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Note 7 - Fair Value of Financial Instruments | 12 Months Ended
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Dec. 31, 2017
Notes to Financial Statements |
Fair Value Disclosures [Text Block] | NOTE 7 — FAIR VALUE OF FINANCIAL INSTRUMENTS 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 : Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; 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; 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). The following table sets forth certain fair value information at December 31, 2017 and 2016 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.
|  |  |  |  |  | December 31, 2017 |
|  |  |  |  |  | Fair Value |
|  | Carrying Value at December 31, 2017 |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (Dollars in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents (including restricted cash accounts) |  | $ | 18,359 |  |  | $ | 18,359 |  |  | $ | 18,359 |  |  | $ | — |  |  | $ | — |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent receivable (1) |  |  | 108 |  |  |  | 108 |  |  |  | — |  |  |  | — |  |  |  | 108 |
Currency forward contracts (2) |  |  | 992 |  |  |  | 992 |  |  |  | — |  |  |  | 992 |  |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent payables (1) |  |  | (13,904 | ) |  |  | (13,904 | ) |  |  | — |  |  |  | — |  |  |  | (13,904 | )
Warrants (1) |  |  | (3,967 | ) |  |  | (3,967 | ) |  |  | — |  |  |  | — |  |  |  | (3,967 | )
|  | $ | 1,588 |  |  | $ | 1,588 |  |  | $ | 18,359 |  |  | $ | 992 |  |  | $ | (17,763 | )
|  |  |  |  |  | December 31, 2016 |
|  |  |  |  |  | Fair Value |
|  | Carrying Value at December 31, 2016 |  |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
|  | (Dollars in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents (including restricted cash accounts) |  | $ | 14,922 |  |  | $ | 14,922 |  |  | $ | 14,922 |  |  | $ | — |  |  | $ | — |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent receivable (1) |  |  | 1,443 |  |  |  | 1,443 |  |  |  | — |  |  |  | — |  |  |  | 1,443 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent payables (1) |  |  | (11,581 | ) |  |  | (11,581 | ) |  |  | — |  |  |  | — |  |  |  | (11,581 | )
Warrants (1) |  |  | (3,429 | ) |  |  | (3,429 | ) |  |  | — |  |  |  | — |  |  |  | (3,429 | )
Currency forward contracts (2) |  |  | (481 | ) |  |  | (481 | ) |  |  | — |  |  |  | (481 | ) |  |  | — |
|  | $ | 874 |  |  | $ | 874 |  |  | $ | 14,922 |  |  | $ | (481 | ) |  | $ | (13,567 | )
( 1 ) These amounts relate to contingent receivables and payables and warrants pertaining to the Viridity acquisition and Guadeloupe power plant purchase transaction, valued primarily based on unobservable inputs and are included within " Prepaid expenses and other" , " Accounts Payable and accrued expenses" and "Other long-term liabilities" on December 31, 2017 and within ”Prepaid expenses and other and “Other long-term liabilities” on December 31, 2016 in the consolidated balance sheets with the corresponding gain or loss being recognized within " Derivatives and foreign currency transaction gains (losses)" in the consolidated statement of operations and comprehensive income. ( 2 ) These amounts relate to currency forward contracts valued primarily based on observable inputs, including forward and spot prices for currencies, net of contracted rates and then multiplied by notional amounts, and are included within " Prepaid expenses and other" and " Accounts payable and accrued expenses" , as applicable, on December 31, 2017 and December 31, 2016, in the consolidated balance sheet with the corresponding gain or loss being recognized within " Derivatives and foreign currency transaction gains (losses)" in the consolidated statement of operations and comprehensive income. The amounts set forth in the tables above include investments in debt instruments and money mark et 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. The following table presents the amounts of gain (loss) recognized in the consolidated statements of operations and comprehensive income (loss) on derivative instruments not designated as hedges:
Derivatives not designated as hedging instruments |  | Location of recognized gain (loss) |  | Amount of recognized gain (loss) |
|  |  |  | 2017 |  |  | 2016 |  |  | 2015 |
|  |  |  | (Dollars in thousands) |
Put options on natural gas price |  | Derivative and foreign currency transaction gains (losses) |  |  | (350 | ) |  |  | — |  |  |  | — |
Call options on natural gas price |  | Derivative and foreign currency transaction gains (losses) |  |  | — |  |  |  | (1,340 | ) |  |  | — |
Call and put options on oil price |  | Derivative and foreign currency transaction gains (losses) |  |  | — |  |  |  | (1,313 | ) |  |  | — |
Swap transactions on natural gas price |  | Electricity revenues |  |  | — |  |  |  | — |  |  |  | 1,158 |
Contingent considerations |  | Derivative and foreign currency transaction gains (losses) |  |  | (129 | ) |  |  | (1,527 | ) |  |  | — |
Contingent considerations |  | General and administrative expenses |  |  | 2,048 |  |  |  | — |  |  |  | — |
Currency forward contracts |  | Derivative and foreign currency transaction gains (losses) |  |  | 3,699 |  |  |  | 238 |  |  |  | (1,206 | )
|  |  |  | $ | 5,268 |  |  | $ | (3,942 | ) |  | $ | (48 | )
In January 2017, the Company entered into Henry Hub Natural Gas Future contracts under which it has bought a number of put options covering a notional quantity of approximately 4.1 million British Thermal Units (“MMBtu”) with exercise prices of $3 and expiration dates ranging from January 26, 2017 until November 27, 2017 in order to reduce its exposure to fluctuations in natural gas prices under its PPAs with Southern California Edison. The Company paid an aggregate amount of approximately $0.7 million for these put options. The put option contracts have monthly expiration dates at which the options can be called and the transaction would be settled on a net cash basis. On February 2, 2016, the Company entered into Henry Hub Natural Gas Future contracts under which it has written a number of call options covering a notional quantity of approximately 4.1 MMBtu with exercise prices of $2 and expiration dates ranging from February 24, 2016 until December 27, 2016 in order to reduce its exposure to fluctuations in natural gas prices under its PPAs with Southern California Edison. The Company received an aggregate premium of approximately $1.9 million from these call options. The call option contracts have monthly expiration dates at which the options can be called and the Company would have to settle its liability on a cash basis. On February 24, 2016, the Company entered into Brent Oil Future contracts under which it has written a number of call options covering a notional quantity of approximately 185,000 barrels (“BBL”) of Brent with exercise prices of $32.80 to $35.50 and expiration dates ranging from March 24, 2016 until December 22, 2016 in order to reduce its exposure to fluctuations in Brent prices under its PPA with HELCO. The Company received an aggregate premium of approximately $1.1 million from these call options. The call option contracts have monthly expiration dates whereby the options can be called and the Company would have to settle its liability on a cash basis. Moreover, during March 2016, the Company rolled 2 existing call options covering a total notional quantity of 31,800 BBL of Brent in order to limit its exposure to $41 to $42.50 instead of $32.80 to $33.50. In addition, the Company entered into short risk reversal transactions (sell call and buy put options) by rolling existing call options covering notional quantities of 16,500 BBL and 17,000 BBL in order to limit its exposure from the outstanding call options originally entered into in February 2016 to a range of $28.50 to $37.50 and $28 to $38.50, respectively. On March 6, 2014, and on May 14, 2015, the Company entered into NGI swap contracts with a bank covering a notional quantity of approximately 2.2 MMBtu for settlement effective January 1, 2015 until March 31, 2015, and covering a notional quantity of approximately 2.4 MMBtu for settlement effective June 1, 2015 until December 31, 2015, respectively, in order to reduce its exposure to fluctuations in natural gas prices under its PPAs with Southern California Edison to below $4.95 per MMBtu and below $3.00 per MMBtu, respectively. The contracts did not have any up-front costs. Under the terms of these contracts, the Company made, and will make, floating rate payments to the bank and received, and will receive, fixed rate payments from the bank on each settlement date. The swap contracts have monthly settlements whereby the difference between the fixed price 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 and June 1, 2015 to December 31, 2015) are settled on a cash basis. The foregoing future, forward and swap transactions have not been designated as hedge transactions and are marked to market with the corresponding gains or losses recognized within “Derivatives and foreign currency transaction gains (losses)” in the consolidated statements of operations and comprehensive income. There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the year ended December 31, 2017. The fair value of the Company ’s long-term debt is as follows:
|  | Fair Value |  |  | Carrying Amount |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
|  | (Dollars in millions) |  |  | (Dollars in millions) |
Olkaria III Loan - DEG |  | $ | — |  |  | $ | 16.3 |  |  | $ | — |  |  | $ | 15.8 |
Olkaria III Loan - OPIC |  |  | 234.6 |  |  |  | 253.4 |  |  |  | 228.6 |  |  |  | 246.6 |
Olkaria IV Loan - DEG 2 |  |  | 50.7 |  |  |  | 50.9 |  |  |  | 50.0 |  |  |  | 50.0 |
Amatitlan Loan |  |  | 32.8 |  |  |  | 37.3 |  |  |  | 33.3 |  |  |  | 36.8 |
Senior Secured Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ormat Funding Corp. ("OFC") |  |  | — |  |  |  | 17.0 |  |  |  | — |  |  |  | 17.0 |
OrCal Geothermal Inc. ("OrCal") |  |  | 34.2 |  |  |  | 37.4 |  |  |  | 32.1 |  |  |  | 35.2 |
OFC 2 LLC ("OFC 2") |  |  | 234.6 |  |  |  | 249.0 |  |  |  | 232.5 |  |  |  | 247.2 |
Don A. Campbell 1 ("DAC 1") |  |  | 85.5 |  |  |  | 88.9 |  |  |  | 88.3 |  |  |  | 92.4 |
Senior Unsecured Bonds |  |  | 200.3 |  |  |  | 200.1 |  |  |  | 204.3 |  |  |  | 204.3 |
Other long-term debt |  |  | 7.0 |  |  |  | 10.4 |  |  |  | 7.9 |  |  |  | 11.2 |
The fair value of the OFC Senior Secured Notes was determined using observable market prices as these securities are traded. The fair value of all the long-term debt is determined by a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of 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. The carrying value of other financial instruments, such as revolving lines of credit and deposits approximates fair value. The following table presents the fair value of financial instruments as of December 31, 2017:
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Dollars in millions) |
Olkaria III - OPIC |  | $ | — |  |  | $ | — |  |  | $ | 234.6 |  |  | $ | 234.6 |
Olkaria IV - DEG 2 |  |  | — |  |  |  | — |  |  |  | 50.7 |  |  |  | 50.7 |
Amatitlan Loan |  |  | — |  |  |  | 32.8 |  |  |  | — |  |  |  | 32.8 |
Senior Secured Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OrCal Senior Secured Notes |  |  | — |  |  |  | — |  |  |  | 34.2 |  |  |  | 34.2 |
OFC 2 Senior Secured Notes |  |  | — |  |  |  | — |  |  |  | 234.6 |  |  |  | 234.6 |
DAC 1 Senior Secured Notes |  |  | — |  |  |  | — |  |  |  | 85.5 |  |  |  | 85.5 |
Senior Unsecured Bonds |  |  | — |  |  |  | — |  |  |  | 200.3 |  |  |  | 200.3 |
Other long-term debt |  |  | — |  |  |  | — |  |  |  | 7.0 |  |  |  | 7.0 |
Revolving lines of credit |  |  | — |  |  |  | 51.5 |  |  |  | — |  |  |  | 51.5 |
Deposits |  |  | 15.6 |  |  |  | — |  |  |  | — |  |  |  | 15.6 |
The following table presents the fair value of financial instruments as of December 31, 2016:
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Dollars in millions) |
Olkaria III Loan - DEG |  | $ | — |  |  | $ | — |  |  | $ | 16.3 |  |  | $ | 16.3 |
Olkaria III Loan - OPIC |  |  | — |  |  |  | — |  |  |  | 253.4 |  |  |  | 253.4 |
Olkaria IV - DEG 2 |  |  |  |  |  |  |  |  |  |  | 50.9 |  |  |  | 50.9 |
Amatitlan Loan |  |  | — |  |  |  | 37.3 |  |  |  | — |  |  |  | 37.3 |
Senior Secured Notes: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OFC Senior Secured Notes |  |  | — |  |  |  | 17.0 |  |  |  | — |  |  |  | 17.0 |
OrCal Senior Secured Notes |  |  | — |  |  |  | — |  |  |  | 37.4 |  |  |  | 37.4 |
OFC 2 Senior Secured Notes |  |  | — |  |  |  | — |  |  |  | 249.0 |  |  |  | 249.0 |
DAC 1 Senior Secured Notes |  |  | — |  |  |  | — |  |  |  | 88.9 |  |  |  | 88.9 |
Senior Unsecured Bonds |  |  | — |  |  |  | — |  |  |  | 200.1 |  |  |  | 200.1 |
Other long-term debt |  |  | — |  |  |  | 3.3 |  |  |  | 7.1 |  |  |  | 10.4 |
Revolving lines of credit |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Deposits |  |  | 14.4 |  |  |  | — |  |  |  | — |  |  |  | 14.4 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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