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EX-32 - EXHIBIT 32 - Pattern Energy Group Inc. | pegi2017063010qexhibit32.htm |
EX-31.2 - EXHIBIT 31.2 - Pattern Energy Group Inc. | pegi2017063010qexhibit312.htm |
EX-31.1 - EXHIBIT 31.1 - Pattern Energy Group Inc. | pegi2017063010qexhibit311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2017.
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-36087
PATTERN ENERGY GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware | 90-0893251 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Pier 1, Bay 3, San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (415) 283-4000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of August 4, 2017 there were 87,637,816 shares of Class A common stock outstanding with par value of $0.01 per share.
PATTERN ENERGY GROUP INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II. OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 6. | ||
2
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q (Form 10-Q) may constitute “forward-looking statements.” You can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will," "would," or similar words. You should read statements that contain these words carefully because they discuss our current plans, strategies, prospects, and expectations concerning our business, operating results, financial condition, and other similar matters. While we believe that these forward-looking statements are reasonable as and when made, there may be events in the future that we are not able to predict accurately or control, and there can be no assurance that future developments affecting our business will be those that we anticipate. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
• | our ability to complete acquisitions of power projects; |
• | our ability to complete construction of our construction projects and transition them into financially successful operating projects; |
• | fluctuations in supply, demand, prices and other conditions for electricity, other commodities and renewable energy credits (RECs); |
• | our electricity generation, our projections thereof and factors affecting production, including wind and other conditions, other weather conditions, availability and curtailment; |
• | changes in law, including applicable tax laws; |
• | public response to and changes in the local, state, provincial and federal regulatory framework affecting renewable energy projects, including the U.S. federal production tax credit (PTC), investment tax credit (ITC) and potential reductions in Renewable Portfolio Standards (RPS) requirements; |
• | the ability of our counterparties to satisfy their financial commitments or business obligations; |
• | the availability of financing, including tax equity financing, for our power projects; |
• | an increase in interest rates; |
• | our substantial short-term and long-term indebtedness, including additional debt in the future; |
• | competition from other power project developers; |
• | development constraints, including the availability of interconnection and transmission; |
• | potential environmental liabilities and the cost and conditions of compliance with applicable environmental laws and regulations; |
• | our ability to operate our business efficiently, manage capital expenditures and costs effectively and generate cash flow; |
• | our ability to retain and attract executive officers and key employees; |
• | our ability to keep pace with and take advantage of new technologies; |
• | the effects of litigation, including administrative and other proceedings or investigations, relating to our wind power projects under construction and those in operation; |
• | conditions in energy markets as well as financial markets generally, which will be affected by interest rates, foreign currency exchange rate fluctuations and general economic conditions; |
• | the effectiveness of our currency risk management program; |
• | the effective life and cost of maintenance of our wind turbines and other equipment; |
• | the increased costs of, and tariffs on, spare parts; |
• | scarcity of necessary equipment; |
• | negative public or community response to wind power projects; |
• | the value of collateral in the event of liquidation; and |
• | other factors discussed under “Risk Factors.” |
3
For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see Part II, "Item 1A. Risk Factors" in this Form 10-Q and Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016.
Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pattern Energy Group Inc. Consolidated Balance Sheets (In thousands of U.S. Dollars, except share data) (Unaudited) | |||||||
June 30, | December 31, | ||||||
2017 | 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents (Note 6) | $ | 162,600 | $ | 83,932 | |||
Restricted cash (Note 6) | 13,137 | 11,793 | |||||
Funds deposited by counterparty | 34,436 | 43,635 | |||||
Trade receivables (Note 6) | 48,331 | 37,510 | |||||
Derivative assets, current | 18,680 | 17,578 | |||||
Prepaid expenses (Note 6) | 11,787 | 13,803 | |||||
Deferred financing costs, current, net of accumulated amortization of $10,606 and $9,350 as of June 30, 2017 and December 31, 2016, respectively | 2,461 | 2,456 | |||||
Other current assets (Note 6) | 12,658 | 7,350 | |||||
Total current assets | 304,090 | 218,057 | |||||
Restricted cash (Note 6) | 17,410 | 13,646 | |||||
Property, plant and equipment, net (Note 6) | 3,682,269 | 3,135,162 | |||||
Unconsolidated investments | 240,561 | 233,294 | |||||
Derivative assets | 16,058 | 26,712 | |||||
Deferred financing costs | 4,023 | 4,052 | |||||
Net deferred tax assets | 4,387 | 5,559 | |||||
Finite-lived intangible assets, net (Note 6) | 110,617 | 91,895 | |||||
Other assets (Note 6) | 24,864 | 24,390 | |||||
Total assets | $ | 4,404,279 | $ | 3,752,767 | |||
Liabilities and equity | |||||||
Current liabilities: | |||||||
Accounts payable and other accrued liabilities (Note 6) | $ | 64,974 | $ | 31,305 | |||
Accrued construction costs (Note 6) | 4,146 | 1,098 | |||||
Counterparty deposit liability | 34,436 | 43,635 | |||||
Accrued interest (Note 6) | 18,222 | 9,545 | |||||
Dividends payable | 36,991 | 35,960 | |||||
Derivative liabilities, current | 11,340 | 11,918 | |||||
Revolving credit facility | 60,000 | 180,000 | |||||
Current portion of long-term debt, net | 54,975 | 48,716 | |||||
Other current liabilities (Note 6) | 9,121 | 4,698 | |||||
Total current liabilities | 294,205 | 366,875 | |||||
Long-term debt, net | 1,711,670 | 1,334,956 | |||||
Derivative liabilities | 24,171 | 24,521 | |||||
Net deferred tax liabilities | 43,559 | 31,759 | |||||
Finite-lived intangible liability, net | 52,929 | 54,663 | |||||
Contingent liabilities | 58,346 | 576 | |||||
Other long-term liabilities (Note 6) | 91,685 | 60,673 | |||||
Total liabilities | 2,276,565 | 1,874,023 | |||||
Commitments and contingencies (Note 15) | |||||||
Equity: | |||||||
Class A common stock, $0.01 par value per share: 500,000,000 shares authorized; 87,637,816 and 87,410,687 shares outstanding as of June 30, 2017 and December 31, 2016, respectively | 878 | 875 | |||||
Additional paid-in capital | 1,075,448 | 1,145,760 | |||||
Accumulated loss | (74,397 | ) | (94,270 | ) | |||
Accumulated other comprehensive loss | (47,048 | ) | (62,367 | ) | |||
Treasury stock, at cost; 115,146 and 110,964 shares of Class A common stock as of June 30, 2017 and December 31, 2016, respectively | (2,597 | ) | (2,500 | ) | |||
Total equity before noncontrolling interest | 952,284 | 987,498 | |||||
Noncontrolling interest | 1,175,430 | 891,246 | |||||
Total equity | 2,127,714 | 1,878,744 | |||||
Total liabilities and equity | $ | 4,404,279 | $ | 3,752,767 |
See accompanying notes to consolidated financial statements.
5
Pattern Energy Group Inc. Consolidated Statements of Operations (In thousands of U.S. Dollars, except share data) (Unaudited) | |||||||||||||||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue: | |||||||||||||||
Electricity sales | $ | 105,736 | $ | 91,370 | $ | 204,170 | $ | 177,033 | |||||||
Other revenue | 2,024 | 2,068 | 4,423 | 4,044 | |||||||||||
Total revenue | 107,760 | 93,438 | 208,593 | 181,077 | |||||||||||
Cost of revenue: | |||||||||||||||
Project expense | 33,405 | 33,246 | 62,505 | 65,327 | |||||||||||
Transmission costs | 4,722 | 113 | 4,792 | 278 | |||||||||||
Depreciation and accretion | 48,518 | 43,678 | 92,258 | 87,089 | |||||||||||
Total cost of revenue | 86,645 | 77,037 | 159,555 | 152,694 | |||||||||||
Gross profit | 21,115 | 16,401 | 49,038 | 28,383 | |||||||||||
Operating expenses: | |||||||||||||||
General and administrative (Note 16) | 11,777 | 9,265 | 22,901 | 17,827 | |||||||||||
Related party general and administrative | 3,576 | 1,931 | 7,002 | 3,828 | |||||||||||
Total operating expenses | 15,353 | 11,196 | 29,903 | 21,655 | |||||||||||
Operating income | 5,762 | 5,205 | 19,135 | 6,728 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (24,839 | ) | (21,275 | ) | (47,394 | ) | (42,336 | ) | |||||||
Loss on undesignated derivatives, net | (4,751 | ) | (5,879 | ) | (5,399 | ) | (19,510 | ) | |||||||
Earnings in unconsolidated investments, net | 14,519 | 7,240 | 31,395 | 11,070 | |||||||||||
Net loss on transactions | (807 | ) | (72 | ) | (1,119 | ) | (39 | ) | |||||||
Other income, net | (27 | ) | 564 | 553 | 2,120 | ||||||||||
Total other expense | (15,905 | ) | (19,422 | ) | (21,964 | ) | (48,695 | ) | |||||||
Net loss before income tax | (10,143 | ) | (14,217 | ) | (2,829 | ) | (41,967 | ) | |||||||
Tax provision | 4,541 | 1,429 | 9,316 | 2,727 | |||||||||||
Net loss | (14,684 | ) | (15,646 | ) | (12,145 | ) | (44,694 | ) | |||||||
Net loss attributable to noncontrolling interest | (28,904 | ) | (12,423 | ) | (32,018 | ) | (17,801 | ) | |||||||
Net income (loss) attributable to Pattern Energy | $ | 14,220 | $ | (3,223 | ) | $ | 19,873 | $ | (26,893 | ) | |||||
Weighted-average number of common shares outstanding | |||||||||||||||
Basic | 87,065,591 | 74,443,901 | 87,064,110 | 74,440,950 | |||||||||||
Diluted | 87,217,381 | 74,443,901 | 87,257,130 | 74,440,950 | |||||||||||
Earnings (loss) per share attributable to Pattern Energy | |||||||||||||||
Basic and diluted | $ | 0.16 | $ | (0.04 | ) | $ | 0.23 | $ | (0.36 | ) | |||||
Dividends declared per Class A common share | $ | 0.42 | $ | 0.39 | $ | 0.83 | $ | 0.77 |
See accompanying notes to consolidated financial statements.
6
Pattern Energy Group Inc. Consolidated Statements of Comprehensive Income (Loss) (In thousands of U.S. Dollars) (Unaudited) | |||||||||||||||
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss | $ | (14,684 | ) | $ | (15,646 | ) | $ | (12,145 | ) | $ | (44,694 | ) | |||
Other comprehensive (loss) income: | |||||||||||||||
Foreign currency translation, net of zero tax impact | 7,286 | 780 | 9,749 | 11,642 | |||||||||||
Derivative activity: | |||||||||||||||
Effective portion of change in fair market value of derivatives, net of tax (provision) benefit of ($98), $1,379, ($59) and $4,102, respectively | (3,877 | ) | (9,964 | ) | (4,418 | ) | (30,661 | ) | |||||||
Reclassifications to net loss, net of tax impact of $236, $281, $487 and $583, respectively | 2,164 | 2,721 | 4,483 | 5,623 | |||||||||||
Total change in effective portion of change in fair market value of derivatives | (1,713 | ) | (7,243 | ) | 65 | (25,038 | ) | ||||||||
Proportionate share of equity investee’s derivative activity: | |||||||||||||||
Effective portion of change in fair market value of derivatives, net of tax (provision) benefit of ($1,064), $1,296, ($285) and $3,969, respectively | 2,950 | (3,594 | ) | 790 | (11,008 | ) | |||||||||
Reclassifications to net loss, net of tax impact of $629, $470, $1,661 and $922, respectively | 1,747 | 1,304 | 4,608 | 2,557 | |||||||||||
Total change in effective portion of change in fair market value of derivatives | 4,697 | (2,290 | ) | 5,398 | (8,451 | ) | |||||||||
Total other comprehensive income (loss), net of tax | 10,270 | (8,753 | ) | 15,212 | (21,847 | ) | |||||||||
Comprehensive (loss) income | (4,414 | ) | (24,399 | ) | 3,067 | (66,541 | ) | ||||||||
Less comprehensive loss attributable to noncontrolling interest: | |||||||||||||||
Net loss attributable to noncontrolling interest | (28,904 | ) | (12,423 | ) | (32,018 | ) | (17,801 | ) | |||||||
Derivative activity: | |||||||||||||||
Effective portion of change in fair market value of derivatives, net of tax (provision) benefit of $93, $164, $101 and $507, respectively | (253 | ) | (442 | ) | (274 | ) | (1,370 | ) | |||||||
Reclassifications to net loss, net of tax impact of $29, $40, $62 and $87, respectively | 79 | 107 | 167 | 235 | |||||||||||
Total change in effective portion of change in fair market value of derivatives | (174 | ) | (335 | ) | (107 | ) | (1,135 | ) | |||||||
Comprehensive loss attributable to noncontrolling interest | (29,078 | ) | (12,758 | ) | (32,125 | ) | (18,936 | ) | |||||||
Comprehensive income (loss) attributable to Pattern Energy | $ | 24,664 | $ | (11,641 | ) | $ | 35,192 | $ | (47,605 | ) |
See accompanying notes to consolidated financial statements.
7
Pattern Energy Group Inc. Consolidated Statements of Stockholders’ Equity (In thousands of U.S. Dollars, except share data) (Unaudited) | |||||||||||||||||||||||||||||||||||||
Class A Common Stock | Treasury Stock | Additional Paid-in Capital | Accumulated Loss | Accumulated Other Comprehensive Loss | Total | Noncontrolling Interest | Total Equity | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||
Balances at December 31, 2015 | 74,709,442 | $ | 747 | (65,301 | ) | $ | (1,577 | ) | $ | 982,814 | $ | (77,159 | ) | $ | (73,325 | ) | $ | 831,500 | $ | 944,262 | $ | 1,775,762 | |||||||||||||||
Issuance of Class A common stock under equity incentive award plan | 287,904 | 3 | — | — | (3 | ) | — | — | — | — | — | ||||||||||||||||||||||||||
Repurchase of shares for employee tax withholding | — | — | (2,043 | ) | (40 | ) | — | — | — | (40 | ) | — | (40 | ) | |||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,777 | — | — | 2,777 | — | 2,777 | |||||||||||||||||||||||||||
Dividends declared | — | — | — | — | (57,810 | ) | — | — | (57,810 | ) | — | (57,810 | ) | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | (8,187 | ) | (8,187 | ) | |||||||||||||||||||||||||
Other | — | — | — | — | 34 | — | — | 34 | (469 | ) | (435 | ) | |||||||||||||||||||||||||
Net loss | — | — | — | — | — | (26,893 | ) | — | (26,893 | ) | (17,801 | ) | (44,694 | ) | |||||||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | — | — | (20,712 | ) | (20,712 | ) | (1,135 | ) | (21,847 | ) | |||||||||||||||||||||||
Balances at June 30, 2016 | 74,997,346 | $ | 750 | (67,344 | ) | $ | (1,617 | ) | $ | 927,812 | $ | (104,052 | ) | $ | (94,037 | ) | $ | 728,856 | $ | 916,670 | $ | 1,645,526 | |||||||||||||||
Balances at December 31, 2016 | 87,521,651 | $ | 875 | (110,964 | ) | $ | (2,500 | ) | $ | 1,145,760 | $ | (94,270 | ) | $ | (62,367 | ) | $ | 987,498 | $ | 891,246 | $ | 1,878,744 | |||||||||||||||
Issuance of Class A common stock under equity incentive award plan, net of forfeiture | 231,311 | 3 | — | — | (3 | ) | — | — | — | — | — | ||||||||||||||||||||||||||
Repurchase of shares for employee tax withholding | — | — | (4,182 | ) | (97 | ) | — | — | — | (97 | ) | — | (97 | ) | |||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 2,768 | — | — | 2,768 | — | 2,768 | |||||||||||||||||||||||||||
Dividends declared | — | — | — | — | (72,934 | ) | — | — | (72,934 | ) | — | (72,934 | ) | ||||||||||||||||||||||||
Increase in noncontrolling interest from acquisition | — | — | — | — | — | — | — | — | 325,600 | 325,600 | |||||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | — | — | (9,164 | ) | (9,164 | ) | |||||||||||||||||||||||||
Other | — | — | — | — | (143 | ) | — | — | (143 | ) | (127 | ) | (270 | ) | |||||||||||||||||||||||
Net income (loss) | — | — | — | — | — | 19,873 | — | 19,873 | (32,018 | ) | (12,145 | ) | |||||||||||||||||||||||||
Other comprehensive income, net of tax | — | — | — | — | — | — | 15,319 | 15,319 | (107 | ) | 15,212 | ||||||||||||||||||||||||||
Balances at June 30, 2017 | 87,752,962 | $ | 878 | (115,146 | ) | $ | (2,597 | ) | $ | 1,075,448 | $ | (74,397 | ) | $ | (47,048 | ) | $ | 952,284 | $ | 1,175,430 | $ | 2,127,714 |
See accompanying notes to consolidated financial statements.
8
Pattern Energy Group Inc. Consolidated Statements of Cash Flows (In thousands of U.S. Dollars) (Unaudited) | |||||||
Six months ended June 30, | |||||||
2017 | 2016 | ||||||
Operating activities | |||||||
Net loss | $ | (12,145 | ) | $ | (44,694 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and accretion | 92,258 | 87,089 | |||||
Amortization of financing costs | 3,852 | 3,498 | |||||
Amortization of debt discount/premium, net | 2,227 | 2,074 | |||||
Amortization of power purchase agreements, net | 1,489 | 1,507 | |||||
Loss on derivatives, net | 10,331 | 32,209 | |||||
Stock-based compensation | 2,768 | 2,777 | |||||
Deferred taxes | 9,149 | 2,487 | |||||
Earnings in unconsolidated investments, net | (31,395 | ) | (11,070 | ) | |||
Distributions from unconsolidated investments | 31,710 | 377 | |||||
Other reconciling items | (1,017 | ) | (965 | ) | |||
Changes in operating assets and liabilities: | |||||||
Funds deposited by counterparty | 9,199 | (49,480 | ) | ||||
Trade receivables | (7,995 | ) | (3,753 | ) | |||
Prepaid expenses | 2,202 | 3,400 | |||||
Other current assets | (3,638 | ) | (2,920 | ) | |||
Other assets (non-current) | 2,561 | 1,839 | |||||
Accounts payable and other accrued liabilities | 31,001 | (9,631 | ) | ||||
Counterparty deposit liability | (9,199 | ) | 49,480 | ||||
Accrued interest | 8,569 | (178 | ) | ||||
Other current liabilities | 4,333 | (433 | ) | ||||
Long-term liabilities | 10,648 | 6,353 | |||||
Contingent liabilities | 275 | 10 | |||||
Net cash provided by operating activities | 157,183 | 69,976 | |||||
Investing activities | |||||||
Cash paid for acquisitions, net of cash and restricted cash acquired | (170,028 | ) | — | ||||
Capital expenditures | (39,087 | ) | (25,953 | ) | |||
Distributions from unconsolidated investments | 8,390 | 31,774 | |||||
Other assets | 7,552 | 38 | |||||
Other investing activities | 12 | (163 | ) | ||||
Net cash provided by (used in) investing activities | (193,161 | ) | 5,696 |
9
Pattern Energy Group Inc. Consolidated Statements of Cash Flows (In thousands of U.S. Dollars) (Unaudited) | |||||||
Six months ended June 30, | |||||||
2017 | 2016 | ||||||
Financing activities | |||||||
Dividends paid | (71,544 | ) | (56,097 | ) | |||
Capital distributions - noncontrolling interest | (9,163 | ) | (8,187 | ) | |||
Payment for deferred financing costs | (7,740 | ) | (134 | ) | |||
Proceeds from revolving credit facility | 85,000 | 20,000 | |||||
Repayment of revolving credit facility | (205,000 | ) | (40,000 | ) | |||
Proceeds from debt | 404,395 | — | |||||
Repayment of debt | (74,824 | ) | (22,262 | ) | |||
Other financing activities | (3,618 | ) | (1,060 | ) | |||
Net cash provided by (used in) financing activities | 117,506 | (107,740 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 2,248 | 2,017 | |||||
Net change in cash, cash equivalents and restricted cash | 83,776 | (30,051 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 109,371 | 146,292 | |||||
Cash, cash equivalents and restricted cash at end of period | $ | 193,147 | $ | 116,241 | |||
Supplemental disclosures | |||||||
Cash payments for income taxes | $ | 288 | $ | 155 | |||
Cash payments for interest expense | $ | 33,666 | $ | 36,535 | |||
Schedule of non-cash activities | |||||||
Change in property, plant and equipment | $ | 1,110 | $ | 1,302 | |||
Change in other assets | $ | 2,492 | $ | — |
See accompanying notes to consolidated financial statements.
10
Pattern Energy Group Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization
Pattern Energy Group Inc. (Pattern Energy or the Company) was organized in the state of Delaware on October 2, 2012. Pattern Energy is an independent energy generation company focused on constructing, owning and operating energy projects with long-term energy sales contracts located in the United States, Canada and Chile. Pattern Energy Group LP (Pattern Development 1.0) owns a 9% interest in the Company. The Pattern Development Companies (Pattern Development 1.0, Pattern Energy Group 2 LP (Pattern Development 2.0) and their respective subsidiaries) are leading developers of renewable energy and transmission projects.
The Company consists of the consolidated operations of certain entities and assets contributed by, or purchased principally from, Pattern Development 1.0, except for purchases of Lost Creek, Post Rock and certain additional interests in El Arrayán, each as defined below, which were purchased from third-parties. Each of the Company's wind projects and certain assets are consolidated into the Company's subsidiaries which are organized by geographic location as follows:
• | Pattern US Operations Holdings LLC (which consists primarily of 100% ownership of Hatchet Ridge Wind, LLC (Hatchet Ridge), Spring Valley Wind LLC (Spring Valley), Pattern Santa Isabel LLC (Santa Isabel), Ocotillo Express LLC (Ocotillo), Pattern Gulf Wind LLC (Gulf Wind) and Lost Creek Wind, LLC (Lost Creek), as well as the following consolidated controlling interest in Panhandle Wind LLC (Panhandle 1), Panhandle Wind 2 LLC (Panhandle 2), Post Rock Wind Power Project, LLC (Post Rock), Logan's Gap Wind LLC (Logan's Gap), Fowler Ridge IV Wind Farm LLC (Amazon Wind Farm Fowler Ridge), and Broadview Project Finco Pledgor (Broadview Project) (which consists primarily of Broadview Energy KW, LLC and Broadview Energy JN, LLC (together, Broadview) and Western Interconnect transmission line (Western Interconnect))); |
• | Pattern Canada Operations Holdings ULC (which consists primarily of 100% ownership of St. Joseph Windfarm Inc. (St. Joseph) and noncontrolling interests in South Kent Wind LP (South Kent), Grand Renewable Wind LP (Grand), K2 Wind Ontario Limited Partnership (K2), and SP Armow Wind Ontario LP (Armow) which are accounted for as unconsolidated investments); and |
• | Pattern Chile Holdings LLC (which includes a controlling interest in Parque Eólico El Arrayán SpA (El Arrayán) and controlling interest in Don Goyo Transmisión S.A. (Don Goyo), a transmission asset of El Arrayán). |
On July 27, 2017, the Company funded an initial $60 million capital call under the Second Amended and Restated Agreement of Limited Partnership of Pattern Energy Group Holdings 2 LP (PEGH 2), dated as of June 16, 2017, by and among PEGH 2, the Class A Limited Partners set forth therein and the Class B Limited Partners set forth therein. As a result of such funding, and the related funding by other investors in PEGH 2 and consummation of certain redemptions, the Company holds an approximate 20% ownership interest in PEGH 2 representing the Company's interest in Pattern Development 2.0.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the results of wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest with all significant intercompany accounts and transactions eliminated in consolidation.
Unaudited Interim Financial Information
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and Article 10 of Regulation S-X issued by the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the interim financial information reflects all adjustments of a normal recurring nature, necessary for a fair presentation of the Company’s financial position at June 30, 2017, the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2017 and 2016, respectively, and the cash flows for the six months ended June 30, 2017 and 2016, respectively. The consolidated balance sheet at December 31, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. This Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
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Use of Estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and such differences may be material to the financial statements.
Reclassification
Certain prior period balances have been reclassified to conform to the current period presentation in the Company’s consolidated financial statements and the accompanying notes.
The Company adopted the provisions of Accounting Standards Update (ASU) 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash as of December 31, 2016 and has revised its consolidated statements of cash flows for the six months ended June 30, 2016 to reflect amounts described as restricted cash and restricted cash equivalents included with cash and cash equivalents in the reconciliation of beginning of period and end of period total amounts shown on the consolidated statements of cash flows.
Reconciliation of Cash and Cash Equivalents and Restricted Cash as Presented on the Statements of Cash Flows
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):
June 30, 2017 | December 31, 2016 | June 30, 2016 | December 31, 2015 | ||||||||||||
Cash and cash equivalents | $ | 162,600 | $ | 83,932 | $ | 87,641 | $ | 94,808 | |||||||
Restricted cash - current | 13,137 | 11,793 | 12,228 | 14,609 | |||||||||||
Restricted cash | 17,410 | 13,646 | 16,372 | 36,875 | |||||||||||
Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | 193,147 | $ | 109,371 | $ | 116,241 | $ | 146,292 |
Recently Issued Accounting Standards
Except for the evaluation of recently issued accounting standards set forth below, there have been no changes to the Company's evaluation of other recently issued accounting standards disclosed in Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-01, Clarifying the Definition of a Business (ASU 2017-01), which provides a screen to determine when a set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early application is allowed for transactions for which the acquisition date occurs before the issuance date or effective date of this amendment, only if the transaction has not been reported in previously issued financial statements. Early application is also permitted for transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur before the issuance date or effective date of the amendments, only if the transaction has not been reported in previously issued financial statements. The amendments should be applied prospectively on or after the effective date and no disclosures are required at transition. The Company will adopt ASU 2017-01 during the third quarter of 2017 and does not expect the adoption to have a material impact on the Company’s consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02), which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. Under the new guidance, lessor accounting is largely unchanged. ASU 2016-02 simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and liabilities. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company does not plan to early adopt, and accordingly, will adopt the new standard effective January 1, 2019. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning
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of the earliest period presented. The Company is in the initial stages of evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company has assigned internal resources in addition to the engagement of a third party service provider to assist in evaluation. The Company is also assessing the accounting impact of the ASU 2016-02 as it applies to its PPAs, land leases, office leases and equipment leases. As the Company progresses further in its analysis, the scope of this assessment could be expanded to review other types of contracts.
In May 2014, the FASB issued a new standard, ASU 2014-09, which creates Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers and supersedes ASC Topic 605, Revenue Recognition (ASU 2014-09). The new standard replaces industry-specific guidance and establishes a single five-step model to identify and recognize revenue. The core principle of the new standard is that an entity should recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Additionally, the new standard requires the entity to disclose further quantitative and qualitative information regarding the nature and amount of revenues arising from contracts with customers, as well as other information about the significant judgments and estimates used in recognizing revenues from contracts with customers. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies how to apply the implementation guidance on principal versus agent considerations related to the sale of goods or services to a customer as updated by ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing, which clarifies two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas, as updated by ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which makes narrow scope amendments to Topic 606 including implementation issues on collectability, non-cash consideration and completed contracts at transition. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which make additional narrow scope amendments to Topic 606 including loan guarantee fees, impairment testing of contract costs, provisions for losses on construction-type and production-type contracts.
The new standard permits adoption by either using (i) the full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the date of initial application and providing certain additional disclosures. The Company plans to adopt using the modified retrospective approach. The new standard is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. The Company will adopt the new standard effective January 1, 2018.
The Company is in the initial stages of evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company has assigned internal resources in addition to the engagement of a third party service provider to assist in evaluation. The Company is also assessing the accounting impact of the new standard as it applies certain elements of its revenue arrangements such as contracts that contain the sale of electricity and related renewable energy credits, contracts that contain volume variability, and contracts that contain modification clauses. The Company is assessing whether revenue agreements that contain the sale of both electricity and renewable energy credits, represent separate performance obligations pursuant to the new standard, which would require the transaction price to be allocated to each of the electricity and the renewable energy credit components based on their relative standalone selling prices. In addition, the Company is assessing if the use of the residual approach is appropriate in determining the standalone selling price for renewable energy credits in situations where the standalone selling price of renewable credits is highly variable or uncertain. Under the residual value approach, the standalone selling price of renewable energy credits would be determined by reference to the total transaction price of the revenue agreement less the sum of the observable standalone selling price of the electricity. Further, the Company is in the process of assessing the disclosure impacts of the new standard to the Company’s systems and processes over revenue recognition. As the Company progresses further in its analysis, the scope of this assessment could be expanded to include other contract elements that could have an accounting impact under the new standard.
The Company continues to assess the potential impacts of the new standard and cannot reasonably estimate quantitative information related to the impact of the new standard on its consolidated financial statements at this time.
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3. Acquisitions
Business Combination
Broadview Project Acquisition
On April 21, 2017, pursuant to a Purchase and Sale Agreement with Pattern Development 1.0, the Company acquired a 100% ownership interest in Broadview Project which indirectly owns both 100% of the Class B membership interest in Broadview Energy Holdings LLC (Broadview Holdings) and a 99% ownership interest in Western Interconnect, a 35-mile 345 kV transmission line. Broadview Holdings owns 100% ownership interests that comprise the 324 MW Broadview wind power projects. The Company's indirect Class B membership interest in Broadview Holdings represents an 84% interest in initial distributable cash flow from Broadview. Consideration consisted of $214.7 million of cash, a $2.4 million assumed liability and a post-closing payment of approximately $21.3 million contingent upon the commercial operation of the Grady Project (as defined below). As part of the acquisition, the Company also assumed $51.2 million of construction debt and related accrued interest outstanding at Western Interconnect which was immediately extinguished, and concurrently the Company entered into a variable rate term loan for $54.4 million. The Grady Wind Energy Center, LLC (the Grady Project) is a wind power project on the identified ROFO list being developed by Pattern Development 2.0 separately from Broadview, which is expected to begin full construction not earlier than 2018, and which will be interconnected through Western Interconnect. Following the commencement of commercial operations of the Grady Project, at which time the Grady Project will begin making transmission service payments to Western Interconnect, the Company will make the aforementioned contingent post-closing payment.
The identifiable assets, operating contracts and liabilities assumed for Broadview and Western Interconnect were recorded at their fair values, which corresponded to the sum of the cash purchase price, contingent consideration payment, and the fair value of the other investors' noncontrolling interests.
The fair values are as follows (in thousands):
April 21, 2017 | ||||
Cash and cash equivalents | $ | 3,022 | ||
Trade receivables | 3,259 | |||
Prepaid expenses | 187 | |||
Other current assets | 9,830 | |||
Restricted cash | 44,383 | |||
Deferred financing costs, net | 1,890 | |||
Property, plant and equipment | 628,500 | |||
Intangible assets | 22,346 | |||
Accounts payable and other accrued liabilities | (2,956 | ) | ||
Accrued interest | (108 | ) | ||
Long-term debt, current portion | (51,053 | ) | ||
Accrued construction costs | (40,114 | ) | ||
Related party payable | (674 | ) | ||
Contingent liability | (36,205 | ) | ||
Asset retirement obligation | (5,994 | ) | ||
Other long-term liabilities | (12,350 | ) | ||
Total consideration before non-controlling interest | 563,963 | |||
Less: noncontrolling interests | (325,600 | ) | ||
Total consideration | $ | 238,363 |
Current assets, non-current restricted cash, accounts payable, other accrued liabilities, accrued interest, accrued construction costs, related party payable and current portion of long-term debt were recorded at carrying value, which was representative of the fair value on the date of acquisition. Property, plant and equipment, finite-lived intangible assets, contingent liabilities and long-term liabilities were recorded at fair value estimated using the cost and income approach. The fair value of asset retirement obligations
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was recorded at fair value using a combination of market data, operational data and discounted cash flows and was adjusted by a discount rate factor reflecting current market conditions at the time of acquisition.
Concurrent with the closing, certain tax equity investors made capital contributions to acquire 100% of the Class A membership interests in Broadview Holdings and have been admitted as noncontrolling members in the entity, with a 16% initial interest in the distributable cash flow from Broadview. The noncontrolling interest was recorded at fair value estimated using the purchase price from the purchase agreement executed on April 21, 2017 among the Company and the tax equity investors.
The Company recorded a $7.2 million contingent obligation, payable to a third party who holds a 1% interest in Western Interconnect, at fair value upon the acquisition of the Broadview Project. These contingent payments are subject to certain conditions, including the actual energy production of Broadview in a production year and the continued operation of Broadview. Additionally, the Company recorded a $29.0 million contingent obligation, payable to the same counterparty, at fair value upon the acquisition of the Broadview Project. These contingent payments are subject to certain conditions, including the commercial operation of the Grady Project. The contingent payment is calculated as a percentage of additional transmission revenue earned by Western Interconnect upon the Grady Project's commercial operation.
The Broadview Project acquisition includes contingent consideration, which requires the Company to make an additional payment upon the commercial operation of the Grady Project. See Note 12, Fair Value Measurements, for further discussion on the fair value of the contingent consideration.
The Company incurred transaction-related expense of $0.4 million which were recorded in net loss on transactions in the consolidated statements of operations for the three and six months ended June 30, 2017.
The accounting for this acquisition is preliminary. The fair value estimates for the assets acquired and liabilities assumed were based on preliminary calculations and valuations, and the estimates and assumptions are subject to change as additional information is obtained for the estimates during the measurement period (up to one year from the acquisition date).
The Company has determined that the operating partnership agreement does not allocate economic benefits pro rata to its two classes of investors for Broadview and will use the hypothetical liquidation at book value (HLBV) method to calculate the noncontrolling interest balance that reflects the substantive profit sharing arrangement.
The following table presents the amounts included in the consolidated statements of operations for the Broadview Project since their date of acquisition:
Unaudited data (in thousands) | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | ||||||
Total revenue | $ | 8,801 | $ | 8,801 | ||||
Total expenses | (12,997 | ) | (12,997 | ) | ||||
Net loss | (4,196 | ) | (4,196 | ) | ||||
Less: net loss attributable to noncontrolling interest | (4,255 | ) | (4,255 | ) | ||||
Net income attributable to Pattern Energy | $ | 59 | $ | 59 |
Pro-forma data has not been provided as there is no material difference between pro forma data that give effects to the Broadview Project acquisition as if it had occurred in January 1, 2016 and actual data reported for the three and six months ended June 30, 2017 and 2016. Broadview reached commercial operations in March 2017 and until approximately three weeks before the acquisition, Broadview was still under construction.
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4. Property, Plant and Equipment
The following presents the categories within property, plant and equipment (in thousands):
June 30, | December 31, | ||||||
2017 | 2016 | ||||||
Operating wind farms | $ | 4,346,605 | $ | 3,707,823 | |||
Furniture, fixtures and equipment | 10,947 | 9,307 | |||||
Land | 141 | 141 | |||||
Subtotal | 4,357,693 | 3,717,271 | |||||
Less: accumulated depreciation | (675,424 | ) | (582,109 | ) | |||
Property, plant and equipment, net | $ | 3,682,269 | $ | 3,135,162 |
The Company recorded depreciation expense related to property, plant and equipment of $47.5 million and $90.5 million for the three and six months ended June 30, 2017, respectively, and recorded $43.0 million and $85.7 million for the same periods in the prior year.
5. Finite-Lived Intangible Assets and Liability
Finite-Lived Intangible Assets and Liability
The following presents the major components of the finite-lived intangible assets and liability (in thousands):
June 30, 2017 | ||||||||||||||
Weighted Average Remaining Life | Gross | Accumulated Amortization | Net | |||||||||||
Intangible assets | ||||||||||||||
Power purchase agreement | 13 | $ | 97,400 | $ | (13,856 | ) | $ | 83,544 | ||||||
Industrial revenue bond tax savings | 25 | 12,778 | (154 | ) | 12,624 | |||||||||
Other intangible assets | 34 | 15,234 | (785 | ) | 14,449 | |||||||||
Total intangible assets | $ | 125,412 | $ | (14,795 | ) | $ | 110,617 | |||||||
Intangible liability | ||||||||||||||
Power purchase agreement | 15 | $ | 60,300 | $ | (7,371 | ) | $ | 52,929 |
December 31, 2016 | ||||||||||||||
Weighted Average Remaining Life | Gross | Accumulated Amortization | Net | |||||||||||
Intangible assets | ||||||||||||||
Power purchase agreement | 13 | $ | 97,400 | $ | (10,632 | ) | $ | 86,768 | ||||||
Other intangible assets | 15 | 5,666 | (539 | ) | 5,127 | |||||||||
Total intangible assets | $ | 103,066 | $ | (11,171 | ) | $ | 91,895 | |||||||
Intangible liability | ||||||||||||||
Power purchase agreement | 16 | $ | 60,300 | $ | (5,637 | ) | $ | 54,663 |
The Company presents amortization of the PPA asset and PPA liability as an offset to electricity sales in the consolidated statements of operations, which resulted in net expense of $0.7 million and $1.5 million in electricity sales for the three and six months ended June 30, 2017 and net expense of $0.7 million and $1.5 million for the same periods in 2016. For other intangible assets, the Company includes the amortization in depreciation and accretion in the consolidated statements of operations and recorded amortization expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2017 and amortization expense of $0.1 million and $0.1 million for the same periods in 2016.
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The acquisition of the Broadview Project provided for future property tax savings as a result of the issuance of industrial revenue bonds during construction of the Broadview Project. The Company considered the future tax savings an intangible asset and calculated the fair value of the asset at the acquisition date. The tax savings was calculated by forecasting the difference between the property tax payments that the Broadview Projects would be liable for if the industrial revenue bond structure was not in place and the actual payments in lieu of tax. The fair value of the property tax savings was recorded to finite-lived intangible assets, net on the consolidated balance sheets at the acquisition date, and such value will be amortized to depreciation and accretion in the consolidated statements of operations over the 25 year exemption period that remains as of the acquisition date. The Company recorded amortization expense of $0.2 million and $0.2 million for the three and six months ended June 30, 2017, respectively, related to industrial revenue bond tax saving intangible asset.
The following table presents estimated future amortization for the next five years related to the PPA asset and PPA liability and other intangible assets (in thousands):
Year ended December 31, | Power purchase agreements, net | Industrial revenue bond tax savings | Other intangible assets | |||||||||
2017 (remainder) | $ | 1,543 | $ | 193 | $ | 305 | ||||||
2018 | 3,031 | 513 | 605 | |||||||||
2019 | 3,031 | 513 | 605 | |||||||||
2020 | 3,049 | 513 | 605 | |||||||||
2021 | 3,031 | 513 | 605 | |||||||||
Thereafter | 16,930 | 10,379 | 11,724 |
6. Variable Interest Entities
The Company has determined that Logan's Gap, Panhandle 1, Panhandle 2, Post Rock, Amazon Wind Farm Fowler Ridge and Broadview Holdings are variable interest entities (VIEs) in accordance with ASU 2015-02 primarily because the tax equity interests in these operating entities lack substantive kick-out and participating rights. The Company determined that as the managing member it is the primary beneficiary of each VIE by reference to the power and benefits criterion under ASC 810, Consolidation. The Company considered responsibilities within the contractual agreements, which grant it the power to direct the activities of the VIE that most significantly impact the VIE's economic performance. Such activities include management of the wind farms' operations and maintenance, budgeting, policies and procedures. In addition, the Company has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIEs on the basis of the income allocations and cash distributions.
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The following presents the carrying amounts of the consolidated VIEs' assets and liabilities included in the consolidated balance sheets (in thousands). Assets presented below are restricted for settlement of the consolidated VIEs' obligations and all liabilities presented below can only be settled using the VIE resources.
June 30, 2017 | December 31, 2016(1) | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 29,062 | $ | 12,745 | |||
Restricted cash | 4,300 | 4,291 | |||||
Trade receivables | 7,964 | 6,290 | |||||
Prepaid expenses | 3,684 | 4,468 | |||||
Other current assets | 4,044 | 1,456 | |||||
Total current assets | 49,054 | 29,250 | |||||
Restricted cash | 6,549 | 3,203 | |||||
Property, plant and equipment, net | 2,040,151 | 1,538,793 | |||||
Finite-lived intangible assets, net | 12,519 | 2,070 | |||||
Other assets | 13,550 | 13,622 | |||||
Total assets | $ | 2,121,823 | $ | 1,586,938 | |||
Liabilities | |||||||
Current liabilities: | |||||||
Accounts payable and other accrued liabilities | $ | 15,024 | 12,635 | ||||
Accrued construction costs | 3,628 | 709 | |||||
Accrued interest | 272 | 77 | |||||
Other current liabilities | 3,022 | 2,090 | |||||
Total current liabilities | 21,946 | 15,511 | |||||
Finite-lived intangible liability, net | 52,929 | 54,663 | |||||
Other long-term liabilities | 36,457 | 20,081 | |||||
Total liabilities | $ | 111,332 | $ | 90,255 |
(1) | Does not include Broadview Holdings as it was acquired in April 2017. |
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7. Unconsolidated Investments
The Company's unconsolidated investments consist of the following for the periods presented below (in thousands):
Percentage of Ownership | |||||||||||||
June 30, | December 31, | June 30, | December 31, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
South Kent | $ | 5,487 | $ | 1,537 | 50.0 | % | 50.0 | % | |||||
Grand | 4,952 | 3,459 | 45.0 | % | 45.0 | % | |||||||
K2 | 100,044 | 97,051 | 33.3 | % | 33.3 | % | |||||||
Armow | 130,078 | 131,247 | 50.0 | % | 50.0 | % | |||||||
Unconsolidated investments | $ | 240,561 | $ | 233,294 |
Basis Amortization of Unconsolidated Investments
The cost of the Company’s investment in the net assets of unconsolidated investments was higher than the fair value of the Company’s equity interest in the underlying net assets of its unconsolidated investments. The basis differences were attributable to property, plant and equipment and PPAs and are being amortized over the particular assets useful life. For the three and six months ended June 30, 2017, the Company recorded basis difference amortization for its unconsolidated investments of $2.8 million and $5.6 million, respectively, and for the same periods in 2016, the Company recorded basis difference amortization of $1.3 million and $2.5 million, respectively, in earnings in unconsolidated investments, net on the consolidated statements of operations.
Suspension of Equity Method Accounting
As discussed in Note 2, Summary of Significant Accounting Policies in the Company's 2016 Form 10-K, the Company may suspend recognition of equity method earnings when the Company receives distributions in excess of the carrying value of its investment, and the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. The Company records gains resulting from such excess distributions in the period the distributions occur. Additionally, when the Company's carrying value in an unconsolidated investment is zero and the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support, the Company does not recognize equity in earnings (losses) or equity in other comprehensive income of unconsolidated investments.
As of June 30, 2017, none of the Company's unconsolidated investments were in suspension. As of June 30, 2016, the Company's equity method balances for South Kent and Grand were zero. In accordance with ASC 323, Investments - Equity Method and Joint Ventures, the Company suspended recognition of South Kent's and Grand's equity method earnings or losses until the fourth quarter of 2016 when their cumulative equity method earnings exceeded cumulative distributions received and cumulative equity method losses. As the Company has no explicit or implicit commitment to fund losses at the unconsolidated investments, the Company recorded distributions received in excess of the carrying amount of its unconsolidated investments as gains. Earnings in unconsolidated investments, net as reported on the consolidated statements of operations attributable to South Kent and Grand included $7.5 million and $9.2 million for the three and six months ended June 30, 2016, respectively, in distributions received in excess of the carrying amount of the Company's investment.
During the suspension period, the Company maintains a memo ledger that records the components of the suspended activity. As of June 30, 2016, the memo ledger balance was made up of distributions received in excess of the carrying amount of the Company's investment of $9.2 million, suspended equity losses of $1.9 million and suspended other comprehensive income of $0.1 million.
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Aggregate Financial Data for Unconsolidated Investees
The following summarizes the statements of operations, in aggregate, for the unconsolidated investees (in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016(1) | 2017 | 2016(1) | ||||||||||||
Revenue | $ | 82,744 | $ | 54,147 | $ | 183,103 | $ | 126,563 | |||||||
Cost of revenue | 28,149 | 23,618 | 57,738 | 46,045 | |||||||||||
Operating expenses | 919 | 578 | 1,633 | 1,022 | |||||||||||
Other expense | 15,135 | 30,177 | 37,976 | 68,267 | |||||||||||
Net income (loss) | $ | 38,541 | $ | (226 | ) | $ | 85,756 | $ | 11,229 |
(1) | Results for the three and six months ended June 30, 2016 do not include Armow, which was acquired in October 2016. |
Significant Equity Method Investees
The following table presents summarized statements of operations information for the three and six months ended June 30, 2017 and 2016 (in thousands) as required for the Company's significant equity method investee, South Kent pursuant to Regulation S-X Rule 10-01(b)(1):
South Kent
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | $ | 26,727 | $ | 21,376 | $ | 58,881 | $ | 49,905 | |||||||
Cost of revenue | 7,480 | 8,389 | 15,931 | 16,385 | |||||||||||
Operating expenses | 278 | 239 | 467 | 427 | |||||||||||
Other expense | (170 | ) | 13,268 | 5,973 | 32,957 | ||||||||||
Net income (loss) | $ | 19,139 | $ | (520 | ) | $ | 36,510 | $ | 136 |
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8. Debt
The Company’s debt consists of the following for periods presented below (in thousands):
As of June 30, 2017 | |||||||||||||||
June 30, 2017 | December 31, 2016 | Contractual Interest Rate | Effective Interest Rate | ||||||||||||
Maturity | |||||||||||||||
Corporate-level | |||||||||||||||
Revolving Credit Facility | $ | 60,000 | $ | 180,000 | varies | (1) | 3.46 | % | (1) | December 2018 | |||||
2020 Notes | 225,000 | 225,000 | 4.00 | % | 6.60 | % | July 2020 | ||||||||
2024 Notes | 350,000 | — | 5.88 | % | 5.88 | % | February 2024 | ||||||||
Project-level | |||||||||||||||
Fixed interest rate | |||||||||||||||
El Arrayán EKF term loan | 101,984 | 103,904 | 5.56 | % | 5.56 | % | March 2029 | ||||||||
Santa Isabel term loan | 105,953 | 107,090 | 4.57 | % | 4.57 | % | September 2033 | ||||||||
Variable interest rate | |||||||||||||||
Ocotillo commercial term loan (2) | 188,906 | 193,257 | 2.90 | % | 3.82 | % | (3) | August 2020 | |||||||
Lost Creek term loan | 100,145 | 103,846 | 3.07 | % | 6.51 | % | (3) | September 2027 | |||||||
El Arrayán commercial term loan | 92,713 | 94,458 | 4.17 | % | 5.70 | % | (3) | March 2029 | |||||||
Spring Valley term loan | 127,445 | 130,658 | 3.05 | % | 5.19 | % | (3) | June 2030 | |||||||
Ocotillo development term loan | 101,200 | 102,300 | 3.25 | % | 4.42 | % | (3) | August 2033 | |||||||
St. Joseph term loan (2) | 168,016 | 162,356 | 2.70 | % | 3.86 | % | (3) | November 2033 | |||||||
Western Interconnect term loan (2) | 54,395 | — | 3.05 | % | 3.97 | % | (3) | April 2027 | |||||||
Imputed interest rate | |||||||||||||||
Hatchet Ridge financing lease obligation | 196,363 | 202,593 | 1.43 | % | 1.43 | % | December 2032 | ||||||||
1,872,120 | 1,605,462 | ||||||||||||||
Unamortized premium/discount, net (4) | (14,791 | ) | (17,019 | ) | |||||||||||
Unamortized financing costs | (30,684 | ) | (24,771 | ) | |||||||||||
Total debt, net | $ | 1,826,645 | 1,563,672 | ||||||||||||
As reflected on the consolidated balance sheets | |||||||||||||||
Revolving credit facility | $ | 60,000 | $ | 180,000 | |||||||||||
Current portion of long-term debt, net of financing costs | 54,975 | 48,716 | |||||||||||||
Long term debt, net of financing costs | 1,711,670 | 1,334,956 | |||||||||||||
Total debt, net | $ | 1,826,645 | $ | 1,563,672 |
(1) | Refer to Revolving Credit Facility for interest rate details. |
(2) | The amortization for the Ocotillo commercial term loan, the St. Joseph term loan, and the Western Interconnect term loan are through June 2030, September 2036 and March 2036, respectively, which differs from the stated maturity date of such loans due to prepayment requirements. |
(3) | Includes impact of interest rate derivatives. See Note 10, Derivative Instruments, for discussion of interest rate derivatives. |
(4) | Premium amount is related to the Lost Creek term loan and discount amount is related to the 2020 Notes. |
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Interest and commitment fees incurred and interest expense for debt consisted of the following (in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Corporate-level interest and commitment fees incurred | $ | 8,497 | $ | 4,952 | $ | 15,612 | $ | 10,005 | |||||||
Project-level interest and commitment fees incurred(1) | 13,107 | 13,356 | 25,468 | 26,444 | |||||||||||
Amortization of debt discount/premium, net | 1,125 | 1,042 | 2,227 | 2,074 | |||||||||||
Amortization of financing costs | 1,994 | 1,752 | 3,852 | 3,498 | |||||||||||
Other interest | 116 | 173 | 235 | 315 | |||||||||||
Interest expense | $ | 24,839 | $ | 21,275 | $ | 47,394 | $ | 42,336 |
(1) | Includes reclassification of realized gains (losses) on derivative instruments that qualifies as cash flow hedges from accumulated OCI into interest expense and the ineffective portion of the instruments. |
Corporate Level Debt
Revolving Credit Facility
As of June 30, 2017, $403.7 million was available for borrowing under the $500.0 million Revolving Credit Facility. The Revolving Credit Facility is secured by pledges of the capital stock and ownership interests in certain of the Company’s holding company subsidiaries. The Revolving Credit Facility contains a broad range of covenants that, subject to certain exceptions, restrict the Company’s holding company subsidiaries' ability to incur debt, grant liens, sell or lease assets, transfer equity interests, dissolve, pay distributions and change its business. As of June 30, 2017, the Company's holding company subsidiaries were in compliance with covenants contained in the Revolving Credit Facility.
The loans under the Company's Revolving Credit Facility are either base rate loans or Eurodollar rate loans. The base rate loans accrue interest at the fluctuating rate per annum equal to the greatest of the (i) the prime rate, (ii) the federal funds rate plus 0.50% and (iii) the Eurodollar rate that would be in effect for a Eurodollar rate loan with an interest period of one month plus 1.0%, plus an applicable margin ranging from 1.25% to 1.75% (corresponding to applicable leverage ratios of the borrower). The Eurodollar rate loans accrue interest at a rate per annum equal to International Continental Exchange London Interbank Offered Rate (LIBOR), as published by Reuters plus an applicable margin ranging from 2.25% to 2.75% (corresponding to applicable leverage ratios of the borrower). Under the Revolving Credit Facility, the Company pays a revolving commitment fee equal to the average of the daily difference between revolving commitments and the total utilization of revolving commitments times 0.50%. The Company also pays letter of credit fees.
As of June 30, 2017 and December 31, 2016, letters of credit of $36.3 million and $31.7 million were issued under the Revolving Credit Facility.
Unsecured Senior Notes due 2024
In January 2017, the Company issued unsecured senior notes with an aggregate principal amount of $350.0 million (Unsecured Senior Notes or 2024 Notes). Net proceeds to the Company were approximately $345.0 million, after deducting the initial purchasers’ discount, commissions and transaction expenses. The 2024 Notes bear interest at a rate of 5.875% per year, payable semiannually in arrears on February 1 and August 1, beginning on August 1, 2017 and maturing on February 1, 2024, unless repurchased or redeemed at an earlier date. The 2024 Notes are guaranteed on a senior unsecured basis by Pattern US Finance Company, one of the Company's subsidiaries.
Convertible Senior Notes due 2020
In July 2015, the Company issued $225.0 million aggregate principal amount of 4.00% convertible senior notes due 2020 (Convertible Senior Notes or 2020 Notes). The 2020 Notes bear interest at a rate of 4.00% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2016. The 2020 Notes will mature on July 15, 2020. The 2020 Notes were sold in a private placement.
The 2020 Notes are guaranteed on a senior unsecured basis by a subsidiary of the Company and are general unsecured obligations of the Company. The obligations rank senior in rights of payment to the Company’s subordinated debt, equal in right of payment
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to the Company’s unsubordinated debt and effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness.
The following table presents a summary of the equity and liability components of the 2020 Notes (in thousands):
June 30, 2017 | December 31, 2016 | ||||||
Principal | $ | 225,000 | $ | 225,000 | |||
Less: | |||||||
Unamortized debt discount | (15,874 | ) | (18,196 | ) | |||
Unamortized financing costs | (3,348 | ) | (3,894 | ) | |||
Carrying value of convertible senior notes | $ | 205,778 | $ | 202,910 | |||
Carrying value of the equity component (1) | $ | 23,743 | $ | 23,743 |
(1) | Included in the consolidated balance sheets as additional paid-in capital, net of $0.7 million in equity issuance costs. |
Project level debt
Western Interconnect
In April 2017, in connection with the Broadview Project acquisition, the Company assumed a $51.2 million senior construction loan facility, including accrued interest, which was immediately extinguished and concurrently, the Company entered into a variable rate term loan maturing on April 21, 2027 for $54.4 million. The interest rate on the term loan is LIBOR plus 2.00% (with periodic increases of 0.25% every four years).
Collateral for the term loan includes Western Interconnect's tangible assets and contractual rights and cash on deposit with the depository agent. Such loan agreement contains a broad range of covenants that, subject to certain exceptions, restrict Western Interconnect's ability to incur debt, grant liens, sell or lease certain assets, transfer equity interests, dissolve, make distributions, or change its business.
9. Asset Retirement Obligation
The Company's asset retirement obligations represent the estimated cost of decommissioning the turbines, removing above-ground installations and restoring the sites at the end of its estimated economic useful life.
The following table presents a reconciliation of the beginning and ending aggregate carrying amounts of asset retirement obligation (in thousands):
Six months ended June 30, | ||||||||
2017 | 2016 | |||||||
Beginning asset retirement obligations | $ | 44,783 | $ | 42,197 | ||||
Net additions during the period (1) | 5,994 | — | ||||||
Foreign currency translation adjustment | 91 | 159 | ||||||
Accretion expense | 1,357 | 1,260 | ||||||
Ending asset retirement obligations | $ | 52,225 | $ | 43,616 |
(1) Reflects additions due to acquisition of the Broadview Project. See Note 3, Acquisitions, for discussion of the acquisition.
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10. Derivative Instruments
The Company employs a variety of derivative instruments to manage its exposure to fluctuations in electricity prices, interest rates and foreign currency exchange rates. Energy prices are subject to wide swings as supply and demand are impacted by, among many other unpredictable items, weather, market liquidity, generating facility availability, customer usage, storage, and transmission and transportation constraints. Interest rate risk exists primarily on variable-rate debt for which the cash flows vary based upon movement in interest rates. Additionally, the Company is exposed to foreign currency exchange rate risk primarily from its business operations in Canada and Chile. The Company’s objectives for holding these derivative instruments include reducing, eliminating and efficiently managing the economic impact of these exposures as effectively as possible. The Company does not hedge all of its electricity price risk, interest rate risks, and foreign currency exchange rate risks, thereby exposing the unhedged portions to changes in market prices.
As of June 30, 2017, the Company had other energy-related contracts that did not meet the definition of a derivative instrument or qualified for the normal purchase normal sale scope exception and were therefore exempt from fair value accounting treatment.
The following tables present the fair values of the Company's derivative instruments on a gross basis as reflected on the Company’s consolidated balance sheets (in thousands):
June 30, 2017 | ||||||||||||||||
Derivative Assets | Derivative Liabilities (1) | |||||||||||||||
Current | Long-Term | Current | Long-Term | |||||||||||||
Fair Value of Designated Derivatives | ||||||||||||||||
Interest rate swaps | $ | — | $ | — | $ | 7,540 | $ | 20,140 | ||||||||
Fair Value of Undesignated Derivatives | ||||||||||||||||
Interest rate swaps | $ | — | $ | 842 | $ | 2,519 | $ | 3,622 | ||||||||
Energy derivative | 18,680 | 15,216 | — | — | ||||||||||||
Foreign currency forward contracts | — | — | 1,281 | 409 | ||||||||||||
Total Fair Value | $ | 18,680 | $ | 16,058 | $ | 11,340 | $ | 24,171 | ||||||||
December 31, 2016 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
Current | Long-Term | Current | Long-Term | |||||||||||||
Fair Value of Designated Derivatives | ||||||||||||||||
Interest rate swaps | $ | — | $ | 40 | $ | 8,289 | $ | 21,058 | ||||||||
Fair Value of Undesignated Derivatives | ||||||||||||||||
Interest rate swaps | $ | — | $ | 1,788 | $ | 3,238 | $ | 3,463 | ||||||||
Energy derivative | 16,209 | 24,707 | — | — | ||||||||||||
Foreign currency forward contracts | 1,369 | 177 | 391 | — | ||||||||||||
Total Fair Value | $ | 17,578 | $ | 26,712 | $ | 11,918 | $ | 24,521 |
(1) | Inclusive of Western Interconnect interest rate swaps which are effective as of June 30, 2017. |
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The following table summarizes the notional amounts of the Company's outstanding derivative instruments (in thousands except for MWh):
Unit of Measure | June 30, | December 31, | ||||||||
2017 | 2016 | |||||||||
Designated Derivative Instruments | ||||||||||
Interest rate swaps (1) | USD | $ | 433,849 | $ | 365,443 | |||||
Interest rate swaps | CAD | $ | 195,975 | $ | 196,425 | |||||
Undesignated Derivative Instruments | ||||||||||
Interest rate swaps | USD | $ | 250,488 | $ | 257,389 | |||||
Energy derivative | MWh | 911,048 | 1,201,691 | |||||||
Foreign currency forward contracts | CAD | $ | 142,750 | $ | 95,800 |
(1) | Inclusive of Western Interconnect interest rate swaps which are effective as of June 30, 2017. |
Derivatives Designated as Hedging Instruments
Cash Flow Hedges
The Company has interest rate swap agreements to hedge variable rate project-level debt. Under these interest rate swaps, the projects make fixed-rate interest payments and the counterparties to the agreements make variable-rate interest payments. For interest swaps that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (loss) and reclassified into earnings in the period or periods during which a cash settlement occurs. The designated interest rate swaps have remaining maturities ranging from approximately 9.8 years to 19.3 years.
The following table presents the pre-tax effect of the derivative instruments designated as cash flow recognized in accumulated other comprehensive loss, as well as amounts reclassified to earnings for the following periods (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
Description | 2017 | 2016 | 2017 | 2016 | ||||||||||||||
Losses recognized in accumulated OCI | Effective portion of change in fair value | $ | (3,778 | ) | $ | (11,343 | ) | $ | (4,359 | ) | $ | (34,763 | ) | |||||
Losses reclassified from accumulated OCI into: | ||||||||||||||||||
Interest expense | Derivative settlements | $ | (2,400 | ) | $ | (3,002 | ) | $ | (4,970 | ) | $ | (6,206 | ) | |||||
Interest expense | Ineffective portion | $ | 88 | $ | (423 | ) | $ | 77 | $ | (512 | ) |
The Company estimates that $6.4 million in accumulated other comprehensive income (loss) will be reclassified into earnings over the next twelve months.
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Derivatives Not Designated as Hedging Instruments
The following table presents gains and losses on derivatives not designated as hedges (in thousands):
Financial Statement Line Item | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||
Derivative Type | Description | 2017 | 2016 | 2017 | 2016 | |||||||||||||||
Interest rate derivatives | Loss on undesignated derivatives, net | Change in fair value, net of settlements | $ | (1,477 | ) | $ | (3,937 | ) | $ | (387 | ) | $ | (12,818 | ) | ||||||
Interest rate derivatives | Loss on undesignated derivatives, net | Derivative settlements | $ | (864 | ) | $ | (1,280 | ) | $ | (1,833 | ) | $ | (2,606 | ) | ||||||
Energy derivative | Electricity sales | Change in fair value, net of settlements | $ | (4,663 | ) | $ | (9,327 | ) | $ | (7,021 | ) | $ | (14,152 | ) | ||||||
Energy derivative | Electricity sales | Derivative settlements | $ | 5,067 | $ | 6,752 | $ | 11,082 | $ | 13,485 | ||||||||||
Foreign currency forward contracts | Loss on undesignated derivatives, net | Change in fair value, net of settlements | $ | (1,752 | ) | $ | (654 | ) | $ | (2,845 | ) | $ | (4,615 | ) | ||||||
Foreign currency forward contracts | Loss on undesignated derivatives, net | Derivative settlements | $ | (658 | ) | $ | (8 | ) | $ | (334 | ) | $ | 529 |
Interest Rate Swaps
The Company has interest rate swap agreements to hedge variable rate project-level debt. Under these interest rate swaps, the projects make fixed-rate interest payments and the counterparties to the agreements make variable-rate interest payments. For interest rate swaps that are not designated and do not qualify as cash flow hedges, the changes in fair value are recorded in loss on undesignated derivatives, net in the consolidated statements of operations as these hedges are not accounted for under hedge accounting. The undesignated interest rate swaps have remaining maturities ranging from approximately 3.8 years to 13.0 years.
Energy Derivative
In 2010, Gulf Wind acquired an energy derivative instrument to manage its exposure to variable electricity prices over the life of the arrangement. The energy price swap fixes the price for a predetermined volume of production (the notional volume) over the life of the swap contract, through April 2019, by locking in a fixed price per MWh. The notional volume agreed to by the parties is approximately 504,220 MWh per year. The energy derivative instrument does not meet the criteria required to adopt hedge accounting. As a result, changes in fair value are recorded in electricity sales in the consolidated statements of operations.
As a result of the counterparty's credit rating downgrade, the Company received cash collateral related to the energy derivative agreement. The Company does not have the right to pledge, invest, or use the cash collateral for general corporate purposes. As of June 30, 2017, the Company has recorded a current asset of $34.4 million to funds deposited by counterparty and a current liability of $34.4 million to counterparty deposit liability representing the cash collateral received and corresponding obligation to return the cash collateral, respectively. The cash was deposited into a separate custodial account for which the Company is not entitled to the interest earned on the cash collateral.
Foreign Currency Forward Contracts
The Company has established a currency risk management program. The objective of the program is to mitigate the foreign exchange rate risk arising from transactions or cash flows that have a direct or underlying exposure in non-U.S. dollar denominated currencies in order to reduce volatility in the Company’s cash flow, which may have an adverse impact to the Company's short-term liquidity or financial condition. A majority of the Company’s power sale agreements and operating expenditures are transacted in U.S. dollars, with a growing portion transacted in currencies other than the U.S. dollar, primarily the Canadian dollar. The Company enters into foreign currency forward contracts at various times to mitigate the currency exchange rate risk on Canadian dollar denominated cash flows. These instruments have remaining maturities ranging from two to twenty-four months. The foreign currency forward contracts are considered non-designated derivative instruments and are not used for trading or speculative purposes. As a result, changes in fair value and settlements are recorded in loss on undesignated derivatives, net in the consolidated statements of operations.
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11. Accumulated Other Comprehensive Loss
The following tables summarize the changes in the accumulated other comprehensive loss balance, net of tax, by component (in thousands):
Foreign Currency | Effective Portion of Change in Fair Value of Derivatives | Proportionate Share of Equity Investee’s OCI | Total | ||||||||||||
Balances at December 31, 2015 | $ | (48,285 | ) | $ | (13,462 | ) | $ | (12,131 | ) | $ | (73,878 | ) | |||
Other comprehensive income (loss) before reclassifications | 11,642 | (30,661 | ) | (11,008 | ) | (30,027 | ) | ||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 5,623 | 2,557 | 8,180 | |||||||||||
Net current period other comprehensive income (loss) | 11,642 | (25,038 | ) | (8,451 | ) | (21,847 | ) | ||||||||
Balances at June 30, 2016 | $ | (36,643 | ) | $ | (38,500 | ) | $ | (20,582 | ) | $ | (95,725 | ) | |||
Less: accumulated other comprehensive loss attributable to noncontrolling interest, June 30, 2016 | — | (1,688 | ) | — | (1,688 | ) | |||||||||
Accumulated other comprehensive loss attributable to Pattern Energy, June 30, 2016 | $ | (36,643 | ) | $ | (36,812 | ) | $ | (20,582 | ) | $ | (94,037 | ) |
Foreign Currency | Effective Portion of Change in Fair Value of Derivatives | Proportionate Share of Equity Investee’s OCI | Total | ||||||||||||
Balances at December 31, 2016 | $ | (43,500 | ) | $ | (12,751 | ) | $ | (6,498 | ) | $ | (62,749 | ) | |||
Other comprehensive income (loss) before reclassifications | 9,749 | (4,418 | ) | 790 | 6,121 | ||||||||||
Amounts reclassified from accumulated other comprehensive loss | — | 4,483 | 4,608 | 9,091 | |||||||||||
Net current period other comprehensive income | 9,749 | 65 | 5,398 | 15,212 | |||||||||||
Balances at June 30, 2017 | $ | (33,751 | ) | $ | (12,686 | ) | $ | (1,100 | ) | $ | (47,537 | ) | |||
Less: accumulated other comprehensive loss attributable to noncontrolling interest, June 30, 2017 | — | (489 | ) | — | (489 | ) | |||||||||
Accumulated other comprehensive loss attributable to Pattern Energy, June 30, 2017 | $ | (33,751 | ) | $ | (12,197 | ) | $ | (1,100 | ) | $ | (47,048 | ) |
Amounts reclassified from accumulated other comprehensive loss into net loss for the effective portion of change in fair value of derivatives is recorded to interest expense in the consolidated statements of operations. Amounts reclassified from accumulated other comprehensive loss into net loss for the Company’s proportionate share of equity investee’s other comprehensive loss is recorded to earnings in unconsolidated investments, net in the consolidated statements of operations.
12. Fair Value Measurements
The Company’s fair value measurements incorporate various factors, including the credit standing and performance risk of the counterparties, the applicable exit market, and specific risks inherent in the instrument. Nonperformance and credit risk adjustments on risk management instruments are based on current market inputs when available, such as credit default hedge spreads. When such information is not available, internal models may be used.
Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to valuation of these assets or liabilities are set forth below. Transfers between levels are recognized at the end of each quarter. The Company did not recognize any transfers between levels during the periods presented.
Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset
27
or liability at the measurement date. Consideration is given to the risk inherent in the valuations technique and the risk inherent in the inputs to the model.
Financial Instruments
The carrying value of financial instruments classified as current assets and current liabilities approximates their fair value, based on the nature and short maturity of these instruments, and they are presented in the Company’s financial statements at carrying cost. Certain other assets and liabilities were measured at fair value upon initial recognition and unless conditions give rise to an impairment, are not remeasured.
Financial Instruments Measured at Fair Value on a Recurring Basis
The Company’s financial assets and liabilities which require fair value measurement on a recurring basis are classified within the fair value hierarchy as follows (in thousands):
June 30, 2017 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Interest rate swaps | $ | — | $ | 842 | $ | — | $ | 842 | |||||||
Energy derivative | — | $ | — | 33,895 | 33,895 | ||||||||||
$ | — | $ | 842 | $ | 33,895 | $ | 34,737 | ||||||||
Liabilities | |||||||||||||||
Interest rate swaps | $ | — | $ | 33,821 | $ | — | $ | 33,821 | |||||||
Foreign currency forward contracts | — | 1,691 | — | 1,691 | |||||||||||
Contingent consideration | — | — | 21,502 | 21,502 | |||||||||||
$ | — | $ | 35,512 | $ | 21,502 | $ | 57,014 |
December 31, 2016 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | |||||||||||||||
Interest rate swaps | $ | — | $ | 1,828 | $ | — | $ | 1,828 | |||||||
Energy derivative | — | — | 40,916 | 40,916 | |||||||||||
Foreign currency forward contracts | — | 1,546 | — | 1,546 | |||||||||||
$ | — | $ | 3,374 | $ | 40,916 | $ | 44,290 | ||||||||
Liabilities | |||||||||||||||
Interest rate swaps | $ | — | $ | 36,048 | $ | — | $ | 36,048 | |||||||
Foreign currency forward contracts | — | 391 | — | 391 | |||||||||||
$ | — | $ | 36,439 | $ | — | $ | 36,439 |
Level 2 Inputs
Derivative instruments subject to re-measurement are presented in the financial statements at fair value. The Company's interest rate swaps were valued by discounting the net cash flows using the forward LIBOR curve with the valuations adjusted by the Company’s credit default hedge rate. The Company’s foreign currency forward contracts were valued using the income approach based on the present value of the forward rates less the contract rates, multiplied by the notional amounts.
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Level 3 Inputs
Energy Hedge
The fair value of the energy derivative instrument is determined based on a third-party valuation model. The methodology and inputs are evaluated by management for consistency and reasonableness by comparing inputs used by the third-party valuation provider to another third-party pricing service for identical or similar instruments and also reconciling inputs used in the third-party valuation model to the derivative contract for accuracy. Any significant changes are further evaluated for reasonableness by obtaining additional documentation from the third-party valuation provider.
The energy derivative instrument is valued by discounting the projected net cash flows over the remaining life of the derivative instrument using forward electricity prices which are derived from observable prices, such as forward gas curves, adjusted by a non-observable heat rate for when the contract term extends beyond a period for which market data is available. The significant unobservable input in calculating the fair value of the energy derivative instrument is forward electricity prices. Significant increases or decreases in this unobservable input would result in a significantly lower or higher fair value measurement.
Contingent Consideration
The Broadview Project acquisition includes contingent consideration, which requires the Company to make an additional payment upon the commercial operation of the Grady Project. The contingent post-closing payment reflects the fair value of the Company's interest in the increase in the projected 25-year transmission wheeling revenue Western Interconnect will receive from the Grady Project, adjusted for the estimated production loss incurred by Broadview due to wake effects and transmission losses induced by the operation of the Grady Project. The fair value of the contingent consideration at the acquisition date was $21.3 million. The estimated fair value of the contingent consideration was calculated by using a discounted cash flow technique which utilized unobservable inputs presented in the table below. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. As of June 30, 2017, there were no significant changes in the recognized amount for the contingent consideration recognized as a result of the acquisition of the Broadview Project. Significant changes in these unobservable inputs may result in significant changes in fair value.
The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements were as follows (in thousands, for fair value):
June 30, 2017 | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | ||||
Energy derivative | $33,895 | Discounted cash flow | Forward electricity prices | $14.52 - $77.10(1) | ||||
Discount rate | 1.30% - 1.62% | |||||||
Contingent consideration | $21,502 | Discounted cash flow | Discount rate | 4.0% - 8.0% | ||||
Annual energy production loss | 1% | |||||||
December 31, 2016 | Fair Value | Valuation Technique | Significant Unobservable Inputs | Range | ||||
Energy derivative | $40,916 | Discounted cash flow | Forward electricity prices | $15.83 - $81.76(1) | ||||
Discount rate | 1.00% - 1.52% |
(1) | Represents price per MWh. |
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The following tables present a reconciliation of the energy derivative contract and contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (in thousands):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
Energy Derivative | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Balances, beginning of period | $ | 38,559 | $ | 58,858 | $ | 40,916 | $ | 63,683 | ||||||||
Total gain (loss) included in electricity sales | 403 | (2,575 | ) | 4,061 | (667 | ) | ||||||||||
Settlements | (5,067 | ) | (6,752 | ) | (11,082 | ) | (13,485 | ) | ||||||||
Balances, end of period | $ | 33,895 | $ | 49,531 | $ | 33,895 | $ | 49,531 |
During the three and six months ended June 30, 2017, the Company recognized an unrealized loss on the energy derivative of $4.7 million and $7.0 million, respectively, and $9.3 million and $14.2 million, respectively, for the same periods in the prior year, which were recorded to electricity sales on the consolidated statements of operations.
Three months ended June 30, | Six months ended June 30, | |||||||||||
Contingent Consideration Liability | 2017 | 2016 | 2017 | 2016 | ||||||||
Balances, beginning of period | $ | — | N/A | $ | — | N/A | ||||||
Purchase | 21,284 | N/A | 21,284 | N/A | ||||||||
Total loss included in other income, net | 218 | N/A | 218 | N/A | ||||||||
Settlement | — | N/A | — | N/A | ||||||||
Balances, end of period | $ | 21,502 | N/A | $ | 21,502 | N/A |
During the three and six months ended June 30, 2017, the Company recognized an unrealized loss on the contingent consideration liability of $0.2 million, which was recorded to other income, net on the consolidated statements of operations.
Financial Instruments Not Measured at Fair Value
The following table presents the carrying amount and fair value and the fair value hierarchy of the Company’s financial liabilities that are not measured at fair value in the consolidated balance sheets, but for which fair value is disclosed (in thousands):
Fair Value | |||||||||||||||||||
As reflected on the balance sheet | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
June 30, 2017 | |||||||||||||||||||
Long-term debt, including current portion | $ | 1,826,645 | $ | — | $ | 1,827,997 | $ | — | $ | 1,827,997 | |||||||||
December 31, 2016 | |||||||||||||||||||
Long-term debt, including current portion | $ | 1,383,672 | $ | — | $ | 1,382,038 | $ | — | $ | 1,382,038 |
Long-term debt is presented on the consolidated balance sheets, net of financing costs, discounts and premiums. The fair value of variable interest rate long-term debt is approximated by its carrying cost. The fair value of fixed interest rate long-term debt is estimated based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied, using the net present value of cash flow streams over the term using estimated market rates for similar instruments and remaining terms.
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13. Stockholders' Equity
Common Stock
On May 9, 2016, the Company entered into an Equity Distribution Agreement with RBC Capital Markets, LLC, KeyBanc Capital Markets Inc. and Morgan Stanley & Co. LLC (collectively, the Agents). Pursuant to the terms of the Equity Distribution Agreement, the Company may offer and sell shares of the Company’s Class A common stock, par value $0.01 per share, from time to time through the Agents, as the Company’s sales agents for the offer and sale of the shares, up to an aggregate sales price of $200.0 million. The Company intends to use the net proceeds from the sale of the shares for general corporate purposes, which may include the repayment of indebtedness and the funding of acquisitions and investments. For the six months ended June 30, 2017, the Company did not sell any shares under the Equity Distribution Agreement. As of June 30, 2017, approximately $170.8 million in aggregate offering price remained available to be sold under the agreement.
Dividends
The following table presents cash dividends declared on Class A common stock for the periods presented:
Dividends Per Share | Declaration Date | Record Date | Payment Date | ||||||
2017: | |||||||||
Second Quarter | $ | 0.4180 | May 4, 2017 | June 30, 2017 | July 31, 2017 | ||||
First Quarter | $ | 0.4138 | February 24, 2017 | March 31, 2017 | April 28, 2017 |
Noncontrolling Interests
The following table presents the balances for noncontrolling interests by project (in thousands):
June 30, | December 31, | ||||||
2017 | 2016 | ||||||
El Arrayán | $ | 31,644 | $ | 32,237 | |||
Logan's Gap | 174,553 | 180,092 | |||||
Panhandle 1 | 180,510 | 190,415 | |||||
Panhandle 2 | 160,458 | 170,139 | |||||
Post Rock | 169,407 | 178,676 | |||||
Amazon Wind Farm Fowler Ridge | 137,637 | 139,687 | |||||
Broadview Project | $ | 321,221 | $ | — | |||
Noncontrolling interest | $ | 1,175,430 | $ | 891,246 |
On June 16, 2017, the Company entered into a Purchase and Sale Agreement (the PH2 PSA) with PSP. Upon the terms and subject to the conditions set forth in the PH2 PSA, at the closing, the Company (or one or more of its affiliates) will sell to the investor 49% of the Class B membership interests in Panhandle 2 holdings (which holds 100% of the membership interests in Panhandle 2) for consideration of $58.8 million (subject to certain adjustments).
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The following table presents the components of total noncontrolling interest as reported in stockholders’ equity and the consolidated balance sheets (in thousands):
Capital | Accumulated Loss | Accumulated Other Comprehensive Loss | Noncontrolling Interest | ||||||||||||
Balances at December 31, 2015 | $ | 972,241 | $ | (27,426 | ) | $ | (553 | ) | $ | 944,262 | |||||
Distributions to noncontrolling interests | (8,187 | ) | — | — | (8,187 | ) | |||||||||
Other | (469 | ) | — | — | (469 | ) | |||||||||
Net loss | — | (17,801 | ) | — | (17,801 | ) | |||||||||
Other comprehensive income, net of tax | — | — | (1,135 | ) | (1,135 | ) | |||||||||
Balances at June 30, 2016 | $ | 963,585 | $ | (45,227 | ) | $ | (1,688 | ) | $ | 916,670 | |||||
Balances at December 31, 2016 | $ | 954,242 | $ | (62,614 | ) | $ | (382 | ) | $ | 891,246 | |||||
Increase in noncontrolling interest from acquisition | 325,600 | — | — | 325,600 | |||||||||||
Distributions to noncontrolling interests | (9,164 | ) | — | — | (9,164 | ) | |||||||||
Other | (127 | ) | — | — | (127 | ) | |||||||||
Net loss | — | (32,018 | ) | — | (32,018 | ) | |||||||||
Other comprehensive income, net of tax | — | — | (107 | ) | (107 | ) | |||||||||
Balances at June 30, 2017 | $ | 1,270,551 | $ | (94,632 | ) | $ | (489 | ) | $ | 1,175,430 |
14. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the reportable period. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the effect of all potential common shares unless they are anti-dilutive. For purpose of this calculation, potentially dilutive securities are determined by applying the treasury stock method to the assumed exercise of in-the-money stock options and the assumed vesting of outstanding restricted stock awards (RSAs) and release of deferred restricted stock units (RSUs). Potentially dilutive securities related to convertible senior notes are determined using the if-converted method.
The Company's vested deferred RSUs have non-forfeitable rights to dividends prior to release and are considered participating securities. Accordingly, they are included in the computation of basic and diluted loss per share, pursuant to the two-class method. Under the two-class method, distributed and undistributed earnings allocated to participating securities are excluded from net earnings (loss) attributable to common stockholders for purposes of calculating basic and diluted earnings (loss) per share. However, net losses are not allocated to participating securities since they are not contractually obligated to share in the losses of the Company.
Potentially dilutive securities excluded from the calculation of diluted earnings (loss) per share because their effect would have been anti-dilutive were 8,091,295and 8,488,756, respectively, for the three and six months ended June 30, 2017 and 8,006,242 and 8,050,844, respectively, for the three and six months ended June 30, 2016.
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The computations for Class A basic and diluted loss per share are as follows (in thousands except share data):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Numerator for basic and diluted loss per share: | |||||||||||||||
Net earnings (loss) attributable to Pattern Energy | $ | 14,220 | $ | (3,223 | ) | $ | 19,873 | $ | (26,893 | ) | |||||
Less: earnings allocated to participating securities | (26 | ) | (13 | ) | (48 | ) | (22 | ) | |||||||
Net earnings (loss) attributable to common stockholders | $ | 14,194 | $ | (3,236 | ) | $ | 19,825 | $ | (26,915 | ) | |||||
Denominator for earnings (loss) per share: | |||||||||||||||
Weighted average number of shares: | |||||||||||||||
Class A common stock - basic | 87,065,591 | 74,443,901 | 87,064,110 | 74,440,950 | |||||||||||
Stock options | 7,488 | — | — | — | |||||||||||
Restricted stock awards | 144,302 | — | 185,366 | — | |||||||||||
Restricted stock units | — | — | 7,654 | — | |||||||||||
Class A common stock - diluted | 87,217,381 | 74,443,901 | 87,257,130 | 74,440,950 | |||||||||||
Earnings (loss) per share: | |||||||||||||||
Class A common stock: | |||||||||||||||
Basic and diluted | $ | 0.16 | $ | (0.04 | ) | $ | 0.23 | $ | (0.36 | ) | |||||
Dividends declared per Class A common share | $ | 0.42 | $ | 0.39 | $ | 0.83 | $ | 0.77 |
15. Commitments and Contingencies
Commitments
Acquisition commitments
On June 16, 2017, the Company entered into a purchase and sale agreement with Pattern Development 1.0 to purchase a 51.0% limited partner interest in Meikle Wind Energy Limited Partnership (the Meikle Project Company) and 70% of the issued and outstanding shares of Meikle Wind Energy Corp. (Meikle Corp) (which holds a 0.02% general partner interest in the Meikle Project Company) in exchange for aggregate consideration of CAD $85.4 million (subject to certain adjustments). The Meikle Project Company operates the approximately 179 megawatt wind farm located British Columbia, Canada, and achieved commercial operations in the first quarter of 2017.
On June 16, 2017, the Company also entered into a purchase and sale agreement with Pattern Development 1.0 to purchase (i) a 51% limited partner interest in a newly-formed limited partnership (which will hold 100% of the economic interests in Mont Sainte-Marguerite Wind Farm LP (the MSM Project Company), (ii) a 70% interest in Pattern MSM GP Holdings Inc., and (iii) a 70% interest in Pattern Development MSM Management ULC, in exchange for aggregate consideration of CAD $53.0 million (subject to certain adjustments). The MSM Project Company operates the approximately 143 megawatt wind farm located near Québec City, Canada.
Investment commitments
On June 16, 2017, the Company entered into the Second Amended and Restated Agreement of Limited Partnership (A&R PEGH2 LPA) of PEGH 2. In July 2017, PEGH 2 made a capital call of its new limited partners under the A&R PEGH 2 LPA (the Initial PEGH 2 Capital Call). In connection with the Initial PEGH2 Capital Call, the Company made a contribution to PEGH 2 of approximately $60.0 million. As a result of the funding under the Initial PEGH2 Capital Call and the consummation of certain redemptions, the Company holds an approximate 20% ownership interest in PEGH 2. Under the A&R PEGH 2 LPA, the Company has also committed to contribute up to an additional approximately $240.0 million to PEGH 2 in one or more subsequent rounds of financing, which could result in the Company's ownership interest in PEGH 2 increasing to up to approximately 29%. If the
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Company elects not to participate in such subsequent rounds of financing, its ownership interest in PEGH 2 may be diluted on a pro rata basis based on fair market value.
Broadview Project Commitments
As part of the Broadview Project acquisition the Company became party to various agreements and future commitments. The following table summarizes estimates of future commitments related to the various agreements entered into as part of the Broadview Project acquisition (in thousands) as of June 30, 2017:
Remainder of 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | |||||||||||||||||||||
Transmission service agreements(1) | $ | 13,445 | $ | 23,600 | $ | 23,600 | $ | 23,600 | $ | 23,600 | $ | 543,246 | $ | 651,091 | |||||||||||||
Payments in lieu of taxes | 241 | 481 | 476 | 412 | 406 | 9,635 | 11,651 | ||||||||||||||||||||
Operating leases | 109 | 1,446 | 1,897 | 1,897 | 1,897 | 56,372 | 63,618 | ||||||||||||||||||||
Service and maintenance agreements | 3,474 | 6,955 | 1,741 | — | — | — | 12,170 | ||||||||||||||||||||
Other | 264 | 549 | 560 | 341 | 270 | — | 1,984 | ||||||||||||||||||||
Total commitments | $ | 17,533 | $ | 33,031 | $ | 28,274 | $ | 26,250 | $ | 26,173 | $ | 609,253 | $ | 740,514 |
(1) Future commitments under the transmission service agreements are based on current rates, which are subject to future changes.
Transmission Service Agreements
In connection with the Broadview Project acquisition, the Company became a party to various long-term transmission service agreements expiring between 25-30 years. The Company recorded transmission service costs related to such agreements of $4.6 million for the three and six months ended June 30, 2017.
Payments in Lieu of Taxes
As discussed earlier in Note 5, Finite-Lived Intangible Assets and Liability, in connection with the Broadview Project acquisition, the Company is required to make payments in lieu of taxes as a result of tax savings realized as part of the issuance of the industrial revenue bonds.
Other Commitments
Operating Leases
The Company has entered into various long-term operating lease agreements related to lands for its wind farms. For the six months ended June 30, 2017 and 2016, the Company recorded rent expenses of $7.2 million and $6.7 million, respectively, in project expense in its consolidated statements of operations.
Service and Maintenance Agreements
In March 2017, the Company entered into revised Long-term Service Agreements (LTSAs) at certain of its projects pursuant to which the turbine manufacturer will continue to provide routine and corrective maintenance service, but the Company has become responsible for a portion of the maintenance and repairs, including on major component parts. As a result of the revised LTSAs, the fixed contract commitments were reduced from that disclosed in the Company's 2016 Form 10-K by $102.2 million over a period of ten years.
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Letters of Credit
Power Sale Agreements
The Company owns and operates wind power projects, and has entered into various long-term power sale agreements that terminate from 2019 to 2039. The terms of these agreements generally provide for the annual delivery of a minimum amount of electricity at fixed prices and in some cases include price escalation over the term of the agreement. Under the terms of these agreements, as of June 30, 2017, the Company issued irrevocable letters of credits to guarantee its performance for the duration of the agreements totaling$153.1 million.
Project Finance and Lease Agreements
The Company has various project finance and lease agreements which obligate the Company to provide certain reserves to enhance its credit worthiness and facilitate the availability of credit. As of June 30, 2017, the Company issued irrevocable letters of credit totaling $117.6 million which includes letters of credit issued under the Revolving Credit Facility to ensure performance under the various project finance and lease agreements.
Contingencies
Turbine Operating Warranties and Service Guarantees
The Company has various turbine availability warranties from its turbine manufacturers and service guarantees from its service and maintenance providers. Pursuant to these guarantees, if a turbine operates at less than minimum availability during the guarantee measurement period, the service provider is obligated to pay, as liquidated damages at the end of the warranty measurement period, an amount for each percent that the turbine operates below the minimum availability threshold. In addition, pursuant to certain of these guarantees, if a turbine operates at more than a specified availability during the guarantee measurement period, the Company has an obligation to pay a bonus to the service provider at the end of the warranty measurement period. As of June 30, 2017, the Company recorded liabilities of $2.4 million associated with bonuses payable to the turbine manufacturers and service providers.
Contingencies in connection of Broadview Project Acquisition
The Company recorded a $7.2 million contingent obligation, payable to a third party who holds a 1% interest in Western Interconnect, at fair value upon the acquisition of the Broadview Project. These contingent payments are subject to certain conditions, including the actual energy production of Broadview in a production year and the continued operation of Broadview. Additionally, the Company recorded a $29.0 million contingent obligation, payable to the same counterparty, at fair value upon the acquisition of the Broadview Project. These contingent payments are subject to certain conditions, including the commercial operation of the Grady Project. The contingent payment is calculated as a percentage of additional transmission revenue earned by Western Interconnect upon the Grady Project's commercial operation.
Legal Matters
From time to time, the Company has become involved in claims and legal matters arising in the ordinary course of business. Management is not currently aware of any matters that will have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
Indemnity
The Company provides a variety of indemnities in the ordinary course of business to contractual counterparties and to its lenders and other financial partners. The Company is party to certain indemnities for the benefit of project finance lenders and tax equity partners of certain projects. These consist principally of indemnities that protect the project finance lenders from, among other things, the potential effect of any recapture by the U.S. Department of the Treasury of any amount of the Cash Grants previously received by the projects and eligibility of production tax credits and certain legal matters, limited to the amount of certain related costs and expenses.
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16. Related Party Transactions
Management Fees
The Company provides management services and receives a fee for such services under agreements with its joint venture investees, South Kent, Grand, K2, and Armow, in addition to various Pattern Development 1.0 subsidiaries and equity method investments. The Company reclassified its presentation of management service fees received from related party revenue, as disclosed in prior periods, to other revenue on the consolidated statements of operations.
Management Services Agreement and Shared Management
The Company has entered into a Multilateral Management Services Agreement (MSA) with the Pattern Development Companies, which provides for the Company and the Pattern Development Companies to benefit, primarily on a cost-reimbursement basis, from the parties’ respective management and other professional, technical and administrative personnel, all of whom report to the Company’s executive officers. Costs and expenses incurred at the Pattern Development Companies or their respective subsidiaries on the Company's behalf will be allocated to the Company. Conversely, costs and expenses incurred at the Company or its respective subsidiaries on the behalf of a Pattern Development Company will be allocated to the respective Pattern Development Company.
Pursuant to the MSA, certain of the Company’s executive officers, including its Chief Executive Officer (shared PEG executives), also serve as executive officers of the Pattern Development Companies and devote their time to both the Company and the Pattern Development Companies as is prudent in carrying out their executive responsibilities and fiduciary duties. The shared PEG executives have responsibilities for both the Company and the respective Pattern Development Companies and, as a result, these individuals do not devote all of their time to the Company’s business. Under the terms of the MSA, each of the respective Pattern Development Companies is required to reimburse the Company for an allocation of the compensation paid to such shared PEG executives reflecting the percentage of time spent providing services to such Pattern Development Company. The Company reclassified its presentation of related party receivables and payables as disclosed in prior periods to be presented within other current assets and other current liabilities on the consolidated balance sheets, respectively. In addition, the Company reclassified its presentation of reimbursements received by the Pattern Development Companies under the MSA from related party income, as disclosed in prior periods, to a reduction to general and administrative expense on the consolidated statements of operations. The MSA costs incurred by the company are included in related party general and administrative on the consolidated statements of operations. The MSA had been further amended and restated in June 2017.
Related Party Transactions
The table below presents amounts due from and to related parties as included in the consolidated balance sheets for the following periods (in millions):
June 30, 2017 | December 31, 2016 | ||||||
Other current assets: | |||||||
Amounts due from Pattern Development 1.0 | $ | 0.5 | $ | 0.4 | |||
Amounts due from Pattern Development 2.0 | 0.6 | 0.2 | |||||
Amounts due from unconsolidated investments | 0.6 | 0.5 | |||||
Total due from related parties | $ | 1.7 | $ | 1.1 | |||
Other current liabilities: | |||||||
Amounts due to Pattern Development 1.0 | $ | 5.6 | $ | 1.3 | |||
Total due to related parties | $ | 5.6 | $ | 1.3 |
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The table below presents revenue, reimbursement and (expenses) recognized for management fees and the MSA, as included in the statements of operations for the following periods (in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
Related Party Agreement | Financial Statement Line Item | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Management fees | Other revenue | $ | 1,780 | $ | 1,332 | $ | 4,004 | $ | 2,547 | ||||||||
MSA reimbursement | General and administrative | $ | 2,098 | $ | 1,097 | $ | 3,889 | $ | 2,104 | ||||||||
MSA costs | Related party general and administrative expense | $ | (3,576 | ) | $ | (1,931 | ) | $ | (7,002 | ) | $ | (3,828 | ) |
Purchase and Sales Agreements
During the six months ended June 30, 2017, the Company consummated the following acquisition with Pattern Development 1.0 which is further detailed in Note 3, Acquisitions (in millions):
Acquisitions from Pattern Development 1.0 | Date of Acquisition | Cash Consideration | Debt Assumed | Contingent Consideration | ||||||||||
Broadview Project | April 21, 2017 | $ | 214.7 | $ | 51.2 | $ | 21.3 |
PSP Joint Venture
We entered into a Joint Venture Agreement with PSP, pursuant to which, PSP will have the right to co-invest up to an aggregate amount of approximately $500 million in projects acquired by the Company under its ROFO with the Pattern Development Companies, including investments in Meikle, MSM and Panhandle 2.
17. Subsequent Events
On August 3, 2017, the Company declared an increased dividend for the third quarter, payable on October 31, 2017, to holders of record on September 29, 2017, in the amount of $0.420 per Class A share, or $1.68 on an annualized basis. This is a 0.5% increase from the second quarter of 2017. On July 27, 2017, the Company funded an initial $60 million capital call under the Second Amended and Restated Agreement of Limited Partnership of PEGH 2, dated as of June 16, 2017, by and among PEGH 2, the Class A Limited Partners set forth therein and the Class B Limited Partners set forth therein. As a result of such funding, and the related funding by other investors in PEGH 2 and consummation of certain redemptions, the Company holds an approximate 20% ownership interest in PEGH 2 representing the Company's interest in Pattern Development 2.0.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2016 and our unaudited consolidated financial statements for the three and six months ended June 30, 2017 and other disclosures (including the disclosures under “Part II. Item 1A. Risk Factors”) included in this Quarterly Report on Form 10-Q. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented in U.S. dollars. Unless the context provides otherwise, references herein to “we,” “our,” “us,” “our company” and “Pattern Energy” refer to Pattern Energy Group Inc., a Delaware corporation, together with its consolidated subsidiaries.
Overview
We are an independent power company focused on owning and operating power projects with stable long-term cash flows in attractive markets with potential for continued growth of our business. We hold interests in 20 wind power projects, including the Meikle and the Mont Sainte-Marguerite (MSM) wind power projects we have committed to acquire, with a total owned interest of 2,736 MW in the United States, Canada and Chile that use proven and best-in-class technology. Each of our projects has contracted to sell all or a majority of its output pursuant to a long-term, fixed-price or variable price power sale agreement (PPA). Ninety-two percent of the electricity to be generated by our projects will be sold under our power sale agreements which have a weighted average remaining contract life of approximately 14.5 years as of June 30, 2017.
We intend to maximize long-term value for our stockholders in an environmentally responsible manner and with respect for the communities in which we operate. Our business is built around three core values of creative energy and spirit, pride of ownership and follow-through, and a team first attitude, which guide us in creating a safe, high-integrity work environment, applying rigorous analysis to all aspects of our business, and proactively working with our stakeholders to address environmental and community concerns. Our financial objectives, which we believe will maximize long-term value for our stockholders, are to produce stable and sustainable cash available for distribution, selectively grow our project portfolio and our dividend per Class A share and maintain a strong balance sheet and flexible capital structure.
Our growth strategy is focused on the acquisition of operational and construction-ready power projects from Pattern Development Companies and other third parties that, together with measured investments into the development business, we believe will contribute to the growth of our business and enable us to increase our dividend per Class A share over time. The Pattern Development Companies (Pattern Energy Group LP (Pattern Development 1.0), Pattern Energy Group 2 LP (Pattern Development 2.0) and their respective subsidiaries) are leading developers of renewable energy and transmission projects. Our continuing relationship with the Pattern Development Companies, including a 20% interest in Pattern Development 2.0, provides us with access to a pipeline of acquisition opportunities. Currently, the Pattern Development Companies have a 10 GW pipeline of development projects, all of which are subject to our right of first offer. We target achieving a total owned capacity of 5,000 MW by year end 2020 through a combination of acquisitions from Pattern Development Companies and third parties capitalizing on the large fragmented global renewable energy market. Our business is primarily focused in the U.S., Canada and Chile; however, we expect opportunities in Japan and Mexico will form part of our growth strategy.
The discussion and analysis below has been organized as follows:
• | Recent Developments |
• | Key Metrics |
• | Results of Operations |
• | Liquidity and Capital Resources |
◦ | Sources of Liquidity |
◦ | Uses of Liquidity |
• | Critical Accounting Policies and Estimates |
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Recent Developments
On June 16, 2017, we entered into several agreements with the Pattern Development Companies and the Public Sector Pension Investment Board (PSP), which owns a 9.9% interest in us, including the following:
• | We agreed to an initial investment of $60 million in Pattern Development 2.0 for an approximately 20% initial ownership, with a right, but not the obligation, to participate in subsequent capital calls for a total commitment of up to $300 million. If this right is exercised for all future capital calls, this would increase our ownership to approximately 29%. We funded such initial capital call on July 27, 2017. |
• | We entered into a Joint Venture Agreement with PSP pursuant to which PSP will have the right to co-invest up to an aggregate amount of approximately $500 million in projects acquired by us under our ROFO with the Pattern Development Companies, including investments in Meikle, MSM and Panhandle 2. |
• | We committed to acquire a 51% interest in Meikle, a 179 MW wind power project, for a total investment of approximately $65 million from Pattern Development 1.0. We also committed to acquire from Pattern Development 1.0 a 51% interest in MSM, a 143MW wind power project, for approximately $40 million. |
• | We have agreed to sell 49% of the Class B membership interest in the 182 MW Panhandle 2 project to PSP for $59 million. |
On April 21, 2017, we acquired an 84% initial distributable cash flow interest in Broadview and 99% ownership interest in Western Interconnect from Pattern Development 1.0. Consideration consisted of $214.7 million of cash, a $2.4 million assumed liability and a post-closing payment of approximately $21.3 million contingent upon the commercial operation of the Grady Project. As part of the acquisition, we also assumed $51.2 million of construction debt and accrued interest outstanding at Western Interconnect which was immediately extinguished, and concurrently, we entered into a variable rate term loan for $54.4 million. The Grady Project is a wind project on the identified ROFO list being separately developed by Pattern Development 2.0 which is expected to begin full construction not earlier than 2018, and which intends to interconnect through Western Interconnect. Following the commencement of commercial operations of the Grady Project, at which time the Grady Project will begin making transmission service payments to Western Interconnect, the Company will make the aforementioned contingent post-closing payment.
In March 2017, we entered into revised Long-term Service Agreements (LTSAs) at certain of our projects pursuant to which the turbine manufacturer will continue to provide routine and corrective maintenance service, but we have become responsible for a portion of the maintenance and repairs, including on major component parts. The revised LTSAs reduce fixed contract commitments by approximately $102.2 million over the next 7 to 10 years.
In January 2017, we issued unsecured senior notes with an aggregate principal amount of $350.0 million (the Unsecured Senior Notes). Net proceeds to us were approximately $345.0 million, after deducting the initial purchasers’ discount, commissions and transaction expenses. We used approximately $215 million of the net proceeds to partially fund our acquisition of the Broadview Project and used $128 million of proceeds to repay borrowings incurred under the Revolving Credit Facility to finance the purchase of the Armow project. The Unsecured Senior Notes bear interest at a rate of 5.875% per year, payable semiannually in arrears on February 1 and August 1, beginning on August 1, 2017 and maturing on February 1, 2024, unless repurchased or redeemed at an earlier date. The Unsecured Senior Notes are guaranteed on a senior unsecured basis by Pattern US Finance Company, one of our subsidiaries.
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Below is a summary of our Identified Right of First Offer Projects that we expect to acquire from the Pattern Development Companies in connection with our respective purchase rights.
Capacity (MW) | ||||||||||||||
Identified ROFO Projects | Status | Location | Construction Start (1) | Commercial Operations (2) | Contract Type | Rated (3) | Pattern Development- Owned (4) | |||||||
Pattern Development 1.0 Projects | ||||||||||||||
Otsuki Wind | Operational | Japan | n/a | 2006 | PPA | 12 | 12 | |||||||
Kanagi Solar | Operational | Japan | 2014 | 2016 | PPA | 10 | 6 | |||||||
Futtsu Solar | Operational | Japan | 2014 | 2016 | PPA | 31 | 20 | |||||||
Conejo Solar(5) | Operational | Chile | 2015 | 2016 | PPA | 104 | 104 | |||||||
El Cabo | In construction | New Mexico | 2016 | 2017 | PPA | 298 | 125 | |||||||
Belle River | In construction | Ontario | 2016 | 2017 | PPA | 100 | 43 | |||||||
Ohorayama | In construction | Japan | 2016 | 2018 | PPA | 33 | 33 | |||||||
North Kent | In construction | Ontario | 2017 | 2018 | PPA | 100 | 35 | |||||||
Henvey Inlet | Late stage development | Ontario | 2017 | 2019 | PPA | 300 | 150 | |||||||
Tsugaru | Late stage development | Japan | 2017 | 2020 | PPA | 122 | 103 | |||||||
Sumita | Late stage development | Japan | 2019 | 2021 | PPA | 100 | 62 | |||||||
Pattern Development 2.0 Projects | ||||||||||||||
Stillwater Big Sky | Late stage development | Montana | 2017 | 2018 | PPA | 79 | 67 | |||||||
Crazy Mountain | Late stage development | Montana | 2017 | 2019 | PPA | 80 | 68 | |||||||
Grady | Late stage development | New Mexico | 2018 | 2019 | PPA | 220 | 188 | |||||||
1,589 | 1,016 |
(1) | Represents year of actual or anticipated commencement of construction. |
(2) | Represents year of actual or anticipated commencement of commercial operations. |
(3) | Rated capacity represents the maximum electricity generating capacity of a project in MW. As a result of wind and other conditions, a project or a turbine will not operate at its rated capacity at all times and the amount of electricity generated will be less than its rated capacity. The amount of electricity generated may vary based on a variety of factors. |
(4) | Pattern Development-Owned capacity represents the maximum, or rated, electricity generating capacity of the project in MW multiplied by Pattern Development 1.0's or Pattern Development 2.0's percentage ownership interest in the distributable cash flow of the project. |
(5) | From time to time, we conduct strategic reviews of our markets. We have been conducting a strategic review of the market, growth, and opportunities in Chile. In the event we believe we can utilize funds that have already been invested in Chile or funds that might otherwise be invested in Chile in a more productive manner elsewhere that could generate a higher return on investment, we may decide to exit Chile for other opportunities with greater potential. In addition, Pattern Development 1.0 is also concurrently exploring strategic alternatives for its assets in Chile. |
Key Metrics
We regularly review a number of financial measurements and operating metrics to evaluate our performance, measure our growth and make strategic decisions. In addition to traditional U.S. GAAP performance and liquidity measures, such as total revenue, cost of revenue, net loss and net cash provided by operating activities, we also consider cash available for distribution as a supplemental liquidity measure and Adjusted EBITDA, MWh sold and average realized electricity price in evaluating our operating performance. We disclose cash available for distribution, which is a non-U.S. GAAP measure, because management recognizes that it will be used as a supplemental measure by investors and analysts to evaluate our liquidity. We disclose Adjusted EBITDA, which is a non-U.S. GAAP measure, because management believes this metric assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that our management believes are not indicative of our core operating performance. Each of these key metrics is discussed below.
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Limitations to Key Metrics
We disclose cash available for distribution because management recognizes that it will be used as a supplemental measure by investors and analysts to evaluate our liquidity. However, cash available for distribution has limitations as an analytical tool because it excludes depreciation, amortization and accretion, does not capture the level of capital expenditures necessary to maintain the operating performance of our projects, is not reduced for principal payments on our project indebtedness except to the extent they are paid from operating cash flows during a period, and excludes the effect of certain other cash flow items, all of which could have a material effect on our financial condition and results from operations. Cash available for distribution is a non-U.S. GAAP measure and should not be considered an alternative to net cash provided by operating activities or any other liquidity measure determined in accordance with U.S. GAAP, nor is it indicative of funds available to fund our cash needs. In addition, our calculation of cash available for distribution is not necessarily comparable to cash available for distribution as calculated by other companies.
We disclose Adjusted EBITDA, which is a non-U.S. GAAP measure, because management believes this metric assists investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that our management believes are not indicative of our core operating performance. We use Adjusted EBITDA to evaluate our operating performance. You should not consider Adjusted EBITDA as an alternative to net income (loss), determined in accordance with U.S. GAAP.
Adjusted EBITDA has limitations as an analytical tool. Some of these limitations are:
• | Adjusted EBITDA |
• | does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
• | does not reflect changes in, or cash requirements for, our working capital needs; |
• | does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, or our proportional interest in the interest expense of our unconsolidated investments or the cash requirements necessary to service interest or principal payments on the debt borne by our unconsolidated investments; |
• | does not reflect our income taxes or the cash requirement to pay our taxes; or our proportional interest in income taxes of our unconsolidated investments or the cash requirements necessary to pay the taxes of our unconsolidated investments; |
• | does not reflect depreciation, amortization and accretion which are non-cash charges; or our proportional interest in depreciation, amortization and accretion of our unconsolidated investments. The assets being depreciated, amortized and accreted will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and |
• | does not reflect the effect of certain mark-to-market adjustments and non-recurring items or our proportional interest in the mark-to-market adjustments at our unconsolidated investments. |
• | We do not have control, nor have any legal claim to the portion of the unconsolidated investees' revenues and expenses allocable to our joint venture partners. As we do not control, but do exercise significant influence, we account for the unconsolidated investments in accordance with the equity method of accounting. Net earnings from these investments are reflected within our consolidated statements of operations in "Earnings in unconsolidated investments, net." Adjustments related to our proportionate share from unconsolidated investments include only our proportionate amounts of interest expense, income taxes, depreciation, amortization and accretion, and mark-to-market adjustments included in "Earnings in unconsolidated investments, net;" and |
• | Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
Because of these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP.
Cash Available for Distribution
We define cash available for distribution as net cash provided by operating activities as adjusted for certain other cash flow items that we associate with our operations. It is a non-U.S. GAAP measure of our ability to generate cash to service our dividends.
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Cash available for distribution represents cash provided by operating activities as adjusted to (i) add or subtract changes in operating assets and liabilities, (ii) subtract net deposits into restricted cash accounts, which are required pursuant to the cash reserve requirements of financing agreements, to the extent they are paid from operating cash flows during a period, (iii) subtract cash distributions paid to noncontrolling interests, (iv) subtract scheduled project-level debt repayments in accordance with the related loan amortization schedule, to the extent they are paid from operating cash flows during a period, (v) subtract non-expansionary capital expenditures, to the extent they are paid from operating cash flows during a period, (vi) add cash distributions received from unconsolidated investments, to the extent such distributions were derived from operating cash flows and (vii) add or subtract other items as necessary to present the cash flows we deem representative of our core business operations.
The most directly comparable U.S. GAAP measure to cash available for distribution is net cash provided by operating activities. The following table is a reconciliation of our net cash provided by operating activities to cash available for distribution for the periods presented (unaudited and in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net cash provided by operating activities | $ | 113,431 | $ | 55,255 | $ | 157,183 | $ | 69,976 | |||||||
Changes in operating assets and liabilities | (61,379 | ) | (13,654 | ) | (47,956 | ) | 5,313 | ||||||||
Network upgrade reimbursement | 8,273 | 8,590 | — | ||||||||||||
Release of restricted cash to fund project and general and administrative costs | — | — | — | 590 | |||||||||||
Operations and maintenance capital expenditures | (117 | ) | (516 | ) | (263 | ) | (746 | ) | |||||||
Distributions from unconsolidated investments | 4,185 | 11,960 | 8,390 | 31,774 | |||||||||||
Other | 4,808 | 52 | 1,376 | 65 | |||||||||||
Less: | |||||||||||||||
Distributions to noncontrolling interests | (6,517 | ) | (4,270 | ) | (9,164 | ) | (8,187 | ) | |||||||
Principal payments paid from operating cash flows | (13,445 | ) | (13,319 | ) | (23,771 | ) | (22,262 | ) | |||||||
Cash available for distribution | $ | 49,239 | $ | 35,508 | $ | 94,385 | $ | 76,523 |
Cash available for distribution was $49.2 million for the three months ended June 30, 2017 as compared to $35.5 million for the same period in the prior year. This $13.7 million increase in cash available for distribution was primarily due to a $9.7 million increase in revenues (excluding unrealized loss on energy derivative and amortization of PPAs), an $8.3 million network upgrade reimbursement primarily related to the Broadview Project, and a $7.1 million increase in total distributions from unconsolidated investments. These increases were partially offset by a $4.2 million increase in operating expense, a $4.6 million increase in transmission cost and a $2.2 million increase in distributions to noncontrolling interests.
Cash available for distribution was $94.4 million for the six months ended June 30, 2017 as compared to $76.5 million for the same period in the prior year. This $17.9 million increase in cash available for distribution was primarily due to a $20.4 million increase in revenues (excluding unrealized loss on energy derivative and amortization of PPAs), a $2.8 million decrease in project expense, a $7.9 million increase in total distributions from unconsolidated investment, and an $8.6 million network upgrade reimbursement primarily related to Broadview. These increases were partially offset by an $8.2 million increase in operating expenses, a $4.5 million increase in transmission cost, a $5.1 million increase in interest expense, a $1.0 million increase in distribution to noncontrolling interests, and a $1.5 million increase in principal payments.
Adjusted EBITDA
We define Adjusted EBITDA as net income (loss) before net interest expense, income taxes, and depreciation, amortization and accretion, including our proportionate share of net interest expense, income taxes, and depreciation, amortization and accretion of unconsolidated investments. Adjusted EBITDA also excludes the effect of certain mark-to-market adjustments and infrequent items not related to normal or ongoing operations, such as early payment of debt, realized derivative gain or loss from refinancing transactions, gain or loss related to acquisitions or divestitures, and adjustments from unconsolidated investments. In calculating Adjusted EBITDA, we exclude mark-to-market adjustments to the value of our derivatives because we believe that it is useful for investors to understand, as a supplement to net income (loss) and other traditional measures of operating results, the results of our operations without regard to periodic, and sometimes material, fluctuations in the market value of such assets or liabilities.
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Adjustments from unconsolidated investments represent distributions received in excess of the carrying amount of our investment and suspended equity earnings, during periods of suspension of recognition of equity method earnings. We may suspend the recognition of equity method earnings when we receive distributions in excess of the carrying value of our investment. As we are not liable for the obligations of the investee nor otherwise committed to provide financial support, we record gains resulting from such excess distributions in the period the distributions occur. Additionally, when our carrying value in an unconsolidated investment is zero and we are not liable for the obligations of the investee nor otherwise committed to provide financial support, we will not recognize equity in earnings (losses) in other comprehensive income of unconsolidated investments.
The most directly comparable U.S. GAAP measure to Adjusted EBITDA is net income (loss). The following table reconciles net income (loss) to Adjusted EBITDA for the periods presented (unaudited and in thousands):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net loss | $ | (14,684 | ) | $ | (15,646 | ) | $ | (12,145 | ) | $ | (44,694 | ) | |||
Plus: | |||||||||||||||
Interest expense, net of interest income | 24,238 | 21,008 | 46,299 | 41,323 | |||||||||||
Tax provision | 4,541 | 1,429 | 9,316 | 2,727 | |||||||||||
Depreciation, amortization and accretion | 52,752 | 45,835 | 99,979 | 91,219 | |||||||||||
EBITDA | 66,847 | 52,626 | 143,449 | 90,575 | |||||||||||
Unrealized loss on energy derivative (1) | 4,663 | 9,327 | 7,021 | 14,152 | |||||||||||
Loss on undesignated derivatives, net | 4,751 | 5,879 | 5,399 | 19,510 | |||||||||||
Net (gain) loss on transactions | 807 | 72 | 1,119 | 39 | |||||||||||
Adjustments from unconsolidated investments (2) | — | (9,422 | ) | — | (11,134 | ) | |||||||||
Plus, proportionate share from unconsolidated investments: | |||||||||||||||
Interest expense, net of interest income | 9,498 | 7,925 | 18,838 | 15,144 | |||||||||||
Depreciation, amortization and accretion | 8,575 | 6,671 | 17,029 | 12,964 | |||||||||||
(Gain) loss on undesignated derivatives, net | (3,272 | ) | 5,555 | (2,788 | ) | 15,471 | |||||||||
Adjusted EBITDA | $ | 91,869 | $ | 78,633 | $ | 190,067 | $ | 156,721 |
(1) | Amount is included in electricity sales on the consolidated statements of operations. |
(2) | See Note 7. Unconsolidated Investments in the Notes to Consolidated Financial Statements in this Form 10-Q, for further discussion. |
Adjusted EBITDA for the three months ended June 30, 2017 was $91.9 million compared to $78.6 million for the same period in the prior year, an increase of $13.2 million, or approximately 16.8%. The increase in Adjusted EBITDA was primarily due to a $9.7 million increase in revenues (excluding unrealized loss on energy derivative and amortization of PPAs) and an $11.3 million increase in our proportionate share of Adjusted EBITDA from unconsolidated investments. These increases were partially offset by a $4.6 million increase in transmission cost and a $4.2 million increase in operating expenses.
Adjusted EBITDA for the six months ended June 30, 2017 was $190.1 million compared to $156.7 million for the same period in the prior year, an increase of $33.3 million, or approximately 21.3%. The increase in Adjusted EBITDA was primarily due to a $20.4 million increase in revenues (excluding unrealized loss on energy derivative and amortization of PPAs), a $21.0 million increase in our proportionate share of Adjusted EBITDA from unconsolidated investments, and a $2.8 million decrease in project expense. These increases were partially offset by an $8.2 million increase in operating expenses and a $4.5 million increase in transmission cost.
MWh Sold and Average Realized Electricity Price
The number of consolidated MWh, unconsolidated investments proportional MWh and proportional MWh sold, as well as consolidated average realized price per MWh and the proportional average realized price per MWh sold, are the operating metrics that help explain trends in our revenue, earnings from our unconsolidated investments and net income (loss) attributable to us.
• | Consolidated MWh sold for any period presented, represents 100% of MWh sold by wholly-owned and partially-owned subsidiaries in which we have a controlling interest and are consolidated in our consolidated financial statements; |
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• | Noncontrolling interest MWh represents that portion of partially-owned subsidiaries not attributable to us; |
• | Controlling interest in consolidated MWh is the difference between the consolidated MWh sold and the noncontrolling interest MWh; |
• | Unconsolidated investments proportional MWh is our proportion in MWh sold from our equity method investments; |
• | Proportional MWh sold for any period presented, represents the sum of the controlling interest and our percentage interest in our unconsolidated investments; and |
• | Average realized electricity price for each of consolidated MWh sold, unconsolidated investments proportional MWh sold and proportional MWh sold represents (i) total revenue from electricity sales for each of the respective MWh sold, discussed above, excluding unrealized gains and losses on our energy derivative and the amortization of finite-lived intangible assets and liabilities, divided by (ii) the respective MWh sold. |
The following table presents selected operating performance metrics for the periods presented (unaudited):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||
MWh sold | 2017 | 2016 | Change | % Change | 2017 | 2016 | Change | % Change | ||||||||||||||||||||||
Consolidated MWh sold | 2,074,327 | 1,746,088 | 328,239 | 18.8 | % | 3,988,585 | 3,529,502 | 459,083 | 13.0 | % | ||||||||||||||||||||
Less: noncontrolling MWh | (281,134 | ) | (226,859 | ) | (54,275 | ) | 23.9 | % | (540,728 | ) | (488,904 | ) | (51,824 | ) | 10.6 | % | ||||||||||||||
Controlling interest in consolidated MWh | 1,793,193 | 1,519,229 | 273,964 | 18.0 | % | 3,447,857 | 3,040,598 | 407,259 | 13.4 | % | ||||||||||||||||||||
Unconsolidated investments proportional MWh | 318,434 | 196,057 | 122,377 | 62.4 | % | 687,653 | 475,273 | 212,380 | 44.7 | % | ||||||||||||||||||||
Proportional MWh sold | 2,111,627 | 1,715,286 | 396,341 | 23.1 | % | 4,135,510 | 3,515,871 | 619,639 | 17.6 | % | ||||||||||||||||||||
Average realized electricity price per MWh | ||||||||||||||||||||||||||||||
Consolidated average realized electricity price per MWh | $ | 53 | $ | 58 | $ | (5 | ) | (8.6 | )% | $ | 53 | $ | 55 | $ | (2 | ) | (3.6 | )% | ||||||||||||
Unconsolidated investments proportional average realized electricity price per MWh | $ | 114 | $ | 116 | $ | (2 | ) | (1.7 | )% | $ | 117 | $ | 111 | $ | 6 | 5.4 | % | |||||||||||||
Proportional average realized electricity price per MWh | $ | 64 | $ | 68 | $ | (4 | ) | (5.9 | )% | $ | 66 | $ | 65 | $ | 1 | 1.5 | % |
Our consolidated MWh sold for the three months ended June 30, 2017 was 2,074,327 MWh, as compared to 1,746,088 MWh for the three months ended June 30, 2016, an increase of 328,239 MWh, or 18.8%. Our consolidated MWh sold for the six months ended June 30, 2017 was 3,988,585 MWh, as compared to 3,529,502 MWh for the six months ended June 30, 2016, an increase of 459,083 MWh, or 13.0%. The increase in consolidated MWh sold was primarily due to favorable wind conditions in the current periods compared to the same periods in 2016 and the acquisition of Broadview in the second quarter of 2017.
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Our proportional MWh sold for the three months ended June 30, 2017 was 2,111,627 MWh, as compared to 1,715,286 MWh for the three months ended June 30, 2016, an increase of 396,341 MWh, or 23.1%. The increase in consolidated MWh sold was primarily attributable to:
• | a 273,964 MWh increase in controlling interest in consolidated MWh primarily due to favorable wind conditions in the current period compared to the same period in 2016 and the acquisition of Broadview in the second quarter of 2017; and |
• | 122,377 MWh from unconsolidated investments due primarily to the acquisition of Armow in the fourth quarter of 2016 and favorable wind conditions in the current period compared to the same period in 2016. |
Our proportional MWh sold for the six months ended June 30, 2017 was 4,135,510 MWh, as compared to 3,515,871 MWh for the six months ended June 30, 2016, an increase of 619,639 MWh, or 13.4%. The change in proportional MWh sold was primarily attributable to:
• | a 407,259 MWh increase in controlling interest in consolidated MWh primarily due to favorable wind conditions in the current period compared to the same period in 2016 and the acquisition of Broadview in the second quarter of 2017; and |
• | 212,380 MWh from unconsolidated investments due primarily to the acquisition of Armow in the fourth quarter of 2016 and favorable wind conditions in the current period compared to the same period in 2016. |
Our consolidated average realized electricity price was $53 per MWh for the three months ended June 30, 2017, as compared to $58 per MWh for the three months ended June 30, 2016. The decrease of $5 per MWh was primarily due to an increase in volume of lower priced PPAs.
Our consolidated average realized electricity price was $53 per MWh for the six months ended June 30, 2017, as compared to $55 per MWh for the six months ended June 30, 2016. The decrease of $2 per MWh was primarily due to an increase in volume of lower priced PPAs.
Our proportional average realized electricity price was $64 per MWh for the three months ended June 30, 2017, as compared to $68 per MWh for the three months ended June 30, 2016. The $4 per MWh decrease in the proportional average realized electricity price was primarily due to the impact of foreign exchange on revenue denominated in the Canadian dollar at our Canadian projects, and an increase in volume from lower priced PPAs.
Our proportional average realized electricity price was $66 per MWh for the six months ended June 30, 2017, as compared to $65 per MWh for the six months ended June 30, 2016. The $1 per MWh decrease in the proportional average realized electricity price was primarily due to the impact of foreign exchange on revenue denominated in the Canadian dollar at our Canadian projects, and an increase in volume from lower priced PPAs.
Results of Operations
The following table and discussion provide selected financial information for the periods presented and is unaudited (in thousands, except percentages):
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change | ||||||||||||||||||||||
Revenue | $ | 107,760 | $ | 93,438 | $ | 14,322 | 15.3 | % | $ | 208,593 | $ | 181,077 | $ | 27,516 | 15.2 | % | |||||||||||||
Total cost of revenue | 86,645 | 77,037 | 9,608 | 12.5 | % | 159,555 | 152,694 | 6,861 | 4.5 | % | |||||||||||||||||||
Total operating expenses | 15,353 | 11,196 | 4,157 | 37.1 | % | 29,903 | 21,655 | 8,248 | 38.1 | % | |||||||||||||||||||
Total other expense | 15,905 | 19,422 | (3,517 | ) | (18.1 | )% | 21,964 | 48,695 | (26,731 | ) | (54.9 | )% | |||||||||||||||||
Net loss before income tax | (10,143 | ) | (14,217 | ) | 4,074 | (28.7 | )% | (2,829 | ) | (41,967 | ) | 39,138 | (93.3 | )% | |||||||||||||||
Tax provision | 4,541 | 1,429 | 3,112 | 217.8 | % | 9,316 | 2,727 | 6,589 | 241.6 | % | |||||||||||||||||||
Net loss | (14,684 | ) | (15,646 | ) | 962 | (6.1 | )% | (12,145 | ) | (44,694 | ) | 32,549 | (72.8 | )% | |||||||||||||||
Net loss attributable to noncontrolling interest | (28,904 | ) | (12,423 | ) | (16,481 | ) | 132.7 | % | (32,018 | ) | (17,801 | ) | (14,217 | ) | 79.9 | % | |||||||||||||
Net income (loss) attributable to Pattern Energy | $ | 14,220 | $ | (3,223 | ) | $ | 17,443 | (541.2 | )% | $ | 19,873 | $ | (26,893 | ) | $ | 46,766 | (173.9 | )% |
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Total revenue
Total revenue for the three months ended June 30, 2017 was $107.8 million compared to $93.4 million for the three months ended June 30, 2016, an increase of $14.3 million, or approximately 15.3%. The increase was primarily attributable to:
• | a $19.3 million increase in electricity sales due primarily to increases in volume due to favorable wind compared to the same period in 2016 and the acquisition of Broadview in the second quarter of 2017; and |
• | a $4.7 million decrease in unrealized losses primarily due to a larger decrease in the change in the forward gas price curves when compared to the prior period. |
These increases were partially offset by:
• | a $5.7 million decrease in electricity sales driven by lower floating prices to sell and higher floating prices to purchase electricity at delivery points under power sales agreements in our Texas markets; and |
• | a $2.7 million decrease in revenue due to availability and curtailment. |
Total revenue for the six months ended June 30, 2017 was $208.6 million compared to $181.1 million for the six months ended June 30, 2016, an increase of $27.5 million, or approximately 15.2%. The increase was primarily attributable to:
• | a $34.5 million increase in electricity sales due primarily to an increases in volume due to favorable wind compared to the same period in 2016 and the acquisition of Broadview in the second quarter of 2017; and |
• | a $7.1 million decrease in unrealized losses primarily due to a larger decrease in the change in the forward gas price curves when compared to the prior period. |
These increases were partially offset by:
• | a $6.7 million decrease in electricity sales driven by lower floating prices to sell and higher floating prices to purchase electricity at delivery points under power sales agreements in our Texas markets; and |
• | a $6.0 million decrease in revenue due to availability and curtailment. |
Cost of revenue
Cost of revenue for the three months ended June 30, 2017 was $86.6 million compared to $77.0 million for the three months ended June 30, 2016, an increase of $9.6 million, or approximately 12.5%. The addition of the Broadview Project resulted in increases of $2.1 million in project expense, $4.8 million in depreciation and $4.6 million in transmission costs. These increases were partially offset by a decrease in turbine maintenance expense of $1.9 million.
Cost of revenue for the six months ended June 30, 2017 was $159.6 million compared to $152.7 million for the six months ended June 30, 2016, an increase of $6.9 million, or approximately 4.5%. The addition of the Broadview Project resulted in increases of $2.1 million in project expense, $4.8 million in depreciation and $4.6 million in transmission costs. These increases were partially offset by a decrease in turbine maintenance expense of $4.6 million.
Operating expenses
Operating expenses for the three months ended June 30, 2017 were $15.4 million compared to $11.2 million for the three months ended June 30, 2016, an increase of $4.2 million, or approximately 37.1%. The increase in operating expenses was primarily attributable to a $1.6 million increase in consulting, legal and audit fees related to control remediation efforts, a $1.6 million increase in related party expenses and a $1.5 million increase in employee related expenses.
Operating expenses for the six months ended June 30, 2017 were $29.9 million compared to $21.7 million for the six months ended June 30, 2016, an increase of $8.2 million, or approximately 38.1%. The increase in operating expenses was primarily attributable to a $3.7 million increase in consulting, legal and audit fees related to control remediation efforts, a $3.2 million increase in related party expenses and a $2.3 million increase in employee related expenses.
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Other expense
Other expense for the three months ended June 30, 2017 was $15.9 million compared to $19.4 million for the three months ended June 30, 2016, a decrease of $3.5 million, or approximately 18.1%. The change was primarily attributable to:
• | a $7.3 million increase in earnings in unconsolidated investments, net due to increased project income primarily due to the acquisition of Armow in the fourth quarter 2016, increased wind production and decreases in unrealized losses in undesignated derivatives; partially offset by |
• | a $3.6 million increase in interest expense primarily due to the issuance of the Unsecured Senior Notes in January 2017. |
Other expense for the six months ended June 30, 2017 was $22.0 million compared to $48.7 million for the six months ended June 30, 2016, a decrease of $26.7 million, or approximately 54.9%. The change was primarily attributable to:
• | a $20.3 million increase in earnings in unconsolidated investments, net due to increased project income primarily due to the acquisition of Armow in the fourth quarter 2016, increased wind production and decreases in unrealized losses in undesignated derivatives; and |
• | a $14.1 million decrease in loss on undesignated derivatives, net primarily due to higher LIBOR curve in the current period; partially offset by |
• | a $5.1 million increase in interest expense primarily due to the issuance of the Unsecured Senior Notes in January 2017. |
The decrease in other expense was partially offset by an increase in interest expense of $5.1 million, primarily due to the issuance of the Unsecured Senior Notes.
Tax provision
The tax provision was $4.5 million for the three months ended June 30, 2017 compared to $1.4 million for the three months ended June 30, 2016. The tax provision for the three months ended June 30, 2017 was primarily the result of recording a deferred tax liability on the recognized equity income from operations in unconsolidated investments, tax expense in our Canadian and Puerto Rican operations and the foreign withholding taxes on intercompany transactions in certain foreign jurisdictions offset by recognizing a deferred tax asset on the recognized losses in Chile.
The tax provision was $9.3 million for the six months ended June 30, 2017 compared $2.7 million for the six months ended June 30, 2016. The tax provision for the three months ended June 30, 2017 was primarily the result of recording of a deferred tax liability on the recognized equity income from operations in unconsolidated investments, tax expense in our Canadian and Puerto Rican operations and the foreign withholding taxes on intercompany transactions in certain foreign jurisdictions offset by recognizing a deferred tax asset on the recognized losses in Chile.
Net loss
Net loss for the three months ended June 30, 2017 was $14.7 million compared to $15.6 million for the same period in the prior year; a decrease of $1.0 million or 6.1%. The increase in earnings was primarily attributed to:
• | increased revenues of $14.3 million; and |
• | a $3.5 million net decrease in other expense primarily related to an increase in earnings in unconsolidated investments, net; partially offset by increased interest expense. |
These increases were partially offset by increased cost of revenue of $9.6 million primarily due to Broadview which was acquired during the second quarter 2017 and operating expenses of $4.2 million.
Net loss for the six months ended June 30, 2017, was $12.1 million compared to $44.7 million for the same period in the prior year; a decrease of $32.5 million or 72.8%. The increase in earnings was primarily attributed to:
• | increased revenues of $27.5 million; and |
• | a $26.7 million net decrease in other expense primarily related to an increase in earnings in unconsolidated investments and a decrease in loss on undesignated derivatives, net primarily due to higher LIBOR curve in the current period. |
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These increases were partially offset by increased cost of revenue of $6.9 million and operating expenses of $8.2 million due primarily to Broadview which was acquired during the quarter.
Noncontrolling interest
The net loss attributable to noncontrolling interest was $28.9 million for the three months ended June 30, 2017 compared to $12.4 million for the three months ended June 30, 2016. The increased loss of $16.5 million was attributable to increased allocations of losses to tax equity projects, including allocations as a result of the acquisition of Broadview in the second quarter of 2017.
The net loss attributable to noncontrolling interest was $32.0 million for the six months ended June 30, 2017 compared to $17.8 million for the six months ended June 30, 2016. The increased loss of $14.2 million was attributable to increased allocations of losses to tax equity projects, including allocations as a result of the acquisition of Broadview in the second quarter of 2017.
Liquidity and Capital Resources
Our business requires substantial capital to fund (i) equity investments in our construction projects, (ii) current operational costs, (iii) debt service payments, (iv) dividends to our stockholders, (v) potential investments in new acquisitions, (vi) modifications to our projects, (vii) unforeseen events and (viii) other business expenses. As a part of our liquidity strategy, we plan to retain a portion of our cash flows in above-average wind years in order to have additional liquidity in below-average wind years.
Sources of Liquidity
Our sources of liquidity include cash generated by our operations, cash reserves, borrowings under our corporate and project-level credit agreements and further issuances of equity and debt securities.
The principal indicators of our liquidity are our unrestricted and restricted cash balances and availability under our Revolving Credit Facility and project level facilities. Our available liquidity is as follows (in millions):
June 30, 2017 | ||||
Unrestricted cash | $ | 162.6 | ||
Restricted cash | 30.5 | |||
Revolving credit facility availability(1) | 403.7 | |||
Project facilities: | ||||
Post construction use | 103.7 | |||
Total available liquidity | $ | 700.5 |
(1) | As of August 4, 2017, the amount available on the Revolving Credit Facility is $333.7 million. |
We believe that for the remainder of 2017, we will have sufficient liquid assets, cash flows from operations, and borrowings available under our Revolving Credit Facility to meet our financial commitments, debt service obligations, contingencies and anticipated required capital expenditures for at least the next 24 months, not including capital required for additional project acquisitions or capital call on Pattern Development 2.0. However, we are subject to business and operational risks that could adversely affect our cash flow. A material decrease in our cash flows would likely produce a corresponding adverse effect on our borrowing capacity.
In connection with our future capital expenditures and other investments, including any project acquisitions that we may make, or capital call on Pattern Development 2.0 we elect to participate in, we may, from time to time, issue debt or equity securities. Our ability to access the debt and equity markets is dependent on, among other factors, the overall state of the debt and equity markets and investor appetite for investment in clean energy projects in general and our Class A shares in particular. Volatility in the market price of our Class A shares may prevent or limit our ability to utilize our equity securities as a source of capital to help fund acquisitions. An inability to obtain debt or equity financing on commercially reasonable terms could significantly limit our timing and ability to consummate future acquisitions, and to effectuate our growth strategy.
In June 2017, PSP Investments agreed to cooperate with us on future third-party acquisitions and to support our funding through potential bridge financing for projects under construction.
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In January 2017, we issued the Unsecured Senior Notes with an aggregate principal amount of $350.0 million. Net proceeds to us were approximately $345.0 million, after deducting the initial purchasers’ discount, commissions and transaction expenses. We used approximately $215 million of the net proceeds to partially fund our acquisition of the Broadview projects and used $128 million of proceeds to repay borrowings incurred under the Revolving Credit Facility to finance the purchase of the Armow project. The Unsecured Senior Notes bear interest at a rate of 5.875% per year, payable semiannually in arrears on February 1 and August 1, beginning on August 1, 2017 and maturing on February 1, 2024, unless repurchased or redeemed at an earlier date. The Unsecured Senior Notes are guaranteed on a senior unsecured basis by Pattern US Finance Company, one of our subsidiaries.
On May 9, 2016, we entered into an Equity Distribution Agreement with RBC Capital Markets, LLC, KeyBanc Capital Markets Inc. and Morgan Stanley & Co. LLC (collectively, the “Agents”). Pursuant to the terms of the Equity Distribution Agreement, we may offer and sell shares of our Class A common stock, par value $0.01 per share, from time to time through the Agents, as our sales agents for the offer and sale of the shares, up to an aggregate sales price of $200 million. We intend to use the net proceeds from the sale of the shares for general corporate purposes, which may include the repayment of indebtedness and the funding of acquisitions and investments. For the six months ended June 30, 2017, the Company did not sell any shares under the Equity Distribution Agreement. As of June 30, 2017, approximately $170.8 million in aggregate offering price remained available to be sold under the agreement.
Subject to market conditions, we will continue to consider various forms of repricings, refinancings, and/or repayments of our project level finance facilities. No assurances, however, can be given that we will be able to consummate any such transactions, the transactions can be consummated on terms that are financially favorable to us, or that such transactions will have the intended financial effects of improving the consolidated statements of operations, net cash provided by operating activities, or cash available for distribution.
Cash Flows
We use traditional measures of cash flow, including net cash provided by operating activities, net cash used in investing activities and net cash provided by financing activities, as well as cash available for distribution discussed earlier, to evaluate our periodic cash flow results. Below is a summary of our cash flows for each period (in millions):
Six months ended June 30, | |||||||
2017 | 2016 | ||||||
Net cash provided by operating activities | $ | 157.2 | $ | 70.0 | |||
Net cash provided by (used in) investing activities | (193.2 | ) | 5.7 | ||||
Net cash provided by (used in) financing activities | 117.5 | (107.7 | ) | ||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 2.2 | 2.0 | |||||
Net change in cash, cash equivalents and restricted cash | $ | 83.8 | $ | (30.1 | ) |
Net cash provided by operating activities
Net cash provided by operating activities was $157.2 million for the six months ended June 30, 2017 as compared to $70.0 million in the prior year, an increase of $87.2 million, or approximately 124.6%. The increase in cash provided by operating activities was primarily due to higher revenues of $20.4 million (excluding unrealized loss on energy derivative and amortization of PPAs), increased distributions from unconsolidated investments of $31.3 million, an increase of $40.6 million in payables and accrued liabilities due primarily to the timing of payments, as well as, an $8.7 million increase in accrued interest associated primarily with the timing of payments on the Unsecured Senior Notes. These increases were partially offset by increases of $8.2 million in operating expenses.
Net cash provided by (used in) investing activities
Net cash used in investing activities was $193.2 million for the six months ended June 30, 2017, which consisted of $170.0 million in cash paid, net of cash and restricted cash acquired, for the acquisition of the Broadview Project during the current quarter in 2017, and $39.1 million for capital expenditures, partially offset by $8.4 million in distributions from unconsolidated investments and $7.0 million in reimbursement of interconnection costs.
Net cash provided by investing activities was $5.7 million for the six months ended June 30, 2016, which consisted primarily of $31.8 million in distributions received from unconsolidated investments, partially offset by $26.0 million for capital expenditures including $18.0 million related to payments for a project that became commercially operable in the fourth quarter of 2015.
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Net cash provided by (used in) financing activities
Net cash provided by financing activities for the six months ended June 30, 2017 was $117.5 million. Net cash provided by financing activities consisted primarily of $350.0 million in proceeds from the issuance of the Unsecured Senior Notes as discussed previously and $139.4 million in proceeds from other long-term debt and the Revolving Credit Facility.
Net cash provided by financing activities was partially offset by:
• | $205.0 million in repayments of the Revolving Credit Facility; |
• | $71.5 million of dividend payments; |
• | $74.8 million in repayment of long-term debt; |
• | $7.7 million in payments for deferred financing costs primarily associated with the issuance of the Unsecured Senior Notes; and |
• | $9.2 million in distributions to noncontrolling interests. |
Net cash used in financing activities for the six months ended June 30, 2016 was $107.7 million. Net cash used in financing activities consisted primarily of the following:
• | $56.1 million of dividend payments; |
• | $8.2 million in distributions to noncontrolling interests; |
• | $22.3 million in repayments of debt; and |
• | $40.0 million in repayment of the Revolving Credit Facility partially offset by $20.0 million in proceeds from the Revolving Credit Facility. |
Uses of Liquidity
Cash Dividends to Investors
We intend to pay regular quarterly dividends in U.S. dollars to holders of our Class A common stock. On August 3, 2017, we increased our dividend to $0.4200 per share, or $1.680 per share on an annualized basis, commencing with respect to dividends to be paid on October 31, 2017 to holders of record on September 29, 2017. The following table sets forth the dividends declared on shares of Class A common stock for the periods indicated.
Dividends Per Share | Declaration Date | Record Date | Payment Date | ||||||
2017: | |||||||||
Third Quarter | $ | 0.4200 | August 3, 2017 | September 29, 2017 | October 31, 2017 | ||||
Second Quarter | $ | 0.4180 | May 4, 2017 | June 30, 2017 | July 31, 2017 | ||||
First Quarter | $ | 0.41375 | February 24, 2017 | March 31, 2017 | April 28, 2017 |
We established our initial quarterly dividend level based on a targeted cash available for distribution payout ratio of 80% after considering the annual cash available for distribution that we expect our projects will be able to generate following the commencement of commercial operations at all of our construction projects and with due regard to retaining a portion of the cash available for distribution to grow our business. We intend to grow our business primarily through the acquisition of operational and construction-ready power projects, which, we believe, will facilitate the growth of our cash available for distribution and enable us to increase our dividend per share of Class A common stock over time. We may in the future raise capital and make investments in new power projects upon or near the commencement of construction of such projects and therefore prior to the expected commencement of operations of the new projects, which could result in a passage of time of twelve or more months before we begin to receive any cash flow contributions from such projects to our cash available for distribution. In connection with these investments, we may increase our dividends prior to the receipt of such cash flow contributions, which would likely cause our payout ratio to temporarily exceed our targeted run-rate payout ratio. However, the determination of the amount of cash dividends to be paid to holders of our Class A common stock will be made by our Board of Directors and will depend upon our financial condition, results of operations, cash flow, long-term prospects and any other matters that our Board of Directors deem relevant. Refer to Item 1A “Risk Factors—Risks Related to Ownership of our Class A Shares—Risks Regarding our Cash Dividend Policy” in our Annual Report on Form 10-K for the year ended December 31, 2016.
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We expect to pay a quarterly dividend on or about the 30th day following each fiscal quarter to holders of record of our Class A common stock on the last day of such quarter.
Capital Expenditures and Investments
We expect to make investments in additional projects. As discussed above, on April 21, 2017, we acquired the Broadview Project from Pattern Development 1.0. The total purchase consideration included $215 million of cash paid at closing. In addition, we funded an initial investment of $60 million in Pattern Development 2.0 for an approximately 20% initial ownership interest on July 27, 2017.
We also evaluate, from time to time, third-party acquisition opportunities. We believe that we will have sufficient cash and Revolving Credit Facility capacity to complete the funding of future construction commitments we may have, but this may be affected by any other acquisitions or investments that we make. To the extent that we make any such investments or acquisitions, we will evaluate capital markets and other corporate financing sources available to us at the time. In addition, we will make investments from time to time at our operating projects. Operational capital expenditures are those capital expenditures required to maintain our long-term operating capacity. Capital expenditures for the projects are generally made at the project level using project cash flows and project reserves, although funding for major capital expenditures may be provided by additional project debt or equity. Therefore, the distributions that we receive from the projects may be made net of certain capital expenditures needed at the projects. For the year ending December 31, 2017, we have budgeted $4.4 million for operational capital expenditures and $5.5 million for expansion capital expenditures. We will also evaluate participation in future potential capital call by Pattern Development 2.0. We will also evaluate participation in future potential capital calls by Pattern Development 2.0.
Contractual Obligations
We have a variety of contractual obligations and other commercial commitments that represent prospective cash requirements in addition to our capital expenditure programs. See also Note 8, Debt, and Note 15, Commitments and Contingencies, in the notes to consolidated financial statements for additional discussion of contractual obligations.
As part of the Broadview Project acquisition the Company became party to various agreements and future commitments. The following table summarizes estimates of future commitments related to the various agreements entered into as part of the Broadview Project acquisition (in thousands) as of June 30, 2017:
Contractual Obligations | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Total | |||||||||||||||
Project-level debt principal payments | $ | — | $ | 6,387 | $ | 5,001 | $ | 43,008 | $ | 54,396 | ||||||||||
Project-level interest payments on debt instruments | 1,192 | 3,196 | 2,913 | 12,070 | 19,371 | |||||||||||||||
Transmission Service Agreements | 13,445 | 47,200 | 47,200 | 543,246 | 651,091 | |||||||||||||||
Payments in lieu of taxes | 241 | 957 | 818 | 9,635 | 11,651 | |||||||||||||||
Other | 264 | 1,109 | 611 | — | 1,984 | |||||||||||||||
Operating leases | 109 | 3,343 | 3,794 | 56,372 | 63,618 | |||||||||||||||
Service and maintenance agreements | 3,474 | 8,696 | — | — | 12,170 | |||||||||||||||
Asset retirement obligations | — | — | — | 6,049 | 6,049 | |||||||||||||||
Total | $ | 18,725 | $ | 70,888 | $ | 60,337 | $ | 670,380 | $ | 820,330 |
Other Commitments
Service and Maintenance Agreements
In March 2017, we entered into revised LTSAs at certain of our projects pursuant to which the turbine manufacturer will continue to provide routine and corrective maintenance service, but we have become responsible for a portion of the maintenance and repairs, including on major component parts. The revised LTSAs reduced fixed contract commitments by approximately $102 million over the next ten years.
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Acquisition commitments
On June 16, 2017, we entered into a purchase and sale agreement with Pattern Development 1.0 to purchase a 51% limited partner interest in Meikle Wind Energy Limited Partnership (the Meikle Project Company) and 70% of the issued and outstanding shares of Meikle Wind Energy Corp. (Meikle Corp) (which holds a 0.02% general partner interest in the Meikle Project Company) in exchange for aggregate consideration of CAD $85.4 million (subject to certain adjustments). The Meikle Project Company operates the approximately 179 megawatt wind farm located British Columbia, Canada, and achieved commercial operations in the first quarter of 2017.
On June 16, 2017, we also entered into a purchase and sale agreement with Pattern Development 1.0 to purchase (i) a 51% limited partner interest in a newly-formed limited partnership (which will hold 100% of the economic interests in Mont Sainte-Marguerite Wind Farm LP (the MSM Project Company), (ii) a 70% interest in Pattern MSM GP Holdings Inc., and (iii) a 70% interest in Pattern Development MSM Management ULC, in exchange for aggregate consideration of CAD $53.0 million (subject to certain adjustments). The MSM Project Company operates the approximately 143 megawatt wind farm located near Québec City, Canada.
Investment commitments
On June 16, 2017, we entered into the Second Amended and Restated Agreement of Limited Partnership (A&R PEGH2 LPA) of PEGH 2. In July 2017, PEGH 2 made a capital call of its new limited partners under the A&R PEGH 2 LPA (the Initial PEGH 2 Capital Call). In connection with the Initial PEGH2 Capital Call, we made a contribution to PEGH 2 of approximately $60.0 million. As a result of the funding under the Initial PEGH2 Capital Call and the consummation of certain redemptions, we hold an approximate 20% ownership interest in PEGH 2. Under the A&R PEGH 2 LPA, we have also committed to contribute up to an additional approximately $240.0 million to PEGH 2 in one or more subsequent rounds of financing, which could result in our ownership interest in PEGH 2 increasing to up to approximately 29%. If we elect not to participate in such subsequent rounds of financing, our ownership interest in PEGH 2 may be diluted on a pro rata basis based on fair market value.
Off-Balance Sheet Arrangements
As of June 30, 2017, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Credit Agreements for Unconsolidated Investments
Below is a summary of our proportion of debt in unconsolidated investments, as of June 30, 2017 (in thousands):
Total Project Debt | Percentage of Ownership | Our Portion of Unconsolidated Project Debt | ||||||||
Armow | $ | 397,720 | 50.0 | % | $ | 198,860 | ||||
South Kent | 479,406 | 50.0 | % | 239,703 | ||||||
Grand | 276,153 | 45.0 | % | 124,269 | ||||||
K2 | 586,776 | 33.3 | % | 195,572 | ||||||
Unconsolidated investments - debt | $ | 1,740,055 | $ | 758,404 |
Critical Accounting Policies and Estimates
There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have significant exposure to commodity prices, interest rates and foreign currency exchange rates, as described below. To mitigate these market risks, we have entered into multiple derivatives. We have not applied hedge accounting treatment to all of our derivatives, therefore we are required to mark some of our derivatives to market through earnings on a periodic basis, which will result in non-cash adjustments to our earnings and may result in volatility in our earnings, in addition to potential cash settlements for any losses.
Commodity Price Risk
We manage our commodity price risk for electricity sales primarily through the use of fixed price long-term power purchase agreements with creditworthy counterparties. Our financial results reflect approximately 402,610 MWh of electricity sales during the six months ended June 30, 2017 that were subject to spot market pricing. A hypothetical increase or decrease of 10% or $1.29 per MWh in the merchant market prices would have increased or decreased revenue by $0.5 million for the six months ended June 30, 2017.
Interest Rate Risk
As of June 30, 2017, our long-term debt includes both fixed and variable rate debt. As long term debt is not carried at fair value on the consolidated balance sheets, changes in fair value would impact earnings and cash flows only if we were to reacquire all or a portion of these instruments prior to their maturity. The fair market value of our outstanding convertible senior notes, or "debentures," is subject to interest rate risk, market price risk and other factors due to the convertible feature of the debentures. The fair market value of the debentures will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the debentures will generally increase as the market price of our Class A common stock increases and decrease as the market price of our Class A common stock falls. The interest and market value changes affect the fair market value of the debentures, but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations, except to the extent that changes in the fair value of the debentures or value of Class A common stock permit the holders of the debentures to convert into shares. As of June 30, 2017, the estimated fair value of our debt was $1.8 billion and the carrying value of our debt was $1.8 billion. The fair value of variable interest rate long-term debt is approximated by its carrying cost. A hypothetical increase or decrease in market interest rates by 1% would have resulted in a $42.5 million decrease or $123.4 million increase in the fair value of our fixed rate debt.
We are exposed to fluctuations in interest rate risk as a result of our variable rate debt and outstanding amounts due under our Revolving Credit Facility. As of June 30, 2017, $60 million was outstanding under the Revolving Credit Facility. A hypothetical increase or decrease in interest rates by 1% would have a $0.6 million impact to Revolving Credit Facility for the six months ended June 30, 2017.
We may use a variety of derivative instruments, with respect to our variable rate debt, to manage our exposure to fluctuations in interest rates, including interest rate swaps. As a result, our interest rate risk is limited to the unhedged portion of the variable rate debt. As of June 30, 2017, the unhedged portion of our variable rate debt was $68.0 million. A hypothetical increase or decrease in interest rates by 1% would have a $0.7 million impact to interest expense for the six months ended June 30, 2017.
Foreign Currency Exchange Rate Risk
Our wind power projects are located in the United States, Canada and Chile. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we operate. When the U.S. dollar strengthens against foreign currencies, the relative value in revenue earned in the respective foreign currency decreases. When the U.S. dollar weakens against foreign currencies, the relative value in revenue earned in the respective foreign currency increases. A majority of our power sale agreements and operating expenditures are transacted in U.S. dollars, with a growing portion transacted in currencies other than the U.S. dollar, primarily the Canadian dollar. For the six months ended June 30, 2017, our financial results included C$40.7 million, or $30.5 million calculated based on the monthly average exchange rate, in Canadian dollar denominated net income, from our Canadian operations. A hypothetical increase or decrease of 10% in exchange rates between the Canadian and U.S. dollar would have increased or decreased net earnings of our Canadian operations by $3.0 million for the six months ended June 30, 2017.
In January 2015, we established a currency risk management program. The objective of the program is to mitigate the foreign exchange rate risk arising from transactions or cash flows that have a direct or underlying exposure in non-U.S. dollar denominated currencies in order to reduce volatility in our cash flow, which may have an adverse impact to our short-term liquidity or financial condition. For the six months ended June 30, 2017, we recognized an unrealized loss on foreign currency forward contracts of
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$2.8 million in loss on undesignated derivatives, net in the consolidated statements of operations. We also recognized a realized gain of $0.3 million in loss on undesignated derivatives, net in the consolidated statements of operations related to foreign currency forward contracts that matured during the six months ended June 30, 2017.
As of June 30, 2017, a 10% devaluation in the Canadian dollar to the United States dollar would result in our consolidated balance sheets being negatively impacted by a $24.3 million cumulative translation adjustment in accumulated other comprehensive loss.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 30, 2017. Based on this evaluation, our Chief Executive Officer, and Chief Financial Officer concluded that as of June 30, 2017, our disclosure controls and procedures were not effective at the reasonable assurance level as a result of the material weaknesses previously disclosed under Item 9A. "Controls and Procedures" in our Annual Report on Form 10-K for our fiscal year ended December 31, 2016. During the year ended December 31, 2016, our internal control over financial reporting was not effective due to the aggregation of internal control deficiencies related to the implementation, design, maintenance and operating effectiveness of various transaction, process level, and monitoring controls. These deficiencies largely have arisen during fiscal 2016 because of growth of the Company, increases in employee headcount to support growth, and frequent changes in organizational structure that were not adequately supported by elements of our internal control over financial reporting. The deficiencies can be grouped generally as ineffective training programs, accounting policies and procedures, monitoring and management review controls, contract review, and procure-to-pay procedures.
However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Quarterly Report on Form 10-Q were prepared in accordance with U.S. generally accepted accounting principles (GAAP), our management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with GAAP.
Remediation Plan and Efforts with Respect to Material Weaknesses
Our management has developed a plan to remediate the material weaknesses in our internal control over financial reporting including the following:
• | providing SOX 404 and internal control training to accounting, executive management, and various department personnel; |
• | documenting accounting, entity level, and IT policies and procedures that support our internal control infrastructure; |
• | redesigning the contract review process that improves communication and informational flow between the various company departments including legal and accounting for the complete and accurate recording of contract provisions; and |
• | redesigning and implementing changes to certain processes and internal controls. |
Through June 30, 2017, substantial progress has been made and efforts continue to track with management’s overall remediation plan.
Change in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are subject, from time to time, to routine legal proceedings and claims arising out of the normal course of business. There has been no material change in the nature of our legal proceedings from the description provided in our Annual Report on Form 10-K for the year ended December 31, 2016, as supplemented by the description provided in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should consider the risks described under the caption “Risk Factors” in the Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes in our risk factors as described in such document except for the following:
Our projects rely on a limited number of key power purchasers.
There are a limited number of possible power purchasers for electricity and RECs produced in a given geographic location. Because our projects depend on sales of electricity and RECs to certain key power purchasers, our projects are highly dependent upon these power purchasers fulfilling their contractual obligations under their respective PPAs. Our projects’ power purchasers may not comply with their contractual payment obligations or may become subject to insolvency or liquidation proceedings during the term of the relevant contracts and, in such event, we may not be able to find another purchaser on similar or favorable terms or at all. In addition, we are exposed to the creditworthiness of our power purchasers and there is no guarantee that any power purchaser will maintain its credit rating, if any. To the extent that any of our projects’ power purchasers are, or are controlled by, governmental entities, our projects may also be subject to legislative or other political action that impairs their contractual performance. In addition to the failure by any key power purchasers to meet their contractual commitments or the insolvency or liquidation of one or more of our power purchasers, we note that our key power purchasers may seek to renegotiate or terminate PPAs that were contracted for at a time when the prices for power were higher than they may currently be in the relevant markets by asserting that we have not performed our obligations under our contractual commitments under a PPA. Each such situation could have a material adverse effect on our business prospects, financial condition and results of operations.
For example, our 101 MW Santa Isabel project located on the south coast of Puerto Rico sells 100% of its electricity generation including environmental attributes to PREPA under a 20-year PPA. On July 2, 2017, the Financial Oversight and Management Board (or Oversight Board) established pursuant to the Puerto Rico Oversight, Management, and Economic Stability Act (or PROMESA) with oversight authority over the Commonwealth of Puerto Rico and its agencies, including the Puerto Rico Electric Power Authority (or PREPA), filed a voluntary petition for relief for PREPA in the U.S. District Court for the District of Puerto Rico. The petition was filed pursuant to PROMESA thereby commencing a case under Title III thereof which is a specific statutory vehicle that allows the Commonwealth of Puerto Rico and its instrumentalities, such as PREPA, to adjust their debt (similar to a bankruptcy proceeding). We plan to file a notice of appearance in the proceeding as a creditor of PREPA affected by the Title III filing. As of the date of this Quarterly Report on Form 10-Q, PREPA is current with respect to payments due under the PPA; however, no assurances can be given that PREPA will continue to pay our receivables incurred prior to the Title III petition in which event such receivables will become an unsecured claim in the Title III proceeding. Furthermore, under the Title III proceeding, PREPA and the Oversight Board will eventually need to determine whether to assume the PPA or reject the PPA, subject to court approval. A rejection of the PPA and our inability to find satisfactory alternatives for the offtaker of energy produced by the Santa Isabel facility would likely have a material adverse effect on our business prospects, financial condition and results of operations.
The fact of PREPA’s insolvency and its filing under Title III each constitute an event of default under the project’s financing agreement. However, after discussions with the lender regarding the status of PREPA’s action, the lender under the Santa Isabel financing agreement has agreed to waive such defaults. Despite such agreement, no assurances can be given that PREPA will determine to assume the PPA, will not take actions that separately constitute an event of default under our financing agreement, or that Santa Isabel will be able to remain current with respect to its payments under the financing agreement. In any such event, another event of default under the financing agreement would occur and no assurances can be given that the lender would agree to a further waiver or other standstill of any such other event of default, or the lender would not otherwise decide in such circumstance to accelerate and declare the entire amount of debt under the financing agreement immediately due and payable. Even though the Santa Isabel financing agreement is non-recourse to us, it is secured by the Santa Isabel project and any an exercise of remedies by the lender could have a material adverse effect on our business prospects, financial condition and results of operations.
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ITEM 6. EXHIBITS
Exhibit No. | Description | |
3.1 | Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1/A dated September 20, 2013 (Registration No. 333-190538)). | |
3.2 | Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1/A dated September 3, 2013 (Registration No. 333-190538)). | |
4.1 | Form of Class A Stock Certificate (Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1/A dated September 3, 2013 (Registration No. 333-190538)). | |
4.2 | Indenture, dated July 28, 2015, among the Company, as issuer, Pattern US Finance Company LLC, as subsidiary guarantor, and Deutsche Bank Trust Company Americas, as trustee, related to 4.00% Convertible Senior Notes due 2020 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed July 28, 2015). | |
4.3 | Indenture, dated as of January 25, 2017, among the Company, Pattern US Finance Company LLC, as guarantor, and Deutsche Bank Trust Company Americas, as trustee, related to 5.875% Senior Notes due 2024 (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated January 20, 2017). | |
10.1 | Amended and Restated Purchase Rights Agreement by and among Pattern Development 1.0, the Company, Pattern Energy Group Holdings LP (solely with respect to Article IV therein) and Pattern Energy GP LLC, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.2 | Amended and Restated Purchase Rights Agreement by and among Pattern Development 2.0, the Company, Pattern Energy Group Holdings 2 LP (solely with respect to Article III therein) and Pattern Energy Group Holdings 2 GP LLC, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.3 | Second Amended and Restated Non-Competition Agreement by and among Pattern Development 1.0, the Company and Pattern Development 2.0, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.4 | Amended and Restated Multilateral Management Services Agreement by and among the Company, Pattern Development 1.0 and Pattern Development 2.0, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.5 | Second Amended and Restated Limited Partnership Agreement of Pattern Energy Group Holdings 2 LP, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.6 | Joint Venture Agreement between PSP Investments and the Company, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.7 | Sponsor Services Agreement between the Company and PSP Investments, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.8 | Purchase and Sale Agreement by and among the Company, Vertuous Energy Canada Inc. and Pattern Development 1.0, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.9 | Purchase and Sale Agreement by and among the Company, Vertuous Energy Canada Inc. and Pattern Development 1.0, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.9 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
10.10 | Purchase and Sale Agreement by and among Vertuous Energy LLC and the Company, dated as of June 16, 2017 (Incorporated by reference to Exhibit 10.10 to the Company's Current Report on Form 8-K filed June 19, 2017). | |
31.1 | Certifications of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
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31.2 | Certifications of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32* | Certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Exchange Act. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Pattern Energy Group Inc. | |||
Dated: | August 9, 2017 | By: | /s/ Michael J. Lyon |
Michael J. Lyon | |||
Chief Financial Officer | |||
(On behalf of the Registrant and as Principal Financial Officer) |
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