Note 5 - Fair Value of Financial Instruments | 6 Months Ended |
Jun. 30, 2014 |
Fair Value Disclosures [Abstract] | ' |
Fair Value Disclosures [Text Block] | ' |
NOTE 5 — FAIR VALUE OF FINANCIAL INSTRUMENTS |
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The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received upon selling an asset or paid upon transferring a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below: |
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Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; |
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Level 2 — Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; |
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Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
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The following table sets forth certain fair value information at June 30, 2014 and December 31, 2013 for financial assets and liabilities measured at fair value by level within the fair value hierarchy, as well as cost or amortized cost. As required by the fair value measurement guidance, assets and liabilities are classified in their entirety based on the lowest level of inputs that is significant to the fair value measurement. |
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| | Carrying | | | Fair Value at June 30, 2014 | |
value at |
June 30, |
| | 2014 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | (Dollars in thousands) | |
Assets | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash equivalents (including restricted cash accounts) | | $ | 40,991 | | | $ | 40,991 | | | $ | 40,991 | | | $ | — | | | $ | — | |
Derivatives: | | | | | | | | | | | | | | | | | | | | |
Currency forward contracts(3) | | | 354 | | | | 354 | | | | — | | | | 354 | | | | — | |
Liabilities: | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Swap transaction on natural gas price(2) | | | (2,423 | ) | | | (2,423 | ) | | | — | | | | (2,423 | ) | | | — | |
Swap transaction on oil price(1) | | | (106 | ) | | | (106 | ) | | | — | | | | (106 | ) | | | — | |
| | $ | 38,816 | | | $ | 38,816 | | | $ | 40,991 | | | $ | (2,175 | ) | | $ | — | |
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| | Carrying | | | Fair Value at December 31, 2013 | |
value at |
December |
| | 31, 2013 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | (Dollars in thousands) | |
Assets | | | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | | | |
Cash equivalents (including restricted cash accounts) | | $ | 40,015 | | | $ | 40,015 | | | $ | 40,015 | | | $ | — | | | $ | — | |
Derivatives: | | | | | | | | | | | | | | | | | | | | |
Currency forward contracts(3) | | | 2,290 | | | | 2,290 | | | | — | | | | 2,290 | | | | — | |
Liabilities | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Derivatives: | | | | | | | | | | | | | | | | | | | | |
Swap transaction on oil price(1) | | | (2,490 | ) | | | (2,490 | ) | | | — | | | | (2,490 | ) | | | — | |
Swap transaction on natural gas price(2) | | | (341 | ) | | | (341 | ) | | | — | | | | (341 | ) | | | — | |
| | $ | 39,474 | | | $ | 39,474 | | | $ | 40,015 | | | $ | (541 | ) | | $ | — | |
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-1 | This amount relates to derivatives which represent swap contracts on oil prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within "prepaid expenses and other" and "accounts payable and accrued expenses" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "electricity revenues" in the condensed consolidated statement of operations and comprehensive income (loss). | | | | | | | | | | | | | | | | | | | |
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-2 | This amount relates to derivatives which represent swap contracts on natural gas prices, valued primarily based on observable inputs, including forward and spot prices for related commodity indices, and are included within "prepaid expenses and other" and "accounts payable and accrued expenses" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "electricity revenues" in the condensed consolidated statement of operations and comprehensive income (loss). | | | | | | | | | | | | | | | | | | | |
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-3 | This amount relates to derivatives which represent currency forward contracts, valued primarily based on observable inputs, including forward and spot prices for currencies, netted against contracted rates and then multiplied against notational amounts, and are included within "prepaid expenses and other" in the condensed consolidated balance sheet with the corresponding gain or loss being recognized within "foreign currency translation and transaction gains (losses)" in the condensed consolidated statement of operations and comprehensive income (loss). | | | | | | | | | | | | | | | | | | | |
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The amounts set forth in the tables above include investments in debt instruments and money market funds (which are included in cash equivalents). Those securities and deposits are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in an active market. |
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The following table presents the amounts of gain (loss) recognized in the condensed consolidated statements of operations and comprehensive income (loss) on derivative instruments not designated as hedges: |
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| | | | Amount of recognized gain (loss) | | | |
Derivatives not designated | | Location of recognized gain (loss) | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | |
as hedging instruments | | |
| | | | 2014 | | | 2013 | | | 2014 | | | 2013 | | | |
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| | | | (Dollars in thousands) | | | (Dollars in thousands) | | | |
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Put options on oil price | | Electricity revenues | | $ | — | | | $ | 496 | | | $ | — | | | $ | (432 | ) | | |
Swap transaction on oil price | | Electricity revenues | | | (679 | ) | | | — | | | | 228 | | | | (294 | ) | | |
Swap transaction on natural gas price | | Electricity revenues | | | 372 | | | | 2,994 | | | | (2,904 | ) | | | (396 | ) | | |
Currency forward contracts | | Foreign currency translation and transaction gains (losses) | | | 223 | | | | 890 | | | | (8 | ) | | | 2,925 | | | |
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| | | | $ | (84 | ) | | $ | 4,380 | | | $ | (2,684 | ) | | $ | 1,803 | | | |
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On September 3, 2013, the Company entered into an NGI swap contract with a bank for notional quantity of approximately 4.4 million MMbtu for settlement effective January 1, 2014 until December 31, 2014, in order to reduce its exposure to NGI below $4.035 per MMbtu under its PPAs with Southern California Edison. The contract did not have up-front costs. Under the terms of this contract, the Company makes floating rate payments to the bank and receives fixed rate payments from the bank on each settlement date. The swap contract has monthly settlement whereby the difference between the fixed price of $4.035 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2014 to December 1, 2014) is being settled on a cash basis. |
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On October 16, 2013, the Company entered into an NGI swap contract with a bank for notional quantity of approximately 4.2 million MMbtu for settlement effective January 1, 2014 until December 31, 2014, in order to reduce its exposure to NGI below $4.103 per MMbtu under its PPAs with Southern California Edison. The contract did not have any up-front costs. Under the terms of this contract, the Company makes floating rate payments to the bank and receives fixed rate payments from the bank on each settlement date. The swap contract has monthly settlements whereby the difference between the fixed price of $4.103 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2014 to December 1, 2014) is being settled on a cash basis. |
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On October 16, 2013, the Company entered into a New York Harbor ULSD swap contract with a bank for notional quantity of 275,000 BBL effective from January 1, 2014 until December 31, 2014 to reduce the Company’s exposure to fluctuations in the energy rate caused by fluctuations in oil prices under the 25 MW PPA for the Puna complex. The Company entered into this contract because the swap had a high correlation with the avoided cost (which is the incremental cost that the power purchaser avoids by not having to generate such energy itself) that HELCO uses to calculate the energy rate. The contract did not have any up-front costs. Under the term of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date ($125.15 per BBL). The swap contract has monthly settlements whereby the difference between the fixed price and the monthly average market price will be settled on a cash basis. |
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On March 6, 2014, the Company entered into an NGI swap contract with a bank for notional quantity of approximately 2.2 million MMbtu for settlement effective January 1, 2015 until March 31, 2015, in order to reduce its exposure to NGI below $4.95 per MMbtu under its PPAs with Southern California Edison. The contract did not have any up-front costs. Under the terms of this contract, the Company will make floating rate payments to the bank and receive fixed rate payments from the bank on each settlement date. The swap contract has monthly settlements whereby the difference between the fixed price of $4.95 per MMbtu and the market price on the first commodity business day on which the relevant commodity reference price is published in the relevant calculation period (January 1, 2015 to March 1, 2015) will be settled on a cash basis. |
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The foregoing swap transactions have not been designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “electricity revenues” in the condensed consolidated statements of operations and comprehensive income. For the six months ended June 30, 2014 and 2013, the Company recognized a net loss from these transactions of $2.7 million and $1.1 million, respectively. For the three months ended June 30, 2014 and 2013, the Company recognized a net loss and a net gain from these transactions of $0.3 million and $3.5 million, respectively. |
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There were no transfers of assets or liabilities between Level 1 and Level 2 during the six months ended June 30, 2014. |
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The fair value of the Company’s long-term debt approximates its carrying amount, except for the following: |
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| | Fair Value | | | Carrying Amount | | | | | |
| | June 30, | | | December 31, | | | June 30, | | | December 31, | | | | | |
2014 | 2013 | 2014 | 2013 | | | | |
| | (Dollars in millions) | | | (Dollars in millions) | | | | | |
Olkaria III loan - DEG | | $ | 36.2 | | | $ | 40.3 | | | $ | 35.5 | | | $ | 39.5 | | | | | |
Olkaria III loan - OPIC | | | 279.4 | | | | 279.6 | | | | 291.6 | | | | 299.9 | | | | | |
Amatitlan loan | | | 32.6 | | | | 34.8 | | | | 30 | | | | 31.5 | | | | | |
Senior secured notes: | | | | | | | | | | | | | | | | | | | | |
Ormat Funding LLC ("OFC") | | | 70 | | | | 83.5 | | | | 72.5 | | | | 90.8 | | | | | |
OrCal Geothermal LLC ("OrCal") | | | 63.3 | | | | 65.8 | | | | 63.2 | | | | 66.2 | | | | | |
OFC 2 LLC ("OFC 2") | | | 115.5 | | | | 119 | | | | 135.7 | | | | 144.4 | | | | | |
Senior unsecured bonds | | | 270.5 | | | | 270.6 | | | | 250.4 | | | | 250.6 | | | | | |
Loans from institutional investors | | | 16.1 | | | | 20.1 | | | | 15.7 | | | | 19.5 | | | | | |
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The fair value of OFC senior secured notes is determined using observable market prices as these securities are traded. The fair value of other long-term debt is determined by a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of estimated current borrowing rates. The fair value of revolving lines of credit is determined using a comparison of market-based price sources that are reflective of similar credit ratings to those of the Company. |
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The carrying value of other financial instruments, such as revolving lines of credit, deposits, and other long-term debt approximates fair value. |
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The following table presents the fair value of financial instruments as of June 30, 2014: |
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| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | |
| | (Dollars in millions) | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | $ | | | | $ | | | | $ | | | | | | |
Olkaria III loan - DEG | | $ | — | | | | — | | | | 36.2 | | | | 36.2 | | | | | |
Olkaria III loan - OPIC | | | — | | | | — | | | | 279.4 | | | | 279.4 | | | | | |
Amatitlan loan | | | — | | | | — | | | | 32.6 | | | | 32.6 | | | | | |
Senior secured notes: | | | | | | | | | | | | | | | | | | | | |
OFC | | | — | | | | 70 | | | | — | | | | 70 | | | | | |
OrCal | | | — | | | | — | | | | 63.3 | | | | 63.3 | | | | | |
OFC 2 | | | — | | | | — | | | | 115.5 | | | | 115.5 | | | | | |
Senior unsecured bonds | | | — | | | | — | | | | 270.5 | | | | 270.5 | | | | | |
Loan from institutional investors | | | — | | | | — | | | | 16.1 | | | | 16.1 | | | | | |
Other long-term debt | | | — | | | | 16.7 | | | | — | | | | 16.7 | | | | | |
Revolving lines of credit | | | — | | | | 124.6 | | | | — | | | | 124.6 | | | | | |
Deposits | | 20.6 | | | | — | | | | — | | | | 20.6 | | | | | |
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The following table presents the fair value of financial instruments as of December 31, 2013: |
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| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | |
| | (Dollars in millions) | | | | | |
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| | | | | | $ | | | | $ | | | | $ | | | | | | |
Olkaria III loan - DEG | | $ | — | | | | — | | | | 40.3 | | | | 40.3 | | | | | |
Olkaria III loan - OPIC | | | — | | | | — | | | | 279.6 | | | | 279.6 | | | | | |
Amatitlan loan | | | — | | | | — | | | | 34.8 | | | | 34.8 | | | | | |
Senior secured notes: | | | | | | | | | | | | | | | | | | | | |
OFC | | | — | | | | 83.5 | | | | — | | | | 83.5 | | | | | |
OrCal | | | — | | | | — | | | | 65.8 | | | | 65.8 | | | | | |
OFC 2 | | | — | | | | — | | | | 119 | | | | 119 | | | | | |
Senior unsecured bonds | | | — | | | | — | | | | 270.6 | | | | 270.6 | | | | | |
Loan from institutional investors | | | — | | | | — | | | | 20.1 | | | | 20.1 | | | | | |
Other long-term debt | | | — | | | | 23.3 | | | | — | | | | 23.3 | | | | | |
Revolving lines of credit | | | — | | | | 112 | | | | — | | | | 112 | | | | | |
Deposits | | | 21.3 | | | | — | | | | — | | | | 21.3 | | | | | |
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