Pattern Energy Group Inc. - 10-Q filing on 2019-11-05

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Financial Assets and Liabilities Required Fair Value Measurement on 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 millions):



	September 30, 2019
	Level 1		Level 2		Level 3		Total
Assets
Foreign currency forward contracts	$	—	$	10	$	—	$	10
Congestion revenue rights ⁽¹⁾	—		—		—		—
	$	—	$	10	$	—	$	10
Liabilities
Interest rate swaps	$	—	$	87	$	—	$	87
Foreign currency forward contracts ⁽¹⁾	—		—		—		—
Contingent consideration	—		—		122		122
	$	—	$	87	$	122	$	209


⁽¹⁾	As of September 30, 2019, the fair value was less than $1 million.



	December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Interest rate swaps	$	—	$	3	$	—	$	3
Energy derivative	—		—		7		7
Foreign currency forward contracts	—		12		—		12
Congestion revenue rights	—		—		1		1
	$	—	$	15	$	8	$	23
Liabilities
Interest rate swaps	$	—	$	31	$	—	$	31
Foreign currency forward contracts	—		2		—		2
Contingent consideration	—		—		130		130
	$	—	$	33	$	130	$	163

Reconciliation of Energy Derivative Contract Measured at Fair Value

The following table presents a reconciliation of the energy derivative instrument measured at fair value on a recurring basis using significant unobservable inputs (in millions):



	Three months ended September 30,					Nine months ended September 30,
Energy Derivative	2019		2018			2019			2018
Balances, beginning of period	$	—	$	12		$	7		$	27
Total gain (loss) included in electricity sales	—		2			1			(2		)
Settlements	—		(2		)	(8		)	(13		)
Balances, end of period	$	—	$	12		$	—		$	12

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The following table presents a reconciliation of the contingent consideration liabilities measured at fair value on a recurring basis using significant unobservable inputs (in millions):



	Three months ended September 30,					Nine months ended September 30,
Contingent Consideration Liabilities	2019		2018			2019			2018
Balances, beginning of period	$	111	$	128		130			$	22
Purchase	—		—			—			106
Total loss included in development expenses	9		—			9			—
Total loss included in other expense, net	2		2			6			7
Foreign currency translation adjustments recognized in accumulated OCI	—		(2		)	2			(7		)
Settlement	—		(3		)	(25		)	(3		)
Balances, end of period	$	122	$	125		$	122		$	125

Fair Value Measurements, Recurring Level 3, Valuation Techniques

The valuation techniques and significant unobservable inputs used in material recurring Level 3 fair value measurements were as follows (in millions, for fair value):



September 30, 2019	Fair Value	Valuation Technique	Significant Unobservable Inputs	Range
Tsugaru contingent consideration	$122	Discounted cash flow	Deferred purchase price	$109 - $128 million
			Discount rate	6.90%

December 31, 2018	Fair Value	Valuation Technique	Significant Unobservable Inputs	Range
Energy derivative	$7	Discounted cash flow	Forward electricity prices	$20.02-$32.58 ⁽¹⁾
			Discount rate	2.80%-2.81%

Broadview contingent consideration	$25	Discounted cash flow	Discount rate	4.0%-8.0%
			Annual energy production loss	0.70%

Tsugaru contingent consideration	$105	Discounted cash flow	Deferred purchase price	$109 - $128 million
			Discount rate	6.90%

⁽¹⁾

Represents price per MWh

Carrying Amounts and Fair Values of Company's Financial Liabilities

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 millions):



			Fair Value
	As reflected on the balance sheet		Level 1		Level 2		Level 3		Total
September 30, 2019
Total debt, net	$	2,565	$	—	$	2,584	$	—	$	2,584
December 31, 2018
Total debt, net	$	2,283	$	—	$	2,240	$	—	$	2,240