recorded when the electricity or natural gas is delivered. At the end of each month, the electricity and natural gas delivered to the customers from the date of their last meter read to the end of the month is estimated and the corresponding unbilled revenue is recorded. These estimates of unbilled revenue and sales are based on the ratio of billable days versus unbilled days, amount of electricity or natural gas procured during that month, historical customer class usage patterns, weather, line loss, unaccounted-for gas and current tariffs.
Revenue for certain of the Company’s regulated utilities is subject to revenue decoupling mechanisms approved by their respective regulators which require to charge approved annual delivery revenue on a systematic basis over the fiscal year. As a result, the difference between delivery revenue calculated based on metered consumption and approved delivery revenue is recorded as a regulatory asset or liability to reflect future recovery or refund, respectively, from customers (note 7(e)).
Water reclamation and distribution revenues are recorded when water is processed or delivered to customers. At the end of each month, the water delivered and wastewater collected from the customers from the date of their last meter read to the end of the month is estimated and the corresponding unbilled revenue is recorded. These estimates of unbilled revenue are based on the ratio of billable days versus unbilled days, amount of water procured and collected during that month, historical customer class usage patterns and current tariffs.
On occasion, a utility is permitted to implement new rates that have not been formally approved by the regulatory commission, which are subject to refund. The Company recognizes revenue based on the interim rates and if needed, establishes a reserve for amounts that could be refunded based on experience for the jurisdiction in which the rates were implemented.
Revenue is recorded net of sales taxes.








Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(t)
Foreign currency translation
The Company’s Canadian operations are determined to have the Canadian dollar as their functional currency since the preponderance of operating, financing and investing transactions are denominated in Canadian dollars. The financial statements of these operations are translated into U.S. dollars using the current rate method, whereby assets and liabilities are translated at the rate prevailing at the balance sheet date, and revenue and expenses are translated using average rates for the period.
Unrealized gains or losses arising as a result of the translation of the financial statements of these entities are reported as a component of OCI and are accumulated in a component of equity on the consolidated balance sheets, and are not recorded in income unless there is a complete or substantially complete sale or liquidation of the investment.
(u)
Income taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded against deferred tax assets to the extent that it is considered more likely than not that the deferred tax asset will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the date of enactment (note 20). Investment tax credits for our rate regulated operations are deferred and amortized as a reduction to income tax expense over the estimated useful lives of the properties. Other income tax credits are treated as a reduction to income tax expense in the year the credit arises or future periods to the extent that realization of such benefit is more likely than not.
The organizational structure of APUC and its subsidiaries is complex and the related tax interpretations, regulations and legislation in the tax jurisdictions in which they operate are continually changing. As a result, there can be tax matters that have uncertain tax positions. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than
50%
likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
(v)
Financial instruments and derivatives
Accounts receivable and notes receivable are measured at amortized cost. Long-term debt and Series C preferred shares are measured at amortized cost using the effective interest method, adjusted for the amortization or accretion of premiums or discounts.
Transaction costs that are directly attributable to the acquisition of financial assets are accounted for as part of the asset’s carrying value at inception. Transaction costs related to a recognized debt liability are presented in the consolidated balance sheets as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts and premiums. Costs of arranging the Company’s revolving credit facilities and intercompany loans are recorded in other assets. Deferred financing costs, premiums and discounts on long-term debt are amortized using the effective interest method while deferred financing costs relating to the revolving credit facilities and intercompany loans are amortized on a straight-line basis over the term of the respective instrument.
The Company uses derivative financial instruments as one method to manage exposures to fluctuations in exchange rates, interest rates and commodity prices. APUC recognizes all derivative instruments as either assets or liabilities on the consolidated balance sheets at their respective fair values. The fair value recognized on derivative instruments executed with the same counterparty under a master netting arrangement are presented on a gross basis on the consolidated balance sheets. The amounts that could net settle are not significant. The Company applies hedge accounting to some of its financial instruments used to manage its foreign currency risk exposure, interest risk and price risk exposure associated with sales of generated electricity.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

1.
Significant accounting policies (continued)
(v)
Financial instruments and derivatives (continued)
For derivatives designated in a cash flow hedge relationship, the effective portion of the change in fair value is recognized in OCI. The ineffective portion is immediately recognized in earnings. The amount recognized in AOCI is reclassified to earnings in the same period as the hedged cash flows affect earnings under the same line item in the consolidated statements of operations as the hedged item. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The amount remaining in AOCI is transferred to the consolidated statements of operations in the same period that the hedged item affects earnings. If the forecasted transaction is no longer expected to occur, then the balance in AOCI is recognized immediately in earnings.
Foreign currency gain or loss on derivative or financial instruments designated as a hedge of the foreign currency exposure of a net investment in foreign operations that are effective as a hedge are reported in the same manner as the translation adjustment (in OCI) related to the net investment. To the extent that the hedge is ineffective, such differences are recognized in earnings.
The Company’s electric distribution and thermal generation facilities enter into power and gas purchase contracts for load serving and generation requirements. These contracts meet the exemption for normal purchase and normal sales and as such, are not required to be recorded at fair value as derivatives and are accounted for on an accrual basis. Counterparties are evaluated on an ongoing basis for non-performance risk to ensure it does not impact the conclusion with respect to this exemption.
(w)
Fair value measurements
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
(x)
Commitments and contingencies
Liabilities for loss contingencies arising from environmental remediation, claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.
(y)
Use of estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of these consolidated financial statements and the reported amounts of revenue and expenses during the year. Actual results could differ from those estimates. During the years presented, management has made a number of estimates and valuation assumptions, including the useful lives and recoverability of property, plant and equipment, intangible assets and goodwill; the recoverability of notes receivable and long-term investments; the measurement of deferred taxes and the recoverability of deferred tax assets; assessments of unbilled revenue; pension and OPEB obligations; timing effect of regulated assets and liabilities; contingencies related to environmental matters; the fair value of assets and liabilities acquired in a business combination; and, the fair value of financial instruments. These estimates and valuation assumptions are based on present conditions and management’s planned course of action, as well as assumptions about future business and economic conditions. Should the underlying valuation assumptions and estimates change, the recorded amounts could change by a material amount.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

2.     Recently issued accounting pronouncements
(a)
Recently adopted accounting pronouncements
The FASB issued ASU 2016-17 Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. This update amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The adoption of this update in the first quarter of 2017 had no impact on the Company's consolidated financial statements.
The FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718), to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of this update in the first quarter of 2017 had no material impact on the Company's consolidated financial statements. The Company continues to record the stock-based compensation expense adjusted for estimated forfeitures.
The FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts, which is one of the criteria for bifurcating an embedded derivative. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The adoption of this update in the first quarter of 2017 had no impact on the Company's consolidated financial statements.
The FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The adoption of this update in the first quarter of 2017 had no impact on the Company's consolidated financial statements.
The FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, to simplify the subsequent measurement of inventory by replacing the current lower of cost and market test with a lower of cost and net realizable value test. The adoption of this update in the first quarter of 2017 had no impact on the Company's consolidated financial statements.
(b)
Recently issued accounting guidance not yet adopted
The FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. The Company is currently assessing the impacts of this update.
The FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The update also makes certain targeted improvements to simplify the application of the hedge accounting guidance. The update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted in any interim period after issuance of the update. The Company is currently assessing the impacts of this update. The Company expects to early adopt this update on January 1, 2018.
The FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The Company applies the guidance in this update for modifications subsequent to December 15, 2017.




Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

2.     Recently issued accounting pronouncements (continued)
(b)
Recently issued accounting guidance not yet adopted (continued)
The FASB issued ASU 2017-07 Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, to improve the reporting of defined benefit pension cost and post-retirement benefit cost ("net benefit cost") in the financial statements. This update requires the service cost component to be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The update will also only allow the service cost component to be eligible for capitalization when applicable. The Company will adopt this guidance effective January 1, 2018. Following the effective date of this ASU, the Company expects its regulated operations to only capitalize the service costs component and therefore no regulatory to U.S. GAAP reporting differences are anticipated. The Company intends to apply the practical expedient for retrospective application on the statement of operations.
The FASB issued ASU 2017-05 Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The update clarifies the scope of the standard as well as provides additional guidance on partial sales of nonfinancial assets. The update is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted however the update must be adopted at the same time as ASU 2014-09. No impact on the consolidated financial statements is expected from the adoption of this update.
The FASB issued ASU 2017-04 Business Combinations (Topic 350): Intangibles - Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. The update is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The standard is effective for fiscal years and interim periods beginning after December 15, 2019.
The FASB issued ASU 2017-01 Business Combinations (Topic 805): Clarifying the Definition of a Business. The update is intended to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. The amendments in the Update should be applied prospectively. The Company will follow the pronouncements of this Update after the effective date.
The FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash to eliminate current diversity in practice in the classification and presentation of changes in restricted cash on the statement of cash flows. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. The Company currently present changes in restricted cash as investing activities. The adoption of this standard will change the presentation of restricted cash on the consolidated statement of cash flows.
The FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The new standard requires the recognition of current and deferred income taxes for an intra-entity transfer of an asset other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes on these transactions until the asset has been sold to an outside party. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. No impact on the consolidated financial statements is expected from the adoption of this Update.
The FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments in order to eliminate current diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. No impact on the consolidated financial statements is expected from the adoption of this Update.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

2.     Recently issued accounting pronouncements (continued)
(b)
Recently issued accounting guidance not yet adopted (continued)
The FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses. The standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption for fiscal years and interim periods beginning after December 15, 2018 is permitted. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements. The Company does not expect a significant impact on its consolidated financial statements as a result of the adoption of this Update.
The FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations utilizing leases. This ASU requires lessees to recognize the assets and liabilities arising from all leases on the balance sheet, but the effect of leases in the statement of operations and the statement of cash flows is largely unchanged. The FASB issued an amendment to ASC Topic 842 which permits companies to elect an optional transition practical expedient to not evaluate existing land easements under the new standard if the land easements were not previously accounted for under existing lease guidance. The FASB also voted to amend ASC Topic 842 to allow companies to elect not to restate their comparative periods in the period of adoption when transitioning to the standard. The standard is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted.
The Company is in the process of evaluating the impact of adoption of this standard on its financial statements and disclosures. The Company held training sessions with the finance team and is currently in the process of creating an inventory of its lease contracts and analyzing the terms and conditions under the requirements of this new standard. The Company continues to monitor FASB amendments to ASC Topic 842.
The FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities to simplify the measurement, presentation, and disclosure of financial instruments. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The presentation of unrealized gains/ losses from the Company's available-for-sale investments will change on the consolidated statement of comprehensive income. Certain disclosures with regards to financial liabilities will change based on the updated requirements.
The FASB issued a revenue recognition standard codified as ASC 606, Revenue from Contracts with Customers. This issued accounting standard provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers unless the contracts are in the scope of other U.S. GAAP requirements, such as the leasing literature. The core principal of the accounting guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASC 606 is expected to require significantly expanded disclosures regarding the qualitative and quantitative information of the Company's nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This new revenue standard is required to be applied for fiscal years and interim periods beginning after December 15, 2017 using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. The Company has not elected to early adopt.
The Company has completed its impact assessment. At this point, the Company expects the adoption of Topic 606 will have an immaterial impact on the consolidated financial statements and the pattern of revenue recognition. The Company also evaluated the disclosure requirements and determined that the disaggregation of revenue information required by the new standard will not have a significant impact on the Company’s information gathering processes and procedures as the revenue information required by the standard is consistent with historical revenue information gathered by the Company for financial reporting purposes. The Company intends to adopt the new revenue recognition standard using the modified retrospective method.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

3.
Business acquisitions and development projects
(a)
Acquisition of Empire
On January 1, 2017, the Company completed the acquisition of Empire, a Joplin, Missouri based regulated electric, gas and water utility, serving customers in Missouri, Kansas, Oklahoma and Arkansas. 
The purchase price of approximately
$2,414,000
for the acquisition of Empire consists of cash payment to Empire shareholders of
$34.00
per common share and the assumption of approximately
$855,000
of debt. The cash payment was funded with the acquisition facility for an amount of
$1,336,440
(note 9(b)), proceeds received from the initial instalment of convertible debentures (note 14) and existing credit facility. The costs related to the acquisition have been expensed through the consolidated statements of operations.
Working capital
$
41,292

Property, plant and equipment
2,058,867

Goodwill
752,418

Regulatory assets
236,933

Other assets
43,609

Long-term debt
(907,547
)
Regulatory liabilities
(145,594
)
Pension and other post-employment benefits
(78,204
)
Deferred income tax liability, net
(418,855
)
Other liabilities
(76,532
)
Total net assets acquired
$
1,506,387

Cash and cash equivalent
$
1,742

Total net assets acquired, net of cash and cash equivalent
$
1,504,645

The determination of the fair value of assets acquired and liabilities assumed is based upon management's estimates and certain assumptions.
Goodwill represents the excess of the purchase price over the aggregate fair value of net assets acquired. The contributing factors to the amount recorded as goodwill include future growth, potential synergies and cost savings in the delivery of certain shared administrative and other services. Goodwill is reported under the
Liberty Utilities Group
segment.
Property, plant and equipment, exclusive of computer software, are amortized in accordance with regulatory requirements over the estimated useful life of the assets using the straight-line method.  The weighted average useful life of the Empire's assets is
39
years.
The table below presents the consolidated pro forma revenue and net income for the year ended December 31, 2017 and
2016
, assuming the acquisition of Empire had occurred on January 1, 2016. Pro forma net income includes the impact of fair value adjustments incorporated in the preliminary purchase price allocation above and adjustments necessary to reflect the financing costs as if the acquisition had been financed on January 1, 2016. However, non-recurring acquisition-related expenses are excluded from net income.
 
Year Ended December 31
 
2017
2016
Revenues
$
1,523,783

$
1,435,554

Net earnings attributable to common shareholders
$
178,532

$
160,989

This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisition occurred on this date nor does it purport to predict the results of operations for future periods.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

3.
Business acquisitions and development projects (continued)
(b)
Investment in joint venture with Abengoa and investment in Atlantica
On November 1, 2017, APUC entered into an agreement to create a joint venture ("AAGES") with Seville, Spain-based Abengoa, S.A ("Abengoa") to identify, develop, and construct clean energy and water infrastructure assets with a global focus. Concurrently with the creation of the AAGES joint venture, APUC entered into a definitive agreement to purchase from Abengoa a
25%
equity interest in Atlantica Yield plc ("Atlantica") for a total purchase price of approximately
$607,567
, based on a price of
$24.25
per ordinary share of Atlantica plus a contingent payment of up to
$0.60
per-share payable two years after closing, subject to certain conditions. The transaction closed on March 9, 2018 (note 8).
(c)
Great Bay Solar Project
On August 12, 2015, the Company acquired rights to develop a
75
MWac solar project in Somerset County, Maryland. The project consists of four separate sites: as of December 31, 2017, two sites had been fully synchronized with the power grid, one site partially placed in service. The remaining portion of the facility was placed in service subsequent to year-end in March 2018. Commercial operations as defined by the power purchase agreement was reached on March 29, 2018.
The Great Bay Solar Facility is controlled by a subsidiary of APUC (Great Bay Holdings, LLC). Approximately
$59,000
of the permanent project financing will come from tax equity investors. Equity capital contribution of
$42,750
was received in 2017 with the remaining expected to be received in late 2018. Through its partnership interest, the tax equity investor will receive the majority of the tax attributes associated with the project. The Company accounts for this interest as "Non-controlling interest" on the consolidated balance sheets.
(d)
Acquisition of the St. Lawrence Gas Company, Inc.
On August 31, 2017, the Company entered into a definitive agreement to acquire St. Lawrence Gas Company, Inc. ("SLG"). SLG is a rate-regulated natural gas distribution utility serving customers in northern New York state. The total purchase price for the transaction is
$70,000
, less total third-party debt of SLG outstanding at closing, and subject to customary working capital adjustments. Closing of the transaction remains subject to regulatory approval and other closing conditions and is expected to occur in early 2019.
(e)
Approval to acquire the Perris Water Distribution System
On August 10, 2017, the Company’s board approved the acquisition of two water distribution systems serving customers from the City of Perris, California.  The anticipated purchase price of
$11,500
is expected to be established as rate base during the regulatory approval process.  The City of Perris residents voted to approve the sale on November 7, 2017. Liberty Utilities Group filed an application requesting approval for the acquisition of the assets of the water utilities with the California Public Utility Commission on May 8, 2018. Final approval is expected in Q1 2019.
(f)
Luning Solar Facility
Luning Utilities (Luning Holdings) LLC (the “Luning Holdings”) is owned by the Calpeco Electric System. The
50
MWac solar generating facility is located in Mineral County, Nevada. During 2016, a tax equity agreement was executed. The Class A partnership units are owned by a third-party tax equity investor who funded
$7,826
as of December 31, 2016 and
$31,212
on February 17, 2017. With its interest, the tax equity investor will receive the majority of the tax attributes associated with the Luning Solar project. During a six-month period in year 2022, the tax investor has the right to withdraw from Luning Holdings and require the Company to redeem its remaining interests for cash. As a result, the Company accounts for this interest as “Redeemable non-controlling interest” outside of permanent equity on the consolidated balance sheets (note 19). Redemption is not considered probable as of December 31, 2017.
On February 15, 2017, as the Luning Solar Facility achieved commercial operation, Luning Holdings obtained control for a total purchase price of
$110,856
.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

3.
Business acquisitions and development projects (continued)
(f)
Luning Solar Facility (continued)
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date:
Working capital
$
152

Property, plant and equipment
110,857

Asset retirement obligation
(546
)
Non-controlling interest (tax equity)
(38,633
)
Total net assets acquired
$
71,830

The determination of the fair value of assets acquired and liabilities assumed is based upon management's estimates and certain assumptions.
(g)
Bakersfield II Solar Facility
On December 14, 2016, the Company completed construction and placed in service a
10
MWac solar powered generating facility located adjacent to the Company’s
20
MWac Bakersfield I Solar Facility in Kern County, California (“Bakersfield II Solar Facility”). Commercial operations as defined by the power purchase agreement was reached on January 11, 2017.
The Bakersfield II Solar Facility is controlled by a subsidiary of APUC (the “Bakersfield II Partnership”). The Class A partnership units are owned by a third-party tax equity investor who funded
$2,454
on November 29, 2016 and approximately
$9,800
on February 28, 2017. With its partnership interest, the tax equity investor will receive the majority of the tax attributes associated with the project. The Company accounts for this interest as “Non-controlling interest” on the consolidated balance sheets.
(h)
Wind Turbine Components Purchase
In 2016, the Company purchased approximately
$52,700
of wind turbine components that will qualify between
500
MW and
700
MW of new wind powered projects for the full
$0.023
/kWh renewable energy production tax credit under the safe harbor guidelines established by the U.S. Internal Revenue Service, provided that such projects are placed in service before the end of 2020.
(i)
Acquisition of Park Water System
On January 8, 2016, the Company completed the acquisition of Western Water Holdings, LLC which is the parent company of Park Water Company (“Park Water System”), a regulated water distribution utility. The total purchase price for the Park Water System is
$249,540
, net of the debt assumed of
$91,750
and is subject to certain closing adjustments. All costs related to the acquisition have been expensed in the consolidated statements of operations. At the time of acquisition, Park Water System owned and operated
three
regulated water utilities engaged in the production, treatment, storage, distribution, and sale of water in southern California and western Montana. Those three utilities were named Park Water Company, Apple Valley Ranchos Water Co. and Mountain Water Company.
Mountain Water was the subject of a condemnation lawsuit filed by the city of Missoula. On June 22, 2017, the city of Missoula took possession of Mountain Water’s assets (note 23(a)).











Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

3.
Business acquisitions and development projects (continued)
(i)
Acquisition of Park Water System (continued)
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date:
Working capital
$
1,439

Property, plant and equipment
244,013

Notes receivable
1,259

Goodwill
148,541

Regulatory assets
38,553

Other assets
131

Long-term debt
(103,701
)
Regulatory liabilities
(2,656
)
Pension and OPEB
(13,249
)
Deferred income tax liability, net
(36,399
)
Other liabilities
(28,391
)
Total net assets acquired
$
249,540

The determination of the fair value of assets acquired and liabilities assumed is based upon management's estimates and certain assumptions. Immaterial changes to the initial allocation were recorded during 2016.
Goodwill represents the excess of the purchase price over the aggregate fair value of net assets acquired. The contributing factors to the amount recorded as goodwill include future growth, potential synergies and cost savings in the delivery of certain shared administrative and other services. Goodwill is reported under the
Liberty Utilities Group
segment.
Property, plant and equipment are amortized in accordance with regulatory requirements over the estimated useful life of the assets using the straight-line method. The weighted average useful life of the Park Water System assets is
40
years.
The Park Water System contributed revenue of
$70,746
(2016 -
$73,201
) and pre-tax net earnings of
$13,808
(2016 -
$19,297
) to the Company’s consolidated financial results for the year ended December 31, 2017.
4.
Accounts receivable
Accounts receivable as of
December 31, 2017
include unbilled revenue of
$78,289
(
2016
-
$43,064
) from the Company’s regulated utilities. Accounts receivable as of
December 31, 2017
are presented net of allowance for doubtful accounts of
$5,555
(
2016
-
$5,261
).


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

5.
Property, plant and equipment
Property, plant and equipment consist of the following: 
2017
 
 
 
 
 
 
Cost
 
Accumulated
depreciation
 
Net book
value
Generation
$
2,382,279

 
$
394,509

 
$
1,987,770

Distribution
4,182,940

 
385,289

 
3,797,651

Land
71,689

 

 
71,689

Equipment and other
114,116

 
40,674

 
73,442

Construction in progress
 
 
 
 
 
   Generation
209,979

 

 
209,979

   Distribution
164,366

 

 
164,366

 
$
7,125,369

 
$
820,472

 
$
6,304,897

2016
 
 
 
 
 
 
Cost
 
Accumulated
depreciation
 
Net book
value
Generation
$
1,946,278

 
$
312,227

 
$
1,634,051

Distribution
1,965,061

 
344,421

 
1,620,640

Land
45,333

 

 
45,333

Equipment and other
104,239

 
33,291

 
70,948

Construction in progress
 
 
 
 
 
   Generation
147,010

 

 
147,010

   Distribution
123,883

 

 
123,883

 
$
4,331,804

 
$
689,939

 
$
3,641,865

Generation assets include cost of
$113,822
(
2016
 -
$105,941
) and accumulated depreciation of
$34,908
(
2016
 -
$29,760
) related to facilities under capital lease or owned by consolidated VIEs. Depreciation expense of facilities under capital lease was
$1,633
(
2016
 -
$1,599
).
Distribution assets include cost of $
1,780,983
 and accumulated depreciation of $
468,076
 related to regulated generation and transmission assets. Water and wastewater distribution assets include expansion costs of
$1,000
on which the Company does not currently earn a return. 
For the year ended December 31, 2017, contributions received in aid of construction of
$12,742
(
2016
-
$37,774
) have been credited to the cost of the assets. The 2016 credit also includes Canadian renewable and conservation expense refundable tax credit for the St Damase wind facility in the amount of
$10,663
.
6.
Intangible assets and goodwill
Intangible assets consist of the following:
2017
 
 
 
 
 
 
Cost
 
Accumulated
amortization
 
Net book
value
Power sales contracts
$
56,540

 
$
36,878

 
$
19,662

Customer relationships
26,799

 
8,836

 
17,963

Interconnection agreements
14,181

 
703

 
13,478

 
$
97,520

 
$
46,417

 
$
51,103




Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)


6.
Intangible assets and goodwill (continued)
2016
 
 
 
 
 
 
Cost
 
Accumulated
amortization
 
Net book
value
Power sales contracts
$
53,777

 
$
33,248

 
$
20,529

Customer relationships
26,796

 
8,192

 
18,604

Interconnection agreements
9,682


414

 
9,268

 
$
90,255

 
$
41,854

 
$
48,401

Estimated amortization expense for intangible assets for the next year is
$2,710
,
$2,610
in year two,
$2,600
in year three,
$2,270
in year four and
$2,100
in year five.
All goodwill pertains to the
Liberty Utilities Group
. Changes in goodwill are as follows:
 
 
Balance, January 1, 2016
$
79,836

Business acquisitions
148,541

Balance, December 31, 2016
$
228,377

Business acquisitions (note 3(a))
752,418

Divestiture of operating entity (note 23(a))
(26,513
)
Balance, December 31, 2017
$
954,282

7.
Regulatory matters
The Company’s regulated utility operating companies are subject to regulation by the public utility commissions of the states in which they operate. The respective public utility commissions have jurisdiction with respect to rate, service, accounting policies, issuance of securities, acquisitions and other matters. These utilities operate under cost-of-service regulation as administered by these state authorities. The Company’s regulated utility operating companies are accounted for under the principles of ASC 980. Under ASC 980, regulatory assets and liabilities that would not be recorded under U.S. GAAP for non-regulated entities are recorded to the extent that they represent probable future revenue or expenses associated with certain charges or credits that will be recovered from or refunded to customers through the rate-setting process.
On January 1, 2017, the Company completed the acquisition of Empire, an operating public utility engaged in the generation, purchase, transmission, distribution and sale of electricity in parts of Missouri, Kansas, Oklahoma and Arkansas. Empire also provides regulated water utility distribution services to three towns in Missouri. The Empire District Gas Company, a wholly owned subsidiary, is engaged in the distribution of natural gas in Missouri. These businesses are subject to regulation by the Missouri Public Service Commission, the State Corporation Commission of the State of Kansas, the Corporation Commission of Oklahoma, the Arkansas Public Service Commission and the Federal Energy Regulatory Commission. In general, the commissions set rates at a level that allows the utilities to collect total revenues or revenue requirements equal to the cost of providing service, plus an appropriate return on invested capital.






Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

7.
Regulatory matters (continued)
At any given time, the Company can have several regulatory proceedings underway. The financial effects of these proceedings are reflected in the consolidated financial statements based on regulatory approval obtained to the extent that there is a financial impact during the applicable reporting period. The following regulatory proceedings were recently completed:
Utility
State
Regulatory Proceeding Type
Annual Revenue Increase
Effective Date
Missouri Gas System
Missouri
General Rate Case ("GRC")
$4,600
Effective July 1, 2018
New England Natural Gas System
Massachusetts
Gas System Enhancement Plan
$3,676
Effective May 1, 2018
EnergyNorth Gas System
New Hampshire
GRC
$10,711
May 1, 2018
 with a onetime recoupment of $1,326 for the difference between the final rates and temporary rates granted on July 1, 2017
EnergyNorth Gas System
New Hampshire
GRC
$6,750
Temporary increase effective July 1, 2017
Granite State Electric System

New Hampshire

GRC

$6,105
July 1, 2016
Calpeco Electric System

California

Post-Test Year Adjustment Mechanism

$2,175
January 1, 2018
New England Gas System
Massachusetts
GRC
$8,300
$7,800 effective March 1, 2016
$500 effective March 1, 2017
New England Gas System

Massachusetts

Gas System Enhancement Plan
$2,928
May 1, 2017
Midstates Gas System
Illinois

GRC
$2,200
June 7, 2017
Peach State Gas System
Georgia
Georgia Rate Adjustment Mechanism
$2,725
March 1, 2016
Bella Vista Water System
Rio Rico Water/Sewer System
Arizona
GRC
$1,935
November 1, 2016
CalPeco Electric System
California
GRC
$8,318
January 1, 2016
Various
 
 
$3,551
2016, 2017 & 2018








Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

7.
Regulatory matters (continued)
Regulatory assets and liabilities consist of the following: 
 
2017
 
2016
Regulatory assets
 
 
 
Environmental remediation (a)
$
82,711

 
$
77,575

Pension and post-employment benefits (b)
105,712

 
56,250

Debt premium (c)
57,406

 
18,748

Fuel and commodity costs adjustment (d)
34,525

 
5,206

Rate adjustment mechanism (e)
35,491

 
30,239

Clean Energy and other customer programs (f)
20,582

 
1,569

Deferred construction costs (g)
14,344

 

Asset retirement (h)
16,080

 
1,573

Income taxes (i)
36,546

 
7,583

Rate case costs (j)
9,295

 
6,384

Other
26,634

 
12,318

Total regulatory assets
$
439,326

 
$
217,445

Less current regulatory assets
(66,567
)
 
(36,077
)
Non-current regulatory assets
$
372,759

 
$
181,368

 
 
 
 
Regulatory liabilities
 
 
 
Income taxes (i)
$
321,138

 
$
1,118

Cost of removal (k)
184,188

 
82,170

Rate-base offset (l)
13,214

 
15,600

Fuel and commodity costs adjustment (d)
23,543

 
25,331

Deferred compensation received in relation to lost production (m)
9,398

 

Deferred construction costs - fuel related (g)
7,418

 

Pension and post-employment benefits (b)
10,082

 
4,082

Other
8,984

 
7,793

Total regulatory liabilities
$
577,965

 
$
136,094

Less current regulatory liabilities
(37,687
)
 
(35,577
)
Non-current regulatory liabilities
$
540,278

 
$
100,517

(a)
Environmental remediation
Actual expenditures incurred for the clean-up of certain former gas manufacturing facilities (note 13(b)) are recovered through rates over a period of
7
years and are subject to an annual cap.
(b)
Pension and post-employment benefits
As part of certain business acquisitions, the regulators authorized a regulatory asset or liability being set up for the amounts of pension and post-employment benefits that have not yet been recognized in net periodic cost and were presented as AOCI prior to the acquisition. An amount of
$21,626
relates to an acquisition and was authorized for recognition as an asset by the regulator. Recovery is anticipated to be approved in a final rate order to be received on completion of the next general rate case. The balance is recovered through rates over the future service years of the employees at the time the regulatory asset was set up (an average of
10
years) or consistent with the treatment of OCI under ASC 712 Compensation Non-retirement Post-employment Benefits and ASC 715 Compensation Retirement Benefits before the transfer to regulatory asset occurred. The pension and post-employments benefits liability is related to tracking accounts pertaining primarily to Park Water Company. The amounts recorded in these accounts occur when actual expenses have been less than adopted and refunds are expected to occur in future periods.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

7.
Regulatory matters (continued)
(c)
Debt premium
Debt premium on acquired debt is recovered as a component of the weighted average cost of debt.
(d)
Fuel and commodity costs adjustment
The revenue from the utilities includes a component which is designed to recover the cost of electricity and natural gas through rates charged to customers. To the extent actual costs of power or natural gas purchased differ from power or natural gas costs recoverable through current rates, that difference is not recorded on the consolidated statements of operations but rather is deferred and recorded as a regulatory asset or liability on the consolidated balance sheets. These differences are reflected in adjustments to rates and recorded as an adjustment to cost of electricity and natural gas in future periods, subject to regulatory review. Derivatives are often utilized to manage the price risk associated with natural gas purchasing activities in accordance with the expectations of state regulators. The gains and losses associated with these derivatives (note 25(b)(i)) are recoverable through the commodity costs adjustment.
(e)
Rate adjustment mechanism
Revenue for Calpeco Electric System, Park Water System, Peach State Gas System and New England Gas Systems are subject to a revenue decoupling mechanism approved by their respective regulator which require charging approved annual delivery revenue on a systematic basis over the fiscal year. As a result, the difference between delivery revenue calculated based on metered consumption and approved delivery revenue is recorded as a regulatory asset or liability to reflect future recovery or refund, respectively, from customers. In addition, retroactive rate adjustments for services rendered but to be collected over a period not exceeding
24 months
are accrued upon approval of the Final Order.
(f)
Clean Energy and other customer programs
The regulatory asset for Clean Energy and customer programs includes initiatives related to solar rebate applications processed and resulting rebate-related costs. The amount also includes other energy efficiency programs.
(g)
Deferred construction costs
Deferred construction costs reflects deferred construction costs and fuel related costs of specific generating facilities of Empire. These amounts are being recovered over the life of the plants.
(h)
Asset retirement
The costs of retirement of assets are expected to be recovered through rates as well as the on-going liability accretion and asset depreciation expense.
(i)
Income taxes
The income taxes regulatory assets and liabilities represent income taxes recoverable through future revenues required to fund flow-through deferred income tax liabilities and amounts owed to customers for deferred taxes collected at a higher rate than the current statutory rates.
The Tax Cuts and Jobs Act ("the Act") was enacted on December 22, 2017. Among other provisions, the Act reduces the corporate income tax rate from 35% to 21%. A reduction of regulatory asset and an increase to regulatory liability was recorded for excess deferred taxes probable of being refunded to customers of
$327,947
. Subsequent to year-end on June 1, 2018, the state of Missouri enacted legislation that, effective for tax years beginning on or after January 1, 2020, reduces the corporate income tax rate from 6.25% to 4%, among other legislative changes. A reduction of regulatory asset and an increase to regulatory liability for excess deferred taxes of
$17,350
is expected to be probable of being refunded to customers.
(j)
Rate case costs
The costs to file, prosecute and defend rate case applications are referred to as rate case costs. These costs are capitalized and amortized over the period of rate recovery granted by the regulator.
(k)
Cost of removal
The regulatory liability for cost of removal represents amounts that have been collected from ratepayers for costs that are expected to be incurred in the future to retire the utility plant.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

7.
Regulatory matters (continued)
(l)
Rate-base offset
The regulators imposed a rate-base offset that will reduce the revenue requirement at future rate proceedings. The rate-base offset declines on a straight-line basis over a period of
10-16
years.
(m)
Deferred compensation received in relation to lost production
The regulatory liability for deferred compensation received from lost production represents Empire's refund from Southwest Power Administration for lost revenues at one of its generating facilities. These costs are being amortized over the period approved by state regulators.
As recovery of regulatory assets is subject to regulatory approval, if there were any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to earnings in the period of such determination. The Company generally earns carrying charges on the regulatory balances related to commodity cost adjustment, retroactive rate adjustments and rate case costs.
8.
Long-term investments
Long-term investments consist of the following:
 
2017
 
2016
Equity-method investees
 
 
 
Red Lily I Wind Facility (a)
$
18,174

 
$
17,505

Deerfield Wind Project (b)

 
25,864

Amherst Island Wind Project (c)
8,921

 
416

Other
5,172

 
4,192

 
$
32,267

 
$
47,977

Notes receivable
 
 
 
Development loans (d)
$
30,060

 
$
23,926

Other
3,318

 
4,512

 
33,378

 
28,438

Available-for-sale investment

 
126

Other investments
1,686

 
1,982

Total long-term investments
$
67,331

 
$
78,523

Investment in joint ventures with Abengoa and investment in Atlantica
Subsequent to year-end on March 9, 2018 and May 25, 2018, APUC and Abengoa, S.A ("Abengoa") created Abengoa-Algonquin Global Energy Solutions B.V. and AAGES Development Canada Inc. (collectively "AAGES") to identify, develop, and construct clean energy and water infrastructure assets with a global focus. Abengoa-Algonquin Global Energy Solutions B.V. and AAGES Development Canada have outstanding capital of
$4,750
and
$250
, respectively, to each of the two shareholders. APUC and Abengoa have joint control and all decisions must be unanimous. As such, the Company is accounting for its investment in the joint ventures under the equity method.
On March 9, 2018, APUC purchased from Abengoa a
25%
equity interest in Atlantica for a total purchase price of
$607,567
, based on a price of
$24.25
per ordinary share of Atlantica plus a contingent payment of up to
$0.60
per-share payable two years after closing, subject to certain conditions. The Company transfered the Atlantica shares to a new entity controlled and consolidated by APUC. The Company has elected the fair value option under ASC 825,
Financial Instruments
to account for its investment in Atlantica, with changes in fair value reflected in the unaudited interim consolidated statement of operations. On March 9, 2018, the difference between the purchase price and the value of the Atlantica share based on the NYSE share price resulted in an immediate fair value loss of
$117,254
.
In April 2018, APUC entered into an agreement to acquire an additional
16.5%
of equity interest in Atlantica from Abengoa for a purchase price of approximately
$345,000
, based on a price of
$20.90
per ordinary share. The transaction is expected to close in the third quarter of 2018, subject to certain governmental approvals and other closing conditions.



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

8.
Long-term investments (continued)
(a)
Red Lily I Wind Facility
Up to April 12, 2016, the Red Lily I Partnership (the “Partnership”) was
100%
owned by an independent investor. APUC provided operation and supervision services to the Red Lily I project ("Red Lily I Wind Facility"), a
26.4
MW wind energy facility located in southeastern Saskatchewan. The Company’s investment in the Red Lily I Wind Facility up to that date was in the form of subordinated debt facilities of the Partnership.
Effective April 12, 2016, the Company exercised its option to subscribe for a
75%
equity interest in the Partnership in exchange for the outstanding amount on its subordinated loans. The amount by which the carrying value of the Company's investment exceeds the Company's proportionate share of the Partnership's net assets is not material.
Due to certain participating rights being held by the minority investor, the decisions which most significantly impact the economic performance of Red Lily I require unanimous consent. As such, APUC is deemed, under U.S. GAAP, to not have control over the Partnership. As APUC exercises significant influence over operating and financial policies of Red Lily I, the Company accounts for the Partnership using the equity method. The Red Lily I Wind Facility contributed equity income of
$2,139
(2016 - $
985
) to the Company's consolidated financial results for the year ended December 31, 2017.
(b)
Deerfield Wind Project
On October 19, 2015, the Company acquired a
50%
equity interest in Deerfield Wind SponsorCo LLC (“Deerfield SponsorCo”), which indirectly owns a
150
MW construction-stage wind development project (“Deerfield Wind Project”) in the state of Michigan. On March 14, 2017, the Company acquired the remaining
50%
interest in Deerfield SponsorCo and obtained control of the facility.
Upon acquisition of the initial
50%
equity interest of Deerfield SponsorCo, the
two
members each contributed
$1,000
to the capital of Deerfield SponsorCo. On October 12, 2016, third-party construction loan financing was provided to the Deerfield Wind Project in the amount of
$262,900
and a tax equity agreement was executed.
Concurrently, each member contributed another
$19,891
to the capital of Deerfield SponsorCo.
Construction was completed during the first quarter of 2017 and sale of power to the utility under the power purchase agreement started on February 21, 2017.
The interest capitalized during the year ended December 31, 2017 to the investment while the Deerfield Wind Project was under construction amounts to
$nil
(2016 -
$4,613
).
On March 14, 2017, the Company acquired the remaining
50%
interest in Deerfield SponsorCo for
$21,585
and as a result, obtained control of the facility. The Company accounted for the business combination using the acquisition method of accounting which requires that the fair value of assets acquired and liabilities assumed in the subsidiary be recognized on the consolidated balance sheet as of the acquisition date. It further requires that pre-existing relationships such as the existing development loan between the two parties (note 8(d)) and prior investments of business combinations achieved in stages also be remeasured at fair value. An income approach was used to value these items. A net gain of
$nil
was recorded on acquisition.
On May 10, 2017, tax equity funding of
$166,595
was received.
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date:
Working Capital
$
(10,808
)
Property, plant and equipment
328,371

Construction loan
(261,952
)
Asset retirement obligation
(2,092
)
Deferred revenue
(1,156
)
Deferred tax liability
(1,470
)
Net assets acquired
$
50,893

Cash and cash equivalent
$
3,107

Net assets acquired, net of cash and cash equivalent
$
47,786



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

8.
Long-term investments (continued)
(c)
Amherst Island Wind Project
Windlectric Inc. ("Windlectric") owns a
75
MW construction-stage wind development project (“Amherst Island Wind Project”) in the province of Ontario. On December 20, 2016, Windlectric, a wholly owned subsidiary of the Company at the time, issued
fifty
percent of its common shares for
C$50
to a third party and as a result is no longer controlled by APUC. The Company holds an option to acquire the remaining common shares at a fixed price any time prior to January 15, 2019.
Windlectric is considered a VIE namely due to the low level of equity at risk at this point. The Company is not considered the primary beneficiary of Windlectric as the
two
shareholders have joint control and all decisions must be unanimous. As such, on the transaction date, the Company deconsolidated the assets and liabilities of Windlectric and recorded its retained non-controlling investment in equity and notes receivable and payable at fair value. A net gain of
nil
was recorded on deconsolidation. The Company is accounting for its investment in the joint venture under the equity method.
The interest capitalized during the year end
ed December 31, 2017 to the investment while the Amherst Island Wind Project was under construction amounts to
$1,115
(2016 -
$540
). As at December 31, 2017, the third-party construction debt of the joint venture was $
106,628
. Construction was completed subsequent to year-end during the second quarter of 2018 and sale of power under the power purchase agreement has started.
As of December 31, 2017, the Company’s maximum exposure to loss of
$230,669
is comprised of the carrying value of the equity method investment as well as the carrying value of the development loan and outstanding exposure related to credit support as described in note 8(d).
(d)
Development loans
The Company entered into committed loan and credit support facilities with some of its equity investees. During construction, the Company is obligated to provide cash advances and credit support (in the form of letters of credit, escrowed cash, or guarantees) in amounts necessary for the continued development and construction of the equity investees' wind projects.
As at
December 31, 2017
, the Company has a loan and credit support facility with Windlectric of
$30,060
(2016 -
$22,136
). The loan to Windlectric bears interest at an annual rate of 10% on outstanding principal amount and matures on December 31, 2019. The letters of credit are charged an annual fee of
2%
on their stated amount. As of December 31, 2017, the following credit support was issued by the Company on behalf of Windlectric:
$57,448
letters of credit and guarantees of obligations to the utilities under the PPAs; a guarantee of the obligations under the wind turbine, transmission line, transformer, and other supply agreements; a guarantee of the obligations under the engineering, procurement, and construction management agreements. The initial value of the guarantee obligations is recognized under other long-term liabilities and was valued at
$1,952
using a probability weighted discounted cash flow (level 3).
Following acquisition of control of Deerfield SponsorCo (note 8(b)) and Odell SponsorCo LLC (note 8(e)(i)), amounts advanced to the wind project are eliminated on consolidation. The effects of foreign currency exchange rate fluctuations on these advances of a long-term investment nature are recorded in other comprehensive income from the date of acquisition.
No
interest revenue is accrued on the loans due to insufficient collateral in the Joint Ventures.
(e)
2016 transactions
(i)
Odell Wind Facility
Up to September 15, 2016, the Company held a
50%
equity interest in Odell SponsorCo LLC, which indirectly owns a
200
MW construction-stage wind development project (“Odell Wind Facility”) in the state of Minnesota.
On September 15, 2016, the Company acquired the remaining
50%
interest in Odell SponsorCo LLC for
$26,500
and as a result, obtained control of the facility. The Company accounted for the business combination using the acquisition method of accounting, which requires, that the fair value of assets acquired, liabilities assumed and non-controlling interest in the subsidiary, be recognized on the consolidated balance sheets as of the acquisition date. It further requires that pre-existing relationships such as the existing development loan between the
two
parties (note 8(d)) and prior investments of business combinations achieved in stages also be remeasured at fair value. An income approach was used to value these items. A net gain of
nil
was recorded on acquisition.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

8.
Long-term investments (continued)
(e)
2016 transactions (continued)
(i)
Odell Wind Facility (continued)
The following table summarizes the allocation of the assets acquired and liabilities assumed at the acquisition date:
Working capital
$
8,994

Property, plant and equipment
356,552

Asset retirement obligation
(3,657
)
Deferred tax liability
(3,246
)
Non-controlling interest (tax equity investors)
(180,210
)
Net assets
$
178,433

(ii)
Natural gas pipeline developments
During 2016, APUC wrote off an amount of
$4,852
representing the total value of its equity interest in the natural gas development projects as both projects have been canceled by the developer.
9.
Long-term debt
Long-term debt consists of the following:
Borrowing type
 
Weighted average coupon
 
Maturity
 
Par value
 
2017
 
2016
Senior Unsecured Revolving Credit Facilities (a)
 

 
2018-2022
 
N/A

 
$
51,827

 
$
180,939

Senior Unsecured Bank Credit Facilities (b)
 

 
2018-2019
 
N/A

 
134,988

 
1,593,894

Commercial Paper (c)
 
 
 
2019
 
N/A

 
5,576

 

Canadian Dollar Borrowings
 
 
 
 
 
 
 
 
 
 
Senior Unsecured Notes (d)
 
4.61
%
 
2018-2027
 
C$
785,669

 
623,223

 
362,992

Senior Secured Project Notes
 
10.27
%
 
2020-2027
 
C$
33,568

 
26,709

 
26,514

U.S. Dollar Borrowings
 
 
 
 
 
 
 
 
 
 
Senior Unsecured Notes (e)
 
4.09
%
 
2020-2047
 
$
1,225,000

 
1,217,797

 
521,784

Senior Unsecured Utility Notes (f)
 
5.98
%
 
2020-2035
 
$
227,000

 
246,560

 
129,743

Senior Secured Utility Bonds (g)
 
4.95
%
 
2018-2044
 
$
752,500

 
772,871

 
98,720

 
 
 
 
 
 
 
 
$
3,079,551

 
$
2,914,586

Less: current portion
 
 
 
 
 
 
 
(12,364
)
 
(7,503
)
 
 
 
 
 
 
 
 
$
3,067,187

 
$
2,907,083

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 have certain financial covenants, which must be maintained on a quarterly basis. Non-compliance with the covenants could restrict cash distributions/dividends to the Company from the specific facilities.
Short-term obligations of
$210,613
for which the maturity has been extended beyond 12 months subsequent to the end of the year or that are expected to be refinanced using the long-term credit facilities are presented as long-term debt.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

9.
Long-term debt (continued)
(a)
Senior unsecured revolving credit facilities
On September 20, 2017, the Company amended the terms of its C
$65,000
senior unsecured revolving bank credit facility to increase the commitments to C
$165,000
and extend the maturity from November 19, 2017 to November 19, 2018.
As at December 31, 2017,
the Liberty Utilities Group
's committed bank lines consisted of a
$200,000
senior unsecured revolving credit facility ("Liberty Credit Facility") and a
$200,000
revolving credit facility at Empire ("Empire Credit Facility") assumed in connection with the acquisition of Empire (note 3(a)). Subsequent to year-end on February 23, 2018,
the Liberty Utilities Group
' increased commitments under the Liberty Credit Facility to
$500,000
and extended the maturity to February 23, 2023. Concurrent with the amendment to the Liberty Credit Facility,
the Liberty Utilities Group
closed the Empire Credit Facility. The Liberty Credit Facility will now be used as a backstop for Empire's commercial paper program and as a source of liquidity for Empire.
On October 6, 2017, the
Liberty Power Group
amended the terms of its C
$350,000
senior unsecured revolving bank credit facility to increase the commitments to
$500,000
and extended the maturity from July 31, 2019 to October 6, 2022. Subsequent to year end, the Liberty Power Group extended the maturity of its senior unsecured revolving bank credit facility from October 6, 2022 to October 6, 2023. On October 6, 2017, the St. Damase Wind Facility entered into a C
$4,000
committed revolving credit facility. The facility matures on October 6, 2020 and is guaranteed by the Liberty Power Group.  The facility replaces borrowings that were previously drawn under the Liberty Power Group’s senior unsecured revolving credit facility.  As at December 31, 2017, C
$3,900
had been drawn on the facility.
Liberty Power had a C
$150,000
bilateral revolving credit facility with a maturity date of August 19, 2018. Concurrent with the expansion of the Liberty Power Credit Facility, the
Liberty Power Group
closed the bilateral credit facility on October 6, 2017.
On December 31, 2017, the
Liberty Power Group
had an extendible
one
-year letter of credit facility agreement.  The facility provides for issuances of letters of credit up to a maximum of C
$50,000
and
$30,000
.  Subsequent to year-end, on February 16, 2018, the
Liberty Power Group
's increased availability under its revolving letter of credit facility to
$200,000
and extended the maturity to January 31, 2021.
As part of the Park Water System's acquisition on January 8, 2016 (note 3(i)), the Company assumed
$4,250
of debt outstanding under its revolving credit facilities. Shortly after the closing of the acquisition, the Park Water System repaid and closed the revolving credit facilities.
(b)
Senior unsecured bank credit facilities
On December 21, 2017, the Company entered into a
$600,000
term credit facility with two Canadian banks maturing on December 21, 2018. Subsequent to year-end on March 7, 2018 the company drew
$600,000
under this facility. As at June 30, 2018, the Company had repaid
$132,500
of borrowings under this facility.
On December 30, 2016, in connection with the acquisition of Empire (note 3(a)), the Company drew
$1,336,440
from the Acquisition Facility it obtained in 2016. The funds drawn were transferred to a paying agent on December 30, 2016 for purposes of distribution to holders of the common shares of Empire (note 3(a)) on January 1, 2017. The total amount of cash held by the paying agent of
$1,495,774
is comprised of this Acquisition Facility draw of
$1,336,440
and cash proceeds received from the initial instalment of convertible debentures (note 14) and is presented as restricted cash on the consolidated balance sheets. Following receipt of the Final Instalment from the convertible debentures on February 7, 2017 (note 14) and the senior notes financing on March 24, 2017 (note 9(d)), the Company fully repaid the Acquisition Facility.
On January 4, 2016, the Company entered into a
$235,000
term credit facility with
two
U.S. banks. On March 24, 2017, the Company repaid
$100,000
of borrowings under the Corporate Term Credit Facility with proceeds from the closing of the
$750,000
senior unsecured notes (notes 9(e)). In October 2017, the Company extended the maturity on its Corporate Term Credit Facility to July 5, 2019.
As part of the Park Water System's acquisition on January 8, 2016 (note 3(i)), the Company assumed
$22,500
of debt outstanding under a non-revolving term credit facility. In June 2017, this debt was fully repaid and closed.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

9.
Long-term debt (continued)
(c)
Commercial Paper
In connection with the acquisition of Empire (note 3(a)), the Company assumed a short-term
$150,000
commercial paper program.
(d)
Canadian dollar senior unsecured notes
On January 17, 2017, the Liberty Power Group issued C
$300,000
senior unsecured debentures bearing interest at
4.09%
and with a maturity date of February 17, 2027. The debentures were sold at a price of C
$99.929
per C
$100.00
principal amount.
In September 2017, the Company acquired an investment in an equity-investee in exchange for a note payable to the other partner of C
$669
. Repayment of the note is expected in 2019.
Subsequent to year end, on July 25, 2018, the Company repaid, upon its maturity, a C
$135,000
unsecured note.
(e)
U.S. dollar senior unsecured notes
On March 24, 2017, the
Liberty Utilities Group
's debt financing entity issued
$750,000
senior unsecured notes in
six
tranches. The proceeds were applied to repay the Acquisition Facility (note 9(b)) and other existing indebtedness. The notes are of varying maturities from
3
to
30
years with a weighted average life of approximately
15
years and a weighted average coupon of
4.0%
. In anticipation of this financing, the
Liberty Utilities Group
had entered into forward contracts to lock in the underlying U.S. Treasury interest rates. Considering the effect of the hedges, the effective weighted average rate paid by the Liberty Utilities Group will be approximately
3.6%
.
(f)
U.S. dollar senior unsecured utility notes
On February 8, 2017, the
$707
Bella Vista Water unsecured notes were fully repaid.
On January 1, 2017, in connection with the acquisition of Empire (note 3(a)), the Company assumed
$102,000
in unsecured utility notes. The notes consist of
two
tranches, with maturities in 2033 and 2035 with coupons at
6.7%
and
5.8%
.
(g)    U.S. dollar senior secured utility bonds
On January 1, 2017 in connection with the acquisition of Empire (note 3(a)), the Company assumed
$733,000
in secured utility notes. The bonds are secured by a first mortgage indenture and consist of
ten
tranches with maturities ranging between 2018 and 2044 with coupons ranging from
3.58%
to
6.82%
. Subsequent to year-end in June 2018, the Company repaid
$90,000
of the secured utility notes upon its maturity.
In June 2017, outstanding bonds payable for the Park Water Systems in the amount of
$63,000
were repaid using proceeds from the Mountain Water condemnation discussed in note 23(a). The Company had assumed the
$65,000
of debt outstanding in connection with the acquisition of Park Water in 2016 (note 3(i)).
(h)
U.S. dollar senior secured project notes
On March 14, 2017, in connection with the acquisition of Deerfield SponsorCo (note 8(b)), the Company assumed
$262,219
in construction loan. The loans bear interest at an annual rate of
2.33%
on any outstanding principal amount. On May 10, 2017, the construction loan was repaid from proceeds received from tax equity (note 8(b)) and cash contributions from APUC.
As of
December 31, 2017
, the Company had accrued
$33,064
in interest expense (
2016
-
$20,276
). Interest expense on the long-term debt in
2017
was
$142,791
(
2016
 -
$65,340
).
Principal payments due in the next five years and thereafter are as follows: 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
$
222,977

 
$
142,771

 
$
311,698

 
$
121,663

 
$
392,461

 
$
1,858,371

 
$
3,049,941



Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

10.
Pension and other post-employment benefits
The Company provides defined contribution pension plans to substantially all of its employees. The Company’s contributions for
2017
were $
7,232
(
2016
-
$3,941
).
In conjunction with the utility acquisitions, the Company assumes defined benefit pension, supplemental executive retirement plans and OPEB plans for qualifying employees in the related acquired businesses. The legacy plans of the electricity and gas utilities are non-contributory defined pension plans covering substantially all employees of the acquired businesses. Benefits are based on each employee’s years of service and compensation. The Company also provides a defined benefit cash balance pension plan covering substantially all its new employees and current employees at its water utilities, under which employees are credited with a percentage of base pay plus a prescribed interest rate credit. During 2016, the Company permanently froze the accrual of retirement benefits for participants under certain existing plans. Subsequent to the effective date, these employees began accruing benefits under the Company’s cash balance plan. The OPEB plans provide health care and life insurance coverage to eligible retired employees. Eligibility is based on age and length of service requirements and, in most cases, retirees must cover a portion of the cost of their coverage.


Algonquin Power & Utilities Corp.
Notes to the Consolidated Financial Statements
December 31, 2017 and 2016
(in thousands of U.S. dollars, except as noted and per share amounts)

10.
Pension and other post-employment benefits (continued)
(a)
Net pension and OPEB obligation
The following table sets forth the projected benefit obligations, fair value of plan assets, and funded status of the Company’s plans as of December 31:
 
Pension benefits
 
OPEB
 
2017
 
2016
 
2017
 
2016
Change in projected benefit obligation
 
 
 
 
 
 
 
Projected benefit obligation, beginning of year
$
247,215

 
$
194,640

 
$
61,888

 
$
55,321

Projected benefit obligation assumed from business combination
256,486

 
45,099

 
97,761

 
6,891

Modifications to pension plan

 
(2,217
)
 

 
(994
)
Service cost
13,767

 
6,364

 
4,838

 
2,200

Interest cost
21,171

 
9,833

 
6,642

 
2,659

Actuarial (gain) loss
35,696

 
5,451

 
10,263

 
(2,165
)
Contributions from retirees

 

 
1,821

 
413

Gain on curtailment
(849
)
 

 
(4
)
 

Benefits paid
(49,774
)
 
(11,955
)
 
(6,234
)
 
(2,437
)
Gain on foreign exchange
31

 

 

 

Projected benefit obligation, end of year
$
523,743

 
$
247,215

 
$
176,975

 
$
61,888

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets, beginning of year
176,040

 
127,291

 
21,701

 
13,113

Plan assets acquired in business combination
184,510

 
31,280

 
91,532

 
7,465

Actual return on plan assets
63,250

 
12,994

 
19,733

 
1,398

Employer contributions
29,919

 
16,430

 
2,068