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SEC Filings
10-K
TERRAFORM POWER, INC. filed this Form 10-K on 03/07/2018
Entire Document
 

The Company uses a discounted cash flow valuation technique to fair value its derivative assets and liabilities. The primary inputs in the valuation models for commodity contracts are market observable forward commodity curves and risk-free 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 and 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:
 
As of December 31, 2017
 
As of December 31, 2016
(In thousands)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
4,686

 
$

 
$
4,686

 
$

 
$
1,561

 
$

 
$
1,561

Commodity contracts

 
27,396

 
80,268

 
107,664

 

 
37,195

 
66,138

 
103,333

Foreign currency contracts

 

 

 

 

 
1,413

 

 
1,413

Total derivative assets
$

 
$
32,082

 
$
80,268

 
$
112,350

 
$

 
$
40,169

 
$
66,138

 
$
106,307

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
7,887

 
$

 
$
7,887

 
$

 
$
32,377

 
$

 
$
32,377

Foreign currency contracts

 
36

 

 
36

 

 

 

 

Total derivative liabilities
$

 
$
7,923

 
$

 
$
7,923

 
$

 
$
32,377

 
$

 
$
32,377


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, 2017.

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, 2017 and 2016:
 
Year Ended December 31,
(In thousands)
2017
 
2016
Beginning balance
$
66,138

 
$
63,154

Realized and unrealized gains (losses):
 
 
 
Included in other comprehensive income
11,207

 
8,104

Included in operating revenues, net
12,205

 
7,451

Settlements
(9,282
)
 
(12,571
)
Balance as of December 31
$
80,268

 
$
66,138


The significant unobservable inputs used in the valuation of the Company's commodity contracts categorized as Level 3 in the fair value hierarchy as of December 31, 2017 are as follows:
(In thousands, except range)
 
Fair Value as of December 31, 2017
 
 
 
 
 
 
 
 
Transaction Type
 
Assets
 
Liabilities
 
Valuation Technique
 
Unobservable Inputs
 
Range
Commodity contracts - power
 
$
80,268

 
$

 
Discounted cash flow
 
Forward price (per MWh)
 
$
13.8

-
$
77.4

 
 
 
 
 
 
Option model
 
Volatilities
 
3.0
%
-
7.1
%


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