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SEC Filings
10-K
TERRAFORM POWER, INC. filed this Form 10-K on 03/15/2019
Entire Document
 


The Company's interest rate swaps, foreign currency contracts and certain commodity contracts not designated as hedging instruments are considered Level 2, since all significant inputs are corroborated by market observable data. The Company's commodity contract designated as hedging instruments and the commodity contract that disqualified for hedge accounting during the year ended December 31, 2018 (see Note 12. Derivatives) 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 years ended December 31, 2018 and 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, 2018 and 2017:
 
Year Ended December 31,
(In thousands)
2018
 
2017
Beginning balance
$
80,268

 
$
66,138

Realized and unrealized gains (losses):
 
 
 
Included in other comprehensive (loss) income
(4,736
)
 
11,207

Included in operating revenues, net
6,244

 
12,205

Settlements
(2,124
)
 
(9,282
)
Balance as of December 31
$
79,652

 
$
80,268


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, 2018 are as follows:
(In thousands, except range)
 
Fair Value as of December 31, 2018
 
 
 
 
 
 
 
 
Transaction Type
 
Assets
 
Liabilities
 
Valuation Technique
 
Unobservable Inputs as of December 31, 2018
Commodity contracts - power
 
$
79,652

 
$

 
Option model
 
Volatilities
 
14.8%
 
 
 
 
 
 
 
 
 
 
Range
 
 
 
 
 
 
Discounted cash flow
 
Forward price (per MWh)
 
$
9.46

 
$
164.08

The sensitivity of the Company's fair value measurements to increases (decreases) in the significant unobservable inputs is as follows:
Significant Unobservable Input
 
Position
 
Impact on Fair Value Measurement
Increase (decrease) in forward price
 
Forward sale
 
Decrease (increase)
Increase (decrease) in implied volatilities
 
Purchase option
 
Increase (decrease)

The Company measures the sensitivity of the fair value of its Level 3 commodity contracts to potential changes in commodity prices using a mark-to-market analysis based on the current forward commodity prices and estimates of the price volatility. An increase in power forward prices will produce a mark-to-market loss, while a decrease in prices will result in a mark-to-market gain.

Fair Value of Debt

The carrying amount and estimated fair value of the Company's long-term debt as of December 31, 2018 and 2017 was as follows:
 
 
As of December 31, 2018
 
As of December 31, 2017
(In thousands)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt, including current portion
 
$
5,761,845

 
$
5,789,702

 
$
3,598,800

 
$
3,702,470


The fair value of the Company's long-term debt, except the corporate-level senior notes was determined using inputs


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