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SEC Filings
10-K
TERRAFORM POWER, INC. filed this Form 10-K on 07/21/2017
Entire Document
 

discount rates and to a lesser degree credit spreads and volatilities. The primary inputs into the valuation of interest rate swaps and foreign currency contracts are forward interest rates, foreign currency exchange rates, and to a lesser degree credit spreads.

Recurring Fair Value Measurements

The following table summarizes the financial instruments measured at fair value on a recurring basis classified in the fair value hierarchy (Level 1, 2 or 3) based on the inputs used for valuation in the consolidated balance sheets:
(In thousands)
As of December 31, 2016
 
As of December 31, 2015
Assets
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Interest rate swaps
$

 
$
1,561

 
$

 
$
1,561

 
$

 
$
487

 
$

 
$
487

Commodity contracts

 
37,195

 
66,138

 
103,333

 

 
43,341

 
63,154

 
106,495

Foreign currency contracts

 
1,413

 

 
1,413

 

 
5,190

 

 
5,190

Total derivative assets
$

 
$
40,169

 
$
66,138

 
$
106,307

 
$

 
$
49,018

 
$
63,154

 
$
112,172

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
32,377

 
$

 
$
32,377

 
$

 
$
20,185

 
$

 
$
20,185

Foreign currency contracts

 

 

 

 

 
2,326

 

 
2,326

Total derivative liabilities
$

 
$
32,377

 
$

 
$
32,377

 
$

 
$
22,511

 
$

 
$
22,511


The Company's interest rate swaps, commodity contracts not designated as hedges and foreign currency contracts are considered Level 2, since all significant inputs are corroborated by market observable data. The Company's commodity contracts designated as hedges are considered Level 3 as they contain significant unobservable inputs. There were no transfers in or out of Level 1, Level 2 and Level 3 during the year ended December 31, 2016.

The following table reconciles the changes in the fair value of derivative instruments classified as Level 3 in the fair value hierarchy for the years ended December 31, 2016 and 2015:
 
Year Ended December 31,
(In thousands)
2016
 
2015
Beginning balance
$
63,154

 
$

Realized and unrealized gains (losses):
 
 
 
Included in Other Comprehensive Income
8,104

 
53,022

Included in Operating revenues
7,451

 

Purchases (acquisition of commodity contracts)

 
10,132

Settlements
(12,571
)
 

Balance as of December 31
$
66,138

 
$
63,154


The significant unobservable inputs used in the valuation of the Company's commodity contracts categorized as Level 3 of the fair value hierarchy as of December 31, 2016 are as follows:
(In thousands, except range)
 
Fair Value as of December 31, 2016
 
 
 
 
 
 
 
 
Transaction Type
 
Assets
 
Liabilities
 
Valuation Technique
 
Unobservable Inputs
 
Range
Commodity contracts - power
 
$
66,138

 
$

 
Discounted cash flow
 
Forward price (per MWh)
 
$
14.4

-
$
73.4

 
 
 
 
 
 
Option model
 
Volatilities
 
3.0
%
-
8.2
%


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