8. Goodwill

Our goodwill balance was $134.5 million and $197.2 million as of December 31, 2015 and December 31, 2014, respectively. We apply an accounting standard under which goodwill has an indefinite life and is not amortized. Goodwill is tested for impairments at least annually, or more frequently whenever an event or change in circumstances occurs that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We test goodwill for impairment at the reporting unit level, which is at the project level and, the lowest level below the operating segments for which discrete financial information is available.

In the fourth quarter of 2015, we performed our annual goodwill impairment test as of November 30, 2015. Of the total reporting units with goodwill recorded, only Morris ($3.3 million of goodwill at December 31, 2015), Nipigon ($3.6 million of goodwill at December 31, 2015) and Mamquam ($64.1 million of goodwill at December 31, 2015) passed step 1 of the two‑step test. The total fair value of these reporting units exceeded their carrying value by approximately $118.0 million or 37%. The Williams Lake, Calstock, Curtis Palmer, North Bay, Kapuskasing and Moresby Lake reporting units all failed step 1 of the two-step test.

Because these reporting units failed step 1 of the two-step goodwill impairment test, we identified a triggering event and initiated a test of the recoverability of each of the reporting units’ long-lived assets. The asset group for testing the long-lived assets for impairment is the same as the reporting unit for goodwill impairment testing purposes. In order to test the recoverability of the assets in the asset groups, we compared the carrying amount of the assets to estimated undiscounted future cash flows expected to be generated by the asset group. The carrying value of each asset group includes its recorded property, plant equipment, intangible assets related to PPAs and goodwill. Of the five asset groups tested, the Williams Lake and Calstock asset groups (Canada segment) failed the recoverability test. For these asset groups, we estimated their fair value utilizing an income approach based on market participant assumptions. These assumptions include estimated cash flows from both contracted and uncontracted periods over the remaining useful lives of the Williams Lake and Calstock asset groups. We determined that the carrying value exceeded the fair value at both asset groups and recorded an impairment of $74.1 million and $2.5 million to the property, plant and equipment of the Williams Lake and Calstock reporting units, respectively, for the year ended December 31, 2015.

Subsequent to recording long-lived asset impairments, we completed our annual goodwill impairment assessment. For each of the reporting unit that failed step 1 of the two-step test, we performed a step 2 analysis. As a result of this analysis, we recorded a $35.6 million full impairment at the Williams Lake reporting unit, a $13.7 million partial impairment at the Curtis Palmer reporting unit and a $1.9 million full impairment at the Calstock reporting unit in the year ended December 31, 2015. At the time of their acquisition in November 2011, the fair value of the assets acquired and liabilities assumed for the Williams Lake, Curtis Palmer and Calstock reporting units were valued assuming a merchant basis for the period subsequent to the expiration of the projects’ original PPAs. The forecasted energy revenue on a merchant basis, in the respective markets in which those plants operate, was higher than the energy prices currently forecasted to be in effect subsequent to the expiration of the reporting unit’s PPA. Power prices, in the respective markets in which those plants operate, have declined from 2011and from the dates of our previous impairment assessments due to several factors including decreased demand, lower oil prices and lower natural gas prices resulting from an abundance of shale gas. Our forecasts for discounted cash flows also reflect a higher level of uncertainty for re‑contracting at prices than were previously forecasted in 2011. Furthermore, the PPA at the Curtis Palmer reporting unit expires at the earlier of December 2027 or the provision of 10,000 GWh of generation. Based on Curtis Palmer’s cumulative generation through the date of the goodwill impairment test, we anticipate the PPA expiring two years before December 2027. As a result, the discounted cash flow model for Curtis Palmer utilizes forward power prices for that two-year period that are substantially lower than the prices under the current PPA.

The long-lived asset and goodwill impairment charges were recorded in the fourth quarter of 2015 and not earlier in the fiscal year because we did not identify any triggering events that would have required an event-driven impairment assessment. The triggering event for testing long-lived assets was identified through our annual test of goodwill. While declining oil prices over the past year have affected long-term power prices, the continued depressed price of oil and the long-term outlook for sustained low oil prices in the fourth quarter of 2015 had the most significant impact to the key inputs to our long-term forecasted cash flow models.

During the third quarter of 2014, we performed an event-driven goodwill impairment test based on the continued deficit of our market capitalization as compared to our book carrying value. The test was performed as of August 31, 2014. As a result of the event‑driven goodwill assessment, we recorded a $17.9 million full impairment at the Kenilworth reporting unit (East U.S. segment), a $50.2 million full impairment at the Manchief reporting unit (West U.S. segment) and a $23.7 million partial impairment at the Williams Lake reporting unit (Canada segment). The total impairment recorded in the three months ended September 30, 2014 was $91.8 million. The goodwill impairment recorded at each reporting unit was primarily due to (i) decreases in forward merchant energy prices subsequent to the expiration of the reporting units’ respective ESA or PPA, as applicable, as compared to the assumptions at the time of the reporting units’ acquisition in November 2011, (ii) the continued amortization of cash flows under the reporting units’ respective ESA or PPAs and (iii) an increase in the discount rate reflecting increased re‑contracting risk. At the time of its acquisition in November 2011, the fair value of the assets acquired and liabilities assumed for each of the Kenilworth, Manchief and Williams Lake reporting units were valued assuming a merchant basis for the period subsequent to the expiration of the projects’ original ESAs or PPAs. As discussed above, these forecasted energy revenues on a merchant basis were higher than the energy prices currently forecasted to be in effect subsequent to the expiration of these reporting units’ ESAs or PPAs. Power prices have declined from 2011 due to several factors including decreased demand and lower natural gas and oil prices resulting from an abundance of shale gas. Our forecasts for discounted cash flows also reflect a higher level of uncertainty for re‑contracting at prices that were previously forecasted in 2011.

Under our accounting policies for long‑lived assets and goodwill impairment, we also perform an impairment analysis at the earlier of (i) executing a new PPA (or other arrangement) and (ii) six months prior to the expiration of an existing PPA. The Tunis project’s PPA expired on December 31, 2014 and accordingly, we performed a long‑lived asset impairment test and a goodwill impairment test as of June 30, 2014. Based on the results of our long‑lived asset impairment test, it was determined that the weighted average estimated undiscounted cash flows for Tunis over its remaining useful life did not exceed the carrying value of the property, plant and equipment at the Tunis reporting unit. As a result, the project recorded a $9.6 million long‑lived asset impairment charge in the three months ended June 30, 2014 which was the difference between the carrying value of the project’s property, plant and equipment and its estimated fair market value. Subsequent to adjusting the carrying value of the Tunis reporting unit for the $9.6 million long‑lived asset impairment, we performed an impairment analysis for the project’s goodwill. The project failed step 1 of the impairment test because the weighted average estimated discounted cash flows over its remaining useful life did not exceed the carrying value of the Tunis reporting unit. We performed step 2 of the goodwill impairment test and impaired all of the project’s goodwill because the carrying value of goodwill exceeded its implied fair value. As a result, Tunis, a component of the Canada segment, recorded a $5.2 million goodwill impairment charge in the three months ended June 30, 2014. The total $14.8 million long‑lived asset and goodwill impairment was primarily due to our assessment of the forecasted cash flows from re‑contracting and other strategic outcomes.

We determine the fair value of our reporting units using an income approach with discounted cash flow (“DCF”) models, as we believe forecasted cash flows are the best indicator of such fair value. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including assumptions about discount rates, projected merchant power prices, generation, fuel costs and capital expenditure requirements. The undiscounted and discounted cash flows utilized in our long‑lived asset recovery and step 1 and 2 goodwill impairment tests for our reporting units are generally based on approved reporting unit operating plans for years with contracted PPAs and historical relationships for estimates at the expiration of PPAs. All cash flow forecasts from DCF models utilized estimated plant output for determining assumptions around future generation and industry data forward power and fuel curves to estimate future power and fuel prices. We used historical experience to determine estimated future capital investment requirements. The discount rate applied to the DCF models represents the weighted average cost of capital (“WACC”) consistent with the risk inherent in future cash flows of the particular reporting unit and is based upon an assumed capital structure, cost of long‑term debt and cost of equity consistent with comparable independent power producers. The betas used in calculating the WACC rate were obtained from reputable third party sources. We utilized the assistance of valuation experts to perform step 1 and step 2 of the quantitative impairment test for several of our reporting units. The fair value that could be realized in an actual transaction may differ from that used to evaluate the impairment of goodwill.

The valuation of long-lived assets and goodwill for the impairment analyses is considered a level 3 fair value measurement, which means that the valuation of the assets and liabilities reflect management’s own judgments regarding the assumptions market participants would use in determining the fair value of the assets and liabilities. Fair value determinations require considerable judgment and are sensitive to changes in these underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of a goodwill impairment test will prove to be accurate predictions of the future. Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include macroeconomic factors that significantly differ from our assumptions in timing or degree, increased input costs such as higher fuel prices and maintenance costs, or lower power prices than incorporated in our long-term forecasts.

The following table is a rollforward of goodwill for the year ended December 31, 2015:


							Un-allocated
	East U.S.		West U.S.		Canada		corporate		Total
Balance at December 31, 2013	$	79.4	$	50.3	$	166.6	$	—	$	296.3
Impairment of goodwill		(17.9)		(50.3)		(28.8)		—		(97.0)
Translation adjustment		—		—		(2.1)		—		(2.1)
Balance at December 31, 2014		61.5		—		135.7		—		197.2
Impairment of goodwill		(13.7)		—		(37.5)		—		(51.2)
Translation adjustment		—		—		(11.5)		—		(11.5)
Balance at December 31, 2015	$	47.8	$	—	$	86.7	$	—	$	134.5