Note 13 - Puna Power Plant Lease Transactions

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Leases of Lessee Disclosure [Text Block]

NOTE

13

— PUNA POWER PLANT LEASE TRANSACTIONS

In

2005,

the Company

’s wholly owned subsidiary in Hawaii, Puna Geothermal Ventures (“PGV”), entered into transactions involving the original geothermal power plant of the Puna complex located on the Big Island (the “Puna Power Plant”

).

Pursuant to a

31

-year head lease (the “Head Lease

”), PGV leased the Puna Power Plant to an unrelated company in return for prepaid lease payments in the total amount of

$83.0

million (the “Deferred Lease Income”). The carrying value of the leased assets as of

December

31,

2016

and

2015

amounted to

$28.0

million and

$30.7

million, net of accumulated depreciation of

$32.9

million and

$30.2

million, respectively. The unrelated company (the “Lessor”) simultaneously leased back the Puna Power Plant to PGV under a

23

-year lease (the “Project Lease”). PGV’s rent obligations under the Project Lease will be paid solely from revenues generated by the Puna Power Plant under a PPA that PGV has with Hawaii Electric Light Company (“HELCO”). The Head Lease and the Project Lease are non-recourse lease obligations to the Company. PGV’s rights in the geothermal resource and the related PPA have not been leased to the Lessor as part of the Head Lease but are part of the Lessor’s security package.

The Head Lease and the Project Lease are being accounted for separately. Each was classified as an operating lease in accordance with the accounting standards for leases. The Deferred Lease Income is amortized into revenue, using the straight-line method, over the

31

-year term of the Head Lease. Deferred transaction costs amounting to

$4.2

million are being amortized, using the straight-line method, over the

23

-year term of the Project Lease.

Future minimum lease payments under the Project Lease, as of

December

31,

2016,

are as follows:

	(Dollars in thousands)
Year ending December 31:
2017	$	8,747
2018		8,944
2019		6,018
2020		2,450
2021		1,723
Thereafter		2,740
Total	$	30,622

Depository accounts

As required under the terms of the lease agreements, there are certain reserve funds that need to be managed by the indenture trustee in accordance with certain balance requirements. Such reserve funds amounted to

$2.9

million and

$2.1

million as of

December

31,

2016

and

2015,

respectively, and were included in restricted cash accounts in the consolidated balance sheets and were classified as current as they were used for current payments

.

Distribution account

PGV maintains an account to deposit its remaining cash, after making all of the necessary payments and transfers as provided for in the lease agreements, in order to make distributions to Ormat Nevada. The distributions are allowed only if PGV maintains various restrictive covenants under the lease agreements, which include limitations on additional indebtedness. As of

December

31,

2016

and

2015,

the balance of such account was

$0

.