Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
 
 
 
FORM 10-K/A
(Amendment No. 1)

 
 
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018.
-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.)
1088 Sansome Street, San Francisco, CA 94111
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (415) 283-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Class A Common Stock, par value $0.01 per share
 
Nasdaq Global Select Market
Toronto Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  ý
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 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
x
 
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  ý
The aggregate market value of the voting stock and non-voting stock held by non-affiliates of the registrant based upon the last trading price of the registrant’s Class A common stock as reported on the Nasdaq Global Select Market on June 30, 2018 was approximately $1.5 billion. This excludes 16,829,692 shares of Class A common stock held by directors, officers, Pattern Renewables LP and certain of its affiliates, and Public Sector Pension Investment Board. Exclusion of shares does not reflect a determination that persons are affiliates for any other purpose.
The registrant’s Class A common stock is listed on the Nasdaq Global Select Market and on the Toronto Stock Exchange under the symbol "PEGI".
On February 22, 2019, the registrant had 98,077,874 shares of Class A common stock, $0.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to its 2019 annual meeting of stockholders (the "2019 Proxy Statement") are incorporated by reference into Part III of this Form 10-K where indicated. The 2019 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
 




EXPLANATORY NOTE
On March 1, 2019, Pattern Energy Group Inc. (the “Company”) filed with the Securities and Exchange Commission (the “Commission”) its Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2018.
The Company is filing this Amendment No. 1 to its Annual Report on Form 10-K (the “Form 10-K/A”) to include separate financial statements of Pattern Energy Group Holdings 2 LP (“PEGH 2”), pursuant to Rule 3-09 of Regulation S-X (“Rule 3-09”). The PEGH 2 financial statements were not available at the time the Company filed its Form 10-K. In accordance with Rule 3-09(b)(1), the PEGH 2 financial statements are being filed as an amendment to the Form 10-K within 90 days after the end of the Company's fiscal year.
This Form 10-K/A amends the Form 10-K solely by the addition of (i) the PEGH 2 financial statements (the “PEGH2 Financial Statements”) to Part IV, Item 15(a)(1)(e) and (ii) new consents of the independent auditors to Part IV, Item 15(a)(3) under Exhibits 23.1, 23.2 and 23.3 thereto. Pursuant to the requirements Rule 12b-15 promulgated by the Commission under the Securities Exchange Act of 1934, as amended, the Company has set forth the complete text of Item 15, Exhibits and Financial Statement Schedule, as amended. No changes have been made to any of the other financial statements or the financial statement schedule previously included under Item 15 in the Form 10-K previously filed on March 1, 2019.
No attempt has been made in this Form 10-K/A to update other disclosures presented in the Form 10-K and this Form 10-K/A does not reflect events occurring after the filing of the Form 10-K or modify or update those disclosures, including the exhibits to the Form 10-K affected by subsequent events.
This Form 10-K/A has been signed as of a current date and all certifications of the Company's Chief Executive Officer and Chief Financial Officer are given as of a current date. Accordingly, this Form 10-K/A should be read in conjunction with filings made by the Company with the Securities and Exchange Commission subsequent to the filing of the Form 10-K.

2


TABLE OF CONTENTS

 
 
 
 
 
Item 15.


3


PART IV 
Item 15.
Exhibits and Financial Statement Schedule.
(a)

 
Documents filed as part of this report
 
 
 
 
 
 
 
(1
)
 
Consolidated financial statements—Pattern Energy Group Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial statements—Equity Method Investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2
)
 
Financial statements Schedule—Pattern Energy Group Inc. Parent
 
 
 
 
 
 
 
 
 
 
(3
)
 
Exhibits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

4


The following documents are filed or furnished as part of this Form 10-K/A. The Company will furnish a copy of any exhibit listed to requesting stockholders upon payment of the Company’s reasonable expenses in furnishing those materials. 
Exhibit No.
 
Description Of Exhibits
 
 
3.1
 
 
 
3.2
 
 
 
4.1
 
 
 
4.2
 
 
 
4.3
 
 
 
 
4.4
 
 
 
 
4.5
 
 
 
10.1
 
 
 
10.2
 
 
 
10.3
 
 
 
10.4
 
 
 
10.5
 
 
 
10.6
 
 
 
10.7
 
 
 
10.8
 
 
 
 
10.9
 
 
 
10.10
 
 
 
10.11
 
 
 
10.12
 
 
 
10.13
 
 
 

5


Exhibit No.
 
Description Of Exhibits
10.14
 
 
 
10.15
 
 
 
10.16
 
 
 
 
10.17
 
 
 
10.18
 
 
 
 
10.19
 
 
 
 
10.20
 
 
 
 
10.21
 
 
 
 
10.22
 
 
 
 
10.23
 
 
 
 
10.24
 
 
 
 
10.25
 
 
 
 
10.26
 
 
 
 
10.27
 
 
 
 
10.28
 
 
 
 
10.29
 
 
 
 
10.30
 
 
 
 
10.31
 
 
 
 
10.32
 

 
 
 

6


Exhibit No.
 
Description Of Exhibits
10.33
 
 
 
 
10.34
 
 
 
 
10.35
 
 
 
 
10.36
 
 
 
 
10.37
 

 
 
 
10.38
 
 
 
 
10.39
 
 
 
 
10.40
 
 
 
 
10.41
 

 
 
 
10.42
 
 
 
 
10.43
 

 
 
 
10.44
 
 
 
 
10.45
 

 
 
 
10.46
 

 
 
 
10.47
 

 
 
 
10.48
 

 
 
 
10.49
 
 
 
 

7


Exhibit No.
 
Description Of Exhibits
10.50
 
 
 
 
10.51
 
 
 
 
10.52
 
 
 
 
21.1
 
 
 
23.1**
 
 
 
23.2**
 
 
 
23.3**
 
 
 
 
24.1
 
Powers of Attorney (Incorporated by reference to Exhibit 24.1 to the Company's 2018 Annual Report on Form 10-K filed on March 1, 2019).
 
 
31.1**
 
 
 
31.2**
 
 
 
32*
 
 
 
101.INS
 
XBRL Instance Document (Incorporated by reference to Exhibit 101.INS to the Company's 2018 Annual Report on Form 10-K filed on March 1, 2019).
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document (Incorporated by reference to Exhibit 101.SCH to the Company's 2018 Annual Report on Form 10-K filed on March 1, 2019).
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document (Incorporated by reference to Exhibit 101.CAL to the Company's 2018 Annual Report on Form 10-K filed on March 1, 2019).
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document (Incorporated by reference to Exhibit 101.DEF to the Company's 2018 Annual Report on Form 10-K filed on March 1, 2019).
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document (Incorporated by reference to Exhibit 101.LAB to the Company's 2018 Annual Report on Form 10-K filed on March 1, 2019).
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document (Incorporated by reference to Exhibit 101.PRE to the Company's Annual Report on Form 10-K filed on March 1, 2019).

*
These certifications accompany 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.

**    Filed herewith.


8


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
 
Date: 
March 28, 2019
Pattern Energy Group Inc.
 
 
By
/s/ Michael M. Garland
 
 
 
Michael M. Garland
 
 
 
President and Chief Executive Officer


9


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 


F-1



Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Pattern Energy Group Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Pattern Energy Group Inc. and its subsidiaries (the “Company”) as of December 31, 2018, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 1, 2019
We have served as the Company’s auditor since 2018.  


F-2


Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Pattern Energy Group Inc.
Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pattern Energy Group Inc. (the Company) as of December 31, 2017, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes and financial statement Schedule I listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Pattern Energy Group Inc. at December 31, 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We did not audit the financial statements of SP Armow Wind Ontario LP, South Kent Wind LP and Grand Renewable Wind LP partnerships in which the Company has a 50%, 50% and 45% interest, respectively. In the consolidated financial statements, the Company’s investment in SP Armow Wind Ontario LP, South Kent Wind LP and Grand Renewable Wind LP is stated at $145,652,000 at December 31, 2017, and the Company’s equity in the net earnings (losses) of SP Armow Wind Ontario LP, South Kent Wind LP and Grand Renewable Wind LP is stated at $46,000,000 and $24,704,000 for the years ended December 31, 2017 and 2016, respectively. The statements for SP Armow Wind Ontario LP, South Kent Wind LP and Grand Renewable Wind LP were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for SP Armow Wind Ontario LP, South Kent Wind LP and Grand Renewable Wind LP, is based solely on the reports of the other auditors.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 
/s/ Ernst & Young LLP
We served as the Company’s auditor from 2012 to 2018
San Francisco, California
March 1, 2018



F-3


Pattern Energy Group Inc.
Consolidated Balance Sheets
(In millions of U.S. dollars, except share and par value data)

 
December 31,
 
2018

2017
Assets



Current assets:



Cash and cash equivalents (Note 8)
$
101


$
117

Restricted cash (Note 8)
4


9

Counterparty collateral
6

 
30

Trade receivables (Note 8)
50


55

Derivative assets, current
14


19

Prepaid expenses (Note 8)
18


18

Deferred financing costs, current, net of accumulated amortization of $3 and $3 as of December 31, 2018 and December 31, 2017, respectively
2

 
1

Other current assets (Note 8)
16


21

Total current assets
211

 
270

Restricted cash (Note 8)
18


12

Major construction advances
84



Construction in progress
259



Property, plant and equipment, net (Note 8)
4,119


3,965

Unconsolidated investments
270


311

Derivative assets
9


10

Deferred financing costs
8

 
8

Net deferred tax assets
5


6

Intangible assets, net (Note 8)
219


136

Goodwill
58

 

Other assets (Note 8)
34


24

Total assets
$
5,294

 
$
4,742




(Continued)

Pattern Energy Group Inc.
Consolidated Balance Sheets
(In millions of U.S. dollars, except share and par value data)

 
December 31,
 
2018
 
2017
Liabilities and equity



Current liabilities:



Accounts payable and other accrued liabilities (Note 8)
$
67


$
54

Accrued construction costs (Note 8)
27


1

Counterparty collateral liability
6

 
30

Accrued interest (Note 8)
14


17

Dividends payable
42


41

Derivative liabilities, current
2


8

Revolving credit facility, current
198



Current portion of long-term debt, net
56


52

Contingent liabilities, current
31


3

Asset retirement obligations, current
24

 

Other current liabilities (Note 8)
11


12

Total current liabilities
478

 
218

Revolving credit facility
25

 

Long-term debt, net
2,004


1,879

Derivative liabilities
31


21

Net deferred tax liabilities
117


56

Intangible liabilities, net
56


51

Contingent liabilities
142

 
62

Asset retirement obligations (Note 8)
185

 
57

Other long-term liabilities (Note 8)
71


50

Advanced lease revenue
26

 

Total liabilities
3,135

 
2,394

Commitments and contingencies (Note 19)



Equity:



Class A common stock, $0.01 par value per share: 500,000,000 shares authorized; 98,051,629 and 97,860,048 shares outstanding as of December 31, 2018 and December 31, 2017, respectively
1


1

Additional paid-in capital
1,130


1,235

Accumulated loss
(27
)

(112
)
Accumulated other comprehensive loss
(52
)

(26
)
Treasury stock, at cost; 223,040 and 157,812 shares of Class A common stock as of December 31, 2018 and December 31, 2017, respectively
(5
)

(4
)
Total equity before noncontrolling interests
1,047

 
1,094

Noncontrolling interests
1,112


1,254

Total equity
2,159

 
2,348

Total liabilities and equity
$
5,294

 
$
4,742


(Concluded)
See accompanying notes to consolidated financial statements.

F-4


Pattern Energy Group Inc.
Consolidated Statements of Operations
(In millions of U.S. dollars, except share data)

 
Year ended December 31,
 
2018
 
2017
 
2016
Revenue:
 
 
 
 
 
Electricity sales
$
464


$
402

 
$
346

Other revenue
19


9

 
8

Total revenue
483

 
411

 
354

Cost of revenue:



 
 
Project expense
143


130

 
128

Transmission costs
26

 
19

 
1

Depreciation, amortization and accretion
250


199

 
175

Total cost of revenue
419

 
348

 
304

Gross profit
64

 
63

 
50

Operating expenses:



 
 
General and administrative
40


39

 
35

Related party general and administrative
15


14

 
10

Impairment expense
7

 

 

Total operating expenses
62

 
53

 
45

Operating income
2

 
10

 
5

Other income (expense):



 
 
Interest expense
(109
)

(102
)
 
(78
)
Gain (loss) on derivatives
17


(10
)
 
(3
)
Earnings in unconsolidated investments, net
1


42

 
30

Early extinguishment of debt
(6
)

(9
)
 

Net earnings (loss) on transactions
69


(1
)
 

Other income (expense), net
(11
)


 
3

Total other expense
(39
)
 
(80
)
 
(48
)
Net loss before income tax
(37
)
 
(70
)
 
(43
)
Income tax provision
32


12


9

Net loss
(69
)
 
(82
)
 
(52
)
Net loss attributable to noncontrolling interests
(211
)

(64
)

(35
)
Net income (loss) attributable to Pattern Energy
$
142

 
$
(18
)
 
$
(17
)
 
 
 
 
 
 
Weighted average number of common shares outstanding



 
 
Basic
97,456,407


89,179,343


79,382,388

Diluted
97,651,501

 
89,179,343

 
79,382,388

Net income (loss) per share attributable to Pattern Energy



 
 
Basic
$
1.45

 
$
(0.20
)
 
$
(0.22
)
Diluted
$
1.45

 
$
(0.20
)
 
$
(0.22
)

See accompanying notes to consolidated financial statements.


F-5


Pattern Energy Group Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In millions of U.S. Dollars)

 
Year ended December 31,
 
2018
 
2017
 
2016
Net loss
$
(69
)
 
$
(82
)
 
$
(52
)
Other comprehensive income (loss):
 
 
 
 
 
Change in foreign currency translation, net of tax impact of zero, $(4) and zero, respectively
(37
)
 
15

 
5

Cash flow hedge activity:
 
 
 
 
 
Change in unrealized losses on cash flow hedges, net of tax impact of $3, ($1) and $1, respectively
(4
)
 
(3
)
 
(7
)
Reclassifications to net loss, net of tax impact of $(1), $(1) and $(1), respectively
5

 
11

 
7

Total change in cash flow hedge activity
1

 
8

 

Other comprehensive income related to equity method investee net of tax impact of less than $1 million, $(5) and $(2), respectively
2


14


6

Total other comprehensive income (loss), net of tax
(34
)
 
37

 
11

Comprehensive loss
(103
)
 
(45
)
 
(41
)
Less comprehensive loss attributable to noncontrolling interests, net of tax impact of less than $1 million for all years presented
(219
)
 
(63
)
 
(35
)
Comprehensive income (loss) attributable to Pattern Energy
$
116

 
$
18

 
$
(6
)

See accompanying notes to consolidated financial statements.


F-6


    
Pattern Energy Group Inc.
Consolidated Statement of Stockholders’ Equity
(In millions of U.S. Dollars, except share data)

 
Class A Common Stock
 
Treasury Stock
 
Additional Paid-in Capital
 
Accumulated Loss
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
Noncontrolling Interests
 
Total Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
Balances at December 31, 2015
74,709,442

 
$
1

 
(65,301
)
 
$
(2
)
 
$
983

 
$
(77
)
 
$
(73
)
 
$
832


$
944

 
$
1,776

Issuance of Class A common stock, net of issuance costs
12,540,504

 

 

 

 
286

 

 

 
286

 

 
286

Issuance of Class A common stock under equity incentive award plan, net
271,705

 

 

 

 

 

 

 

 

 

Repurchase of shares for employee tax withholding

 

 
(45,663
)
 
(1
)
 

 

 

 
(1
)
 

 
(1
)
Stock-based compensation

 

 

 

 
5

 

 

 
5

 

 
5

Dividends declared ($1.58 per Class A common share)

 

 

 

 
(128
)
 

 

 
(128
)
 

 
(128
)
Distributions to noncontrolling interests

 

 

 

 

 

 

 

 
(18
)
 
(18
)
Net loss

 

 

 

 

 
(17
)
 

 
(17
)
 
(35
)
 
(52
)
Other comprehensive income, net of tax

 

 

 

 

 

 
11

 
11

 

 
11

Balances at December 31, 2016
87,521,651

 
1

 
(110,964
)
 
(3
)
 
1,146

 
(94
)
 
(62
)
 
988


891


1,879

Issuance of Class A common stock, net of issuance costs
10,268,261

 

 

 

 
237

 

 

 
237

 

 
237

Issuance of Class A common stock under equity incentive award plan, net
227,948

 

 

 

 

 

 

 

 

 

Repurchase of shares for employee tax withholding

 

 
(46,848
)
 
(1
)
 

 

 

 
(1
)
 

 
(1
)
Stock-based compensation

 

 

 

 
5

 

 

 
5

 

 
5

Dividends declared ($1.67 per Class A common share)

 

 

 

 
(151
)
 

 

 
(151
)
 

 
(151
)
Acquisitions

 

 

 

 

 

 

 

 
390

 
390

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 
(20
)
 
(20
)
Partial sale of subsidiary

 

 

 

 
(2
)
 

 

 
(2
)
 
56

 
54

Net loss

 

 

 

 

 
(18
)
 

 
(18
)
 
(64
)
 
(82
)
Other comprehensive income, net of tax

 

 

 

 

 

 
36

 
36

 
1

 
37

Balances at December 31, 2017
98,017,860

 
1

 
(157,812
)
 
(4
)
 
1,235

 
(112
)
 
(26
)
 
1,094


1,254


2,348

Issuance of Class A common stock under equity incentive award plan, net
256,809

 

 

 

 

 

 

 

 

 

Repurchase of shares for employee tax withholding

 

 
(65,228
)
 
(1
)
 

 

 

 
(1
)
 

 
(1
)
Stock-based compensation

 

 

 

 
4

 

 

 
4

 

 
4

Dividends declared ($1.69 per Class A common share)

 

 

 

 
(109
)
 
(57
)
 

 
(166
)
 

 
(166
)
Acquisitions

 

 

 

 

 

 

 

 
49

 
49

Sale of subsidiaries

 

 

 

 

 

 

 

 
(32
)
 
(32
)
Contribution from noncontrolling interests

 

 

 

 

 

 

 

 
98

 
98

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 
(38
)
 
(38
)
Net income (loss)

 

 

 

 

 
142

 

 
142

 
(211
)
 
(69
)
Other comprehensive income (loss), net of tax

 

 

 

 

 

 
(26
)
 
(26
)
 
(8
)
 
(34
)
Balances at December 31, 2018
98,274,669

 
$
1

 
(223,040
)
 
$
(5
)
 
$
1,130

 
$
(27
)
 
$
(52
)
 
$
1,047

 
$
1,112

 
$
2,159


See accompanying notes to consolidated financial statements.

F-7


Pattern Energy Group Inc.
Consolidated Statements of Cash Flows
(In millions of U.S. dollars)

 
Year ended December 31,
 
2018
 
2017
 
2016
Operating activities




 
 
Net loss
$
(69
)

$
(82
)
 
$
(52
)
Adjustments to reconcile net loss to net cash provided by operating activities:





 
 
Depreciation, amortization and accretion
280


215

 
189

Impairment expense
7

 

 

Loss on derivatives
4


16

 
22

Stock-based compensation
5


5

 
5

Deferred taxes
16


15

 
8

Earnings in unconsolidated investments, net
(1
)

(41
)
 
(30
)
Distribution from unconsolidated investments
48


54

 
15

Gain on transactions
(71
)
 

 

Early extinguishment of debt
6


9

 

Other reconciling items
1

 
(5
)
 
(4
)
Changes in operating assets and liabilities:





 
 
Counterparty collateral asset
24

 
14

 
(44
)
Trade receivables
1


(10
)
 
8

Other current assets
15


(14
)
 
(4
)
Other assets (non-current)
(6
)

2

 
1

Accounts payable and other accrued liabilities
3


18

 
(3
)
Counterparty collateral liability
(24
)

(14
)
 
44

Advanced lease revenue
34

 

 

Other current liabilities
26


15

 
2

Other long-term liabilities
(20
)

21

 
7

Net cash provided by operating activities
279


218

 
164

Investing activities





 
 
Cash paid for acquisitions and investments, net of cash and restricted cash acquired
(415
)

(297
)
 
(136
)
Proceeds from sale of investments, net of cash and restricted cash distributed
214

 

 

Capital expenditures
(181
)

(44
)
 
(33
)
Distribution from unconsolidated investments
10


13

 
42

Other assets
(1
)

8

 
3

Net cash used in investing activities
(373
)

(320
)
 
(124
)

F-8


Pattern Energy Group Inc.
Consolidated Statements of Cash Flows
(In millions of U.S. dollars)

 
Year ended December 31,
 
2018
 
2017
 
2016
Financing activities
 
 
 
 
 
Proceeds from public offering, net of issuance costs


237

 
286

Dividends paid
(165
)

(145
)
 
(120
)
Capital contributions - noncontrolling interests
98



 

Capital distributions - noncontrolling interests
(38
)

(20
)
 
(18
)
Payment for financing fees
(9
)

(16
)
 

Proceeds from short-term debt
562

 
333

 
175

Repayment of short-term debt
(402
)
 
(513
)
 
(350
)
Proceeds from long-term debt and other
226

 
694

 

Repayment of long-term debt and other
(186
)
 
(483
)
 
(48
)
Proceeds (payments) for termination of designated derivatives
1

 
(14
)
 

Disposition of controlling interest, net

 
58

 

Other financing activities
(4
)

(6
)
 
(2
)
Net cash provided by (used in) financing activities
83


125

 
(77
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(4
)

6

 

Net change in cash, cash equivalents and restricted cash
(15
)

29

 
(37
)
Cash, cash equivalents and restricted cash at beginning of period
138


109

 
146

Cash, cash equivalents and restricted cash at end of period
$
123


$
138

 
$
109

Supplemental disclosures
 
 
 
 
 
Cash payments for income taxes
$
2


$

 
$

Cash payments for interest expense
$
97


$
86

 
$
70

Schedule of non-cash activities





 


Change in property, plant and equipment
$
224


$
2

 
$
1

Change in additional paid-in capital
$


$
(2
)

$

See accompanying notes to consolidated financial statements.

F-9


Pattern Energy Group Inc.
Notes to Consolidated Financial Statements
1.    Organization
Pattern Energy Group Inc. (Pattern Energy or the Company) is a vertically integrated renewable energy company with a mission to transform the world to renewable energy. Our business consists of (i) an operating business segment which is comprised of a portfolio of high-quality renewable energy power projects located in many attractive markets that produces long-term stable cash flows and (ii) ownership interests in an upstream development platform aligned with our operating business which provides us access to a pipeline of projects and potential for higher returns through project development.
The Company holds ownership interests in 24 renewable energy projects with an operating capacity that totals approximately 4 gigawatts (GW) which are located in the United States, Canada and Japan.
Pattern Energy was organized in the state of Delaware in October 2012. The Company issued 100 shares in October 2012 to Pattern Renewables LP, a 100% owned subsidiary of Pattern Energy Group LP and subsequently in October 2013 conducted an initial public offering.
2.    Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (U.S. GAAP). They 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.
Use of Estimates
The preparation of 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 those estimates, and such differences may be material to the consolidated financial statements.
Out-of-Period Adjustment
During the year ended December 31, 2018, the Company identified a $1 million error in tax expense related to the recognition of net operating loss carryforwards in its Chilean entity. The Company concluded the error was not material to any previously reported period and is not material to the year ended December 31, 2018. The Company recorded the error as an out-of-period adjustment in the year ended December 31, 2018.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and highly liquid investments with original maturities of three months or less.
Restricted Cash
Restricted cash consists of cash balances which are restricted as to withdrawal or usage and includes cash to collateralize bank letters of credit related primarily to transmission interconnection rights, power sale agreements (PSA) and for certain reserves required under the Company’s loan agreements.

F-10


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 millions):
 
 
December 31,
 
 
2018
 
2017
 
2016
Cash and cash equivalents
 
$
101

 
$
117

 
$
84

Restricted cash - current
 
4

 
9

 
12

Restricted cash
 
18

 
12

 
13

Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
 
$
123

 
$
138

 
$
109

Counterparty Collateral and Collateral Liability
As a result of a counterparty's credit rating downgrade, the Company received collateral related to an energy derivative agreement, as discussed in Note 12, Derivative Instruments. The Company does not have the right to pledge, invest, or use the collateral for general corporate purposes. As of December 31, 2018, the Company has recorded a current asset of approximately $6 million to counterparty collateral and a current liability of approximately $6 million to counterparty collateral liability representing the collateral received and corresponding obligation to return the collateral, respectively.
Trade Receivables
The Company’s trade receivables are generated by selling energy and renewable energy credits primarily to creditworthy utilities and large commercial companies. The Company believes that all amounts are collectible and an allowance for doubtful accounts is not required as of December 31, 2018 and 2017. Although PG&E and PREPA, offtakers for Hatchet Ridge and Santa Isabel, respectively, have filed for reorganization and debt restructuring, the Company has assessed and determined that trade receivables at Hatchet Ridge and Santa Isabel were not impaired as of December 31, 2018.
Major Construction Advances
Major construction advances represent advances to (i) suppliers for the manufacture of wind turbines, transmission lines, and solar panels in accordance with component equipment supply agreements and (ii) builders in accordance with plant construction contracts. These construction advances are reclassified to construction in progress when the Company takes legal title to the equipment.
Derivatives
The Company may enter into interest rate swaps, interest rate caps, forwards and other agreements to manage its interest rate, electricity price and foreign exchange rate risk. The Company recognizes its derivative instruments as assets or liabilities at fair value in the consolidated balance sheets, unless the derivative instruments qualify for the "normal purchase normal sale" (NPNS) scope exception to derivative accounting.
Contracts used in normal business operations that are settled by physical delivery, among other criteria, are eligible for and may be designated as NPNS. NPNS contracts do not meet the definition of derivatives, and therefore, contracts associated with the sale of energy are recognized as electricity sales when revenue recognition criteria are met and contracts associated with the production of electricity are recognized as project expense when incurred on the consolidated statements of operations.
The Company does not have contracts subject to master netting agreements with counterparties, as such assets and liabilities are presented gross on the consolidated balance sheets. Accounting for changes in the fair value of a derivative instrument depends on whether it has been designated as part of a hedging relationship and on the type of hedging relationship. For derivative instruments that qualify and are designated as cash flow hedges, the change in unrealized losses on cash flow hedges, net of tax is reported as a component of other comprehensive income (loss) (OCI), and is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of change in fair value is recorded as a component of net income (loss) on the consolidated statements of operations. The Company discontinues hedge accounting for its cash flow hedges prospectively when it has determined that the hedging relationship has materially changed since its inception or when the hedging instrument is no longer considered highly effective at offsetting the hedged risk. If the hedged transaction is no longer probable of occurring, any gain or loss previously deferred

F-11


in OCI will be immediately recognized into earnings. If hedge accounting is discontinued for any other reason, any previously deferred gain or loss will remain in OCI and amortized into earnings as the hedged transaction affects future earnings. For undesignated derivative instruments, the change in fair value is reported as a component of net income (loss) on the consolidated statements of operations.
Fair Value of Financial Instruments
Accounting Standards Codification (ASC) 820, Fair Value Measurement, defines fair value as the price at which an asset could be exchanged or a liability transferred in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or derived from such prices. Where observable prices or inputs are not available, valuation models are applied which may involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. See Note 14, Fair Value Measurement.
Deferred Financing Costs
Financing costs incurred with securing a construction loan are recorded in the Company’s consolidated balance sheets as an offset to the construction loan and amortized over the contractual life of the loan to construction in progress using the effective interest method. Financing costs incurred with securing a term loan are recorded in the Company’s consolidated balance sheets as an offset to the term loan and amortized to interest expense in the Company’s consolidated statements of operations over the contractual life of the loan using the effective interest method. If the term loan has not been drawn on, financing costs incurred with securing the term loan are recorded in the Company’s consolidated balance sheets as an asset.
Financing costs related to a revolving credit facility or a letter of credit facility are recorded in the Company’s consolidated balance sheets as an asset and amortized to interest expense in the Company’s consolidated statements of operations on a straight-line basis over the contractual term of the arrangement.
Construction in Progress
Construction in progress represents the accumulation of project development costs and construction costs, including the costs incurred for the purchase of major equipment such as turbines for which the Company has taken legal title, civil engineering, electrical and other related costs. Other capitalized costs include reclassified deferred development costs, amortization of intangible assets, amortization of deferred financing costs, capitalized interest and other costs required to place a project into commercial operation. Deferred development costs represent the accumulated costs of initial permitting, environmental reviews, land rights and obligations and preliminary design and engineering work. The Company expenses all project development costs until a project is determined to be technically feasible and likely to achieve commercial success, typically when a power purchase agreement has been negotiated. The Company begins capitalizing deferred development costs as a component of construction in progress on the date the project commences construction. Once the project achieves commercial operation, the Company reclassifies the amounts recorded in construction in progress to property, plant and equipment.
Property, Plant and Equipment
Property, plant and equipment represents the costs of completed and operational projects transferred from construction in progress, as well as other costs incurred for purchasing assets such as land, computer equipment and software, furniture and fixtures, leasehold improvements and other equipment. Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the respective assets’ useful lives. Wind farms for which construction began before 2011 are depreciated over 20 years and wind farms for which construction began after 2011 are depreciated over 25 to 30 years. Solar facilities are depreciated over 25 years. Transmission assets are depreciated over 50 years. The remaining assets are depreciated over two to five years. Improvements to property, plant and equipment deemed to extend the useful economic life of an asset are capitalized. Repair and maintenance costs are expensed as incurred.
Intangible Assets and Intangible Liabilities
Long-lived intangible assets and intangible liabilities primarily include power purchase agreements (PPAs), land easements, land options, tax savings and mining rights. PPAs obtained through acquisitions are valued as of the acquisition date and the difference between the contract price and the estimated fair value is recorded as an intangible asset or liability. If the contract price is higher than the estimated fair value, the Company will recognize an intangible asset. If the contract price is lower than the estimated fair value, the Company will recognize an intangible liability. Land easements, land options and mining rights are recognized at the carryover basis from the seller as their carrying costs approximate fair value.

F-12


The Company generally amortizes PPAs using the straight-line method over the remaining term of the related PPA. The Company amortizes land easements, land options, tax savings and mining rights using the straight-line method over the term of their estimated useful lives, which represents the term of the land easements, land option, tax savings and mining rights agreements, ranging from approximately 9 to 50 years. The Company periodically evaluates whether events or changes in circumstances have occurred that indicate the carrying amount of long-lived intangible assets may not be recoverable, or information indicates that impairment may exist.
Accounting for Impairment of Long-Lived Assets
The Company periodically evaluates long-lived assets for potential impairment whenever events or changes in circumstances have occurred that indicate that impairment may exist, or the carrying amount of the long-lived asset may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset is not recoverable based on its estimated future undiscounted cash flows. An impairment loss is calculated based on the excess of the carrying value of the long-lived asset over the fair value of such long-lived asset, with the fair value determined based on an estimate of discounted future cash flows.
If the Company meets the criteria for assets held for sale, to calculate the fair value of the assets less costs to sell, the Company considers factors including current sales prices and any recent legitimate offers. If the estimated fair value less costs to sell of an asset is less than its current carrying value, the asset is written down to its estimated fair value less costs to sell. Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in the Company's historical analysis. The Company's assumptions about project sale prices require significant judgment because the current market is highly sensitive to changes in economic conditions. The Company estimates the fair values of assets held for sale based on current market conditions and assumptions made by management, which may differ from actual results and may result in additional impairments if market conditions deteriorate. When assets are classified as held for sale, the Company does not continue to record depreciation or amortization for the respective assets. For the year ended December 31, 2018, the Company recognized impairment expense of $7 million related to the sale of the Company's Chilean entities. See Note 4, Divested Operations.
Goodwill
The Company records goodwill when the purchase price of an acquired business exceeds its fair value as of the acquisition date. Goodwill is not amortized, but is subject to an assessment for impairment at least annually in the fourth quarter or more frequently if events occur or circumstances change that will more likely than not reduce the fair value of the reporting unit below its carrying amount. 
The Company may first assess goodwill for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The qualitative analysis considers entity-specific and macroeconomic factors and their potential impact on the key assumptions used in the determination of the fair value of the reporting unit. A quantitative impairment test is performed if the results of the qualitative assessment indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value, or if a qualitative assessment is not performed. Quantitative tests compare the fair value of the asset to its carrying value.

Variable Interest Entities
VIEs are entities that do not qualify for a scope exception from the variable interest model and are therefore subject to consolidation under the variable interest model. An entity is considered to be a VIE if (1) the entity does not have enough equity to finance its own activities without additional support, (2) the entity’s at-risk equity holders lack the characteristics of a controlling financial interest, or (3) the entity is structured with non-substantive voting rights. ASC 810, Consolidation, defines the criteria for determining the existence of VIEs and provides guidance for consolidation. The Company consolidates VIEs where the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has the power to direct the activities that most significantly impact the performance of the entity and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity.
To the extent the entity does not meet the definition of a VIE, the ASC 810 guidance for voting interest entities (VOEs) is applied. The usual condition for a controlling financial interest, and therefore consolidation by the Company, is ownership of a majority voting interest of a corporation or a majority of kick-out rights for a limited partnership.
To the extent the entity is not consolidated under the VIE or VOE models, the Company uses the equity method of accounting. These amounts are included in unconsolidated investments in the consolidated balance sheets.

F-13


Acquisitions
Accounting Standards Update (ASU) 2017-01, Clarifying the Definition of a Business (ASU 2017-01) provides a screen test to determine when a set of assets and activities should not be considered a business. Under ASU 2017-01, the Company will perform an initial screening test as of the acquisition date that, if met, results in the conclusion that the set is not a business. If the initial screening test is not met, the Company evaluates whether the set is a business based on whether there are inputs and a substantive process in place. The definition of a business impacts whether the Company consolidates an acquisition under business combination guidance or asset acquisition guidance. When the Company's acquisition is recognized as an equity method investment, the definition of a business impacts whether equity method goodwill can be recognized.
Business Combinations
The Company accounts for its business combinations by recognizing the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date. The purchase is accounted for using the acquisition method, and the fair value of purchase consideration is allocated to the tangible and intangible assets acquired and the liabilities assumed, based on their estimated fair values. Contingent consideration is also recognized and measured at fair value as of the acquisition date. The excess, if any, of the fair value of the purchase consideration over the fair values of the identifiable net assets is recorded as goodwill. Conversely, the excess, if any, of the net fair values of the identifiable net assets over the fair value of the purchase consideration is recorded as a gain. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. These estimates and assumptions are inherently uncertain, and as a result, actual results may differ from estimates. Significant estimates include, but are not limited to, future expected cash flows, useful lives and discount rates. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to either goodwill or gain, depending on whether the fair value of purchase consideration is in excess of or less than net assets acquired. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Transaction costs associated with business combinations are expensed as incurred.
Asset Acquisitions
When the Company acquires assets and liabilities that do not constitute a business or a VIE of which the Company is the primary beneficiary, the fair value of the purchase consideration, including the transaction costs of the asset acquisition, is assumed to be equal to the fair value of the net assets acquired. The purchase consideration, including the transaction costs, is allocated to the individual assets and liabilities assumed based on their relative fair values. Contingent consideration associated with the acquisition is generally recognized only when the contingency is resolved. No goodwill is recognized in an asset acquisition.
When the Company acquires assets and liabilities that do not constitute a business but meet the definition of a VIE of which the Company is the primary beneficiary, the purchase is accounted for using the acquisition method described above for business combinations, except that no goodwill is recognized. To the extent that there is difference between the purchase consideration and the VIE's identifiable assets and liabilities recorded and measured at fair value, the difference is recognized as a gain or loss.
Equity Method Investments
When the Company acquires a noncontrolling interest in an entity where it is not the primary beneficiary, does not control any of the ongoing activities of the entity, and does not meet consolidation requirements of ASC 810 and ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, the investment is initially recognized as an equity method investment at cost. Any difference between the cost of an investment and the amount of underlying equity in net assets of an investee are considered basis differences. Basis differences related to the property, plant and equipment are amortized over the estimated economic useful life of the underlying long-lived assets while basis differences related to the PPA are amortized over the remaining term of the PPA. Transactions costs associated with equity method investments are included in the investment.
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 recognizes such excess distributions as equity method earnings 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 will not recognize equity in earnings (losses) or equity in other comprehensive income of unconsolidated investments. When the investee subsequently reports income, the Company does not record its share of such income until it equals the amount of distributions in excess of the carrying value that were previously recognized in income and previously unrecognized losses. During the years ended December 31, 2018, 2017 and 2016, the Company had no such obligations, commitments or requirements to provide additional funding for

F-14


unconsolidated investments with carrying values below zero during such years. Profits or losses related to intra-entity transactions with an equity method investment are eliminated until realized by the Company.
As a result, equity income or loss reported on the Company's income statement for certain unconsolidated investments may differ from a mathematical calculation of net income or loss attributable to the Company's equity interest based upon the factor of its equity interest and the net income or loss attributable to equity owners as shown on investee companies' income statements.
To the extent that cumulative comprehensive income exceeds cumulative distributions received, the Company records the distribution as distributions from unconsolidated investments on the Company's consolidated statements of cash flows within operating cash flows. All other distributions are recorded as distributions from unconsolidated investments on the Company's consolidated statements of cash flows within investing activities.
Noncontrolling Interests
Noncontrolling interests represent the portion of the Company’s net income (loss), net assets and comprehensive income (loss) that is not allocable to the Company and is calculated based on ownership percentage, for applicable projects.
For the noncontrolling interests in the Company’s Panhandle 1, Panhandle 2, Post Rock, Logan's Gap, Amazon Wind, Broadview Holdings, and Stillwater, the Company has determined that the operating partnership agreements do not allocate economic benefits pro rata to its two classes of investors and the appropriate methodology for calculating the noncontrolling interest balance that reflects the substantive profit sharing arrangement is a balance sheet approach using the hypothetical liquidation at book value (HLBV) method.
Under the HLBV method, the amounts reported as noncontrolling interest in the consolidated balance sheets and consolidated statements of operations represent the amounts the third party would hypothetically receive at each balance sheet reporting date under the liquidation provisions of the operating partnership agreement assuming the net assets of the projects were liquidated at recorded amounts determined in accordance with U.S. GAAP and distributed to the investors. The noncontrolling interest in the results of operations and comprehensive income (loss) is determined as the difference in noncontrolling interests in the consolidated balance sheets at the start and end of each reporting period, after taking into account any capital transactions between the projects and the third party. The noncontrolling interest balances in the projects are reported as a component of equity in the consolidated balance sheets.
Asset Retirement Obligation
The Company records asset retirement obligations (AROs) for the estimated costs of decommissioning turbines, removing above-ground installations and restoring sites, at the time when a contractual decommissioning obligation is incurred. AROs represent the present value of the expected costs and timing of the related decommissioning activities. The ARO assets and liabilities are recorded in property, plant and equipment and other long-term liabilities, respectively, in the consolidated balance sheets. The Company records accretion expense, which represents the increase in the asset retirement obligations, over the remaining or operational life of the associated wind project. Accretion expense is recorded as cost of revenue in the consolidated statements of operations using accretion rates based on credit adjusted risk-free interest rates. Changes resulting from revisions to the timing or amount of the original estimate of cash flows are recognized as an increase or a decrease in the asset retirement cost, or income when the asset retirement cost is depleted.
Accounting for Re-powering
The Company's commitment to a plan to re-power a project represents the decision to abandon the existing long-lived asset. The decision to abandon a long-lived asset is viewed as an indicator of impairment, and as such a recoverability test is required. If the recoverability test indicates that the carrying value is not recoverable, the fair value of the existing asset is compared to its net carrying value. If the fair value of the asset is less than its net carrying value, an impairment expense for the difference is recorded. The remaining useful life of the existing asset represents the period between the date the Company is committed to a plan to abandon the asset and the removal date. Due to the change in useful life, the Company will revise the estimated future cash flows of the asset retirement obligation. As a result, the Company will accelerate depreciation expense and accretion expense. In 2018, the Company committed to a plan to repower its Gulf Wind facility, as such the Company performed a recoverability test. The Company passed the recoverability test and did not recognize an impairment. However, beginning in the fourth quarter of 2018, the Company revised the depreciable life for the portion of the Gulf Wind facility it expects to abandon to approximately 15 months. As of December 31, 2018, the Company's construction start date is not finalized and, as such the future depreciation rate may be adjusted as the timing of construction becomes more certain.

F-15


Contingent Liabilities
Contingent obligations that are acquired through business combinations are initially recorded at fair value on the date of acquisition while contingent obligations that are acquired through asset acquisitions are recorded when the contingency is resolved. Subsequent to the initial recognition of contingent obligations accounted for as a business combination, the Company accounts for these contingent obligations in a systematic and rational method in accordance with ASC 450, Contingencies.
The Company’s contingent liabilities related to turbine availability warranties with turbine manufacturers and turbine availability guarantees associated with long-term turbine service arrangements are reported at net realizable value. Pursuant to these warranties and guarantees, if a turbine operates at less than minimum availability during the warranty or guarantee period, the manufacturer or service provider is obligated to pay, as liquidated damages, an amount for each percent that the turbine operates below the minimum availability threshold at the end of the warranty period. However, the Company does not recognize liquidated damages that remain contingent until the end of the warranty period. In addition, pursuant to certain of these warranties and guarantees, if a turbine operates at more than a specified availability during the warranty or guarantee period, the Company has an obligation to pay a bonus to the turbine manufacturer or service provider at the end of the warranty period. The Company records contingent liabilities at each reporting period associated with these bonuses expected to be paid at the end of the warranty period.
Advanced lease revenue
Advanced lease revenue presented on the consolidated balance sheets represents advance payments the Company has received under a power purchase agreement. As the power purchase agreement is an operating lease, the advanced lease payments will be recorded as lease revenue on a straight-line basis over the 25-year term of the agreement. 
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, trade receivables, reimbursable interconnection costs and derivative instruments. The Company’s cash and cash equivalents are with high quality institutions. The Company has exposure to credit risk to the extent cash and cash equivalent balances, including restricted cash, exceed amounts covered by federal deposit insurance; however, the Company believes that its credit risk is immaterial. In addition, reimbursable interconnection costs are with large creditworthy utility companies and the Company’s derivative instruments are placed with counterparties that are creditworthy institutions. The Company generally does not require collateral. Although PG&E and PREPA, offtakers for Hatchet Ridge and Santa Isabel, respectively, have filed for reorganization and debt restructuring, the Company has assessed and determined that trade receivables at Hatchet Ridge and Santa Isabel were not impaired as of December 31, 2018.
The table below presents significant customers who accounted for greater than 10% of total revenue, PREPA and PG&E for the years ended December 31, 2018, 2017 and 2016:
 
Year ended December 31,
 
2018
2017
2016
 
Revenue
 
Revenue
 
Revenue
Morgan Stanley Capital Group Inc.
7.2
%
 
9.1
%
 
10.9
%
PG&E
5.3
%
 
6.8
%
 
8.5
%
PREPA
4.1
%
 
4.2
%
 
6.0
%
San Diego Gas & Electric
12.2
%
 
13.4
%
 
14.6
%
Southern California Edison Company
11.9
%
 
5.8
%
 
%
Revenue Recognition
Beginning in 2018, the Company adopted ASC 606 Revenue Recognition (ASC 606). See Note 3, Revenue, regarding our revenue recognition policy. The Company sells electricity and related RECs under the terms of PSAs, PPAs or at market prices. Revenue is recognized based upon the amount of electricity delivered at rates specified under the contracts, or at market prices for spot market transactions, assuming all other revenue recognition criteria are met. When renewable energy credits are sold as a separate component, revenue is recognized at the time title to the energy credits is transferred to the buyer. Depending on the terms of the PSA, the Company may account for the contracts as operating leases pursuant to ASC 840, Leases (ASC 840), or derivative instruments pursuant to ASC 815, Derivatives and Hedging (ASC 815). In considering ASC 840, it was determined that certain of the Company's PPAs are operating leases. ASC 840 requires minimum lease payments to be recognized over the term of the lease and contingent rents to be recorded when the achievement of the contingency becomes probable. All energy sales under the PPAs, which are considered leases, are contingent rent

F-16


due to the inherent uncertainty and variability associated with a fuel source (i.e., wind or solar) that is outside the control of the parties to the PPA. None of the operating leases have minimum lease payments; therefore, revenue from these contracts and any related renewable energy attributes are recognized as electricity sales when delivered. Contingent rents for the years ending December 31, 2018, 2017 and 2016 were approximately $381 million, $317 million and $262 million, respectively. Contracts that meet the NPNS scope exception to derivative accounting are accounted for under the accrual method, where revenues are recorded in the period they are earned.
Energy derivative instruments that reduce exposure to changes in commodity prices may allow the Company to lock in a fixed price per megawatt hour (MWh) for a specified amount of annual electricity generation over the life of the swap contract. Monthly settlement amounts under energy hedges are accounted for as energy derivative settlements in the consolidated statements of operations. Changes in the fair value of energy hedges are recorded in electricity sales in the consolidated statements of operations.
The Company recognizes revenue for warranty settlements in other revenue upon resolution of outstanding contingencies. Any cash receipts for amounts subject to future adjustment or repayment are deferred in other liabilities until the final settlement amount is considered fixed and determinable.
Cost of Revenue
The Company’s cost of revenue is comprised of direct costs of operating and maintaining its wind and solar project facilities, including labor, turbine service arrangements, land lease royalties, depreciation, accretion of asset retirement obligations, property taxes and insurance. These costs are recognized by the Company in the period in which they are incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation related to stock options granted to employees by estimating the fair value of the stock-based awards using the Black-Scholes option-pricing model. The Black-Scholes option pricing model includes assumptions regarding dividend yields, expected volatility, expected option term, and risk-free interest rates. Expense is recognized by amortizing the fair value of the stock options granted using a straight-line method over the applicable vesting period. The Company estimates expected volatility based on the historical volatility of comparable publicly traded companies for a period that is equal to the expected term of the options. The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for a period commensurate with the estimated expected term of the stock option. The expected term of options granted is derived using the "simplified" method as allowed under the provisions of the ASC 718, Compensation—Stock Compensation, and represents the period of time that options granted are expected to be outstanding.
The Company accounts for stock-based compensation related to restricted stock award grants and restricted stock unit grants by amortizing the fair value of the restricted stock award grants, which is the grant date market price, over the applicable vesting period. For certain restricted stock award grants, the Company measures the fair value at the grant date using a Monte Carlo simulation model and amortizes the fair value over the longer of the requisite period or performance period. The Monte Carlo simulation model includes assumptions regarding dividend yields, expected volatility, risk-free interest rates and initial total shareholder return (TSR) performance.
The Company accounts for forfeitures as they occur. The forfeitures are not material. Stock-based compensation expense is recorded as a component of general and administrative expenses in the Company’s consolidated statements of operations.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement

F-17


with the related tax authority. The Company has a policy to classify interest and penalties associated with uncertain tax positions together with the related liability, and the expenses incurred related to such accruals, if any, are included in the provision for income taxes.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), net of tax. Other comprehensive income (loss), net of tax included in accumulated other comprehensive income (loss) in the consolidated statements of stockholders’ equity, is comprised primarily of changes in foreign currency translation adjustments and the effective portion of changes in the fair value of derivatives designated as cash flow hedges.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated from their respective functional currencies into U.S. dollars at the rates in effect at the balance sheet date and revenue and expense amounts are translated at average rates during the period, with resulting foreign currency translation adjustments recorded in other comprehensive income (loss), net of tax, in the consolidated statements of stockholders’ equity and comprehensive income (loss). Where the U.S. dollar is the functional currency, re-measurement adjustments are recorded in other income (expense), net in the accompanying consolidated statements of operations.
Segment Data and Geographic Information
Segment data
Operating segments are defined as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is the chief executive officer. Based on the financial information presented to and reviewed by the chief operating decision maker in deciding how to allocate the resources and in assessing the Company’s performance, the Company has determined it has two reportable segments: (i) the operating business segment, which is comprised of the portfolio of renewable energy power projects and (ii) the development investment, which consists of the Company's investment in Pattern Development.
Geographic information
The table below provides information, by country, about the Company’s consolidated operations. Revenue is recorded in the country in which it is earned and assets are recorded in the country in which they are located (in millions):
 
 
Revenue
 
Property, Plant and Equipment, net
 
 
Year ended December 31,
 
December 31,
 
 
2018
 
2017
 
2016
 
2018
 
2017
United States
 
$
346

 
$
315

 
$
285

 
$
3,124

 
$
3,121

Canada
 
83

 
62

 
39

 
745

 
550

Japan
 
33

 

 

 
250

 

Chile(1)
 
21

 
34

 
30

 

 
294

Total
 
$
483

 
$
411

 
$
354

 
$
4,119

 
$
3,965

(1) 
The Company sold its interest in El Arrayán on August 20, 2018. See Note 4, Divested Operations.
Recently Adopted Accounting Standards
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15), which amends alignment of the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company adopted ASU 2018-15 during the year ended December 31, 2018. The adoption did not have material impact on the Company's consolidated financial statements.

F-18


In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02), which allows a reclassification from Accumulated Other Comprehensive Income (AOCI) to retained earnings for the stranded tax effects resulting from the Tax Cuts and Jobs Act in December 2017 (Tax Act).  The amount of the reclassification is calculated as the difference between the amount initially recorded to other comprehensive income (OCI) at the time of the previously enacted tax rate that remains in AOCI and the amount that would have been recorded using the newly enacted tax rate. The Company adopted ASU 2018-02 in its financial statements for the period ended December 31, 2018 and elected not to reclassify the stranded tax effects related to the Tax Act.  Furthermore, the U.S. operations are in a net deferred tax asset position offset by a full valuation allowance.  As a result, the adoption did not have an impact on the Company's consolidated financial statements.  The Company’s accounting policy is to release stranded income tax effects from AOCI when the circumstances upon which the stranded tax effects are premised cease to exist.
In February 2017, the FASB issued ASU 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (ASU 2017-05). This ASU is meant to clarify the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and to add guidance for partial sales of nonfinancial assets. The Company adopted ASU 2017-05 as of January 1, 2018. The adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605) and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The Company adopted ASU 2014-09 as of January 1, 2018 using the modified retrospective transition method. The adoption did not have a material impact on the Company's consolidated financial statements, other than additional disclosures. See Note 3, Revenue for further details.
Recently Issued Accounting Standards Not Yet Adopted
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (ASU 2018-17). ASU 2018-17 requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest in its entirety for determining whether a decision-making fee is a variable interest. The standard is effective for all entities for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. Entities are required to apply the amendments in ASU 2018-17 retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic ASC 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (ASU 2018-16), which expands the list of U.S. benchmark interest rates permitted in the application of hedge accounting. Because of concerns about the sustainability of LIBOR, the Federal Reserve Board and the Federal Reserve Bank of New York (Fed) initiated an effort to introduce an alternative reference rate in the United States. The SOFR is calculated by the Fed based on the interest rates banks charge one another in the overnight market, typically called repurchase agreements, and because it is based on transactions in the open market, it is more reflective of market conditions than LIBOR, which relies on judgment. The provisions of ASU 2017-12 (discussed below) and ASU 2018-16 are effective for fiscal years beginning after December 15, 2018, including interim periods, with early adoption permitted. Initial adoption of ASU 2017-12 is required to be reported using a modified retrospective approach, with the exception of the presentation and disclosure requirements which are required to be applied prospectively. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2017-12 and ASU 2018-16.
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which amends changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty which should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those periods. Early application is permitted. The Company is currently assessing the impact of changes to the disclosure requirements for fair value measurement.
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), which amends the presentation and disclosure requirements and changes how companies assess effectiveness. The amendments are intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU 2017-12 is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. The Company adopted the standard on January 1, 2019. ASU 2017-12

F-19


requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, the adoption is not expected to have a material impact on its future consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires the measurement of all expected credit losses for financial assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, for the purposes of clarifying certain aspects of ASU 2016-13. ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of ASU 2016-13 is not expected 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), as amended by subsequent ASUs, 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. The Company adopted the new standard effective January 1, 2019 using a modified retrospective method and will not restate comparative periods. As permitted under the transition guidance, the Company may carry forward the assessment of whether its contracts contain or are leases, its lease classification, initial direct costs and remaining lease terms. The Company may also elect the practical expedient related to land easements, allowing the Company to carry forward its accounting treatment for land easements on existing agreements as its intangible assets; however, the accounting for future land easements may not be accounted for as intangibles. The Company has lease agreements with lease and non-lease components and will elect not to separate them and treat them as a single lease component. The Company will make an accounting policy election whereby short-term leases with an initial term of 12 months or less will not be recorded on the consolidated balance sheets. The Company anticipates that certain PPAs will no longer be accounted for as leases. The adoption of ASU 2016-02 may have a material impact on the Company's consolidated balance sheets, primarily related to land and office leases. The Company does not expect this standard to have a material impact on its consolidated statements of operations.
3.    Revenue
The Company sells electricity and related RECs under the terms of PSAs or at market prices. Depending on the terms of the PSAs, the Company may account for the contracts as operating leases pursuant to ASC 840, derivative instruments pursuant to ASC 815 or contracts with customers pursuant to Topic 606 (as defined below). A majority of the Company's revenues are accounted for under ASC 840 or ASC 815.
On January 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers, and all the related amendments (Topic 606) and applied Topic 606 to its PSA contracts previously accounted for under Topic 605, using the modified retrospective method. Results of the reporting period beginning January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting under Topic 605.
The Company did not record any adjustment to the opening retained earnings as of January 1, 2018 as a result of adopting Topic 606. Additionally, the adoption of Topic 606 does not materially change the presentation of revenue.
Revenue Recognition
Revenues from contracts with customers are recognized when control of promised goods and services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

F-20


The following table presents the Company's total revenue recognized and, for revenue from contracts with customers, disaggregated by revenue sources (in millions):
 
 
Year ended December 31,
 
 
2018
 
2017(1)
 
2016(1)
Revenue from contracts with customers
 
 
 
 
 
 
Electricity sales
 
 
 
 
 
 
Electricity sales under PSA
 
$
74

 
$
65

 
$
69

Electricity sales to market
 
14

 
21

 
16

REC sales
 
7

 
7

 
5

Electricity sales from contracts with customers
 
95

 
93

 
90

Other revenue
 
 
 
 
 
 
Related party management service fees
 
8

 
7

 
5

Other revenue from contracts with customers
 
8

 
7

 
5

Total revenue from contracts with customers
 
103

 
100

 
95

Other electricity sales (2)
 
369

 
309

 
257

Other revenue
 
11

 
2

 
2

Total revenue
 
$
483

 
$
411

 
$
354

(1) 
As noted above, prior period amounts have not been adjusted under the modified retrospective method.
(2) 
Includes revenue from PSAs accounted for as leases and energy hedge contracts.
Electricity Sales
The Company generates revenues primarily by delivering electricity to customers under PSAs and market participants. The revenues are primarily determined by the price of the electricity under the PSAs or market price multiplied by the amount of electricity that the Company delivers.
The Company transfers control of the electricity over time and the customer simultaneously receives and consumes the benefits provided by the Company's performance as it performs. Accordingly, the Company has concluded that the sale of electricity over the term of the agreement represents a series of distinct goods that are substantially the same and that have the same pattern of transfer to the customer. Each distinct transfer of electricity in MWh that the Company promises to transfer to the customer meets the criteria to be a performance obligation satisfied over time. The electricity sales are recognized based on an output measure, as each MWh is delivered to the customers. The Company recognizes revenue based on the amount metered and invoiced on the basis of the contract prices multiplied by MWh delivered. The Company does not determine the total transaction price at contract inception, allocate the transaction price to performance obligations, or disclose the value of the variable portion of the remaining performance obligations for contracts for which it recognizes revenue as invoiced.
Renewable Energy Credits Sales
Each promise to deliver RECs is a distinct performance obligation that is satisfied at a point in time as none of the criteria are met to account for such promise as performance obligation satisfied over time. The Company either delivers RECs with electricity under PSAs or on a standalone basis (in a contract that does not include electricity). When RECs are sold on a standalone basis, the revenue related to the RECs is recognized at the point in time at which control of the energy credits is transferred to customers. RECs delivered under PSAs with electricity are immaterial in the context of the contracts with customers and therefore not separately accounted for.
Remaining performance obligations represent the transaction price of standalone RECs for which RECs have not been delivered to the customer's account. The transaction price is determined on the basis of the stated contract price multiplied by RECs to be delivered. As of December 31, 2018, approximately $20 million of revenue is expected to be recognized from remaining performance obligations associated with existing contracts for the standalone sale of RECs. The Company expects to recognize revenue on approximately 61% of these remaining performance obligations over the next 24 months, with the balance recognized thereafter.

F-21


Related Party Management Service Fees
Related party revenue management service fees represent revenue recognized from the services provided by the Company, under Management, Operations and Maintenance Agreements (MOMAs) and Project Administration Agreements (PAAs) with certain wind farms that are consolidated subsidiaries of Pattern Development Companies or entities the Company accounts for as equity investments. Under these agreements, the Company provides services to the various wind farms, typically for a fixed annual fee payable in monthly installments, which escalates with the consumer price index (CPI) on an annual basis. The services provided by the Company to the wind farm under the agreement each month represent a single performance obligation, which is delivered to the project over time and is invoiced at a fixed price per month and will be recognized over time as invoiced to the respective wind farm.
Remaining performance obligations represent the fixed monthly installments for which services have not been performed. The transaction price is determined on the basis of the stated contract price.
Transaction Price Allocated to the Remaining Performance Obligations
The Company expects to recognize revenue under PSAs and related party management service fees in the following amounts related to fixed consideration associated with remaining performance obligations in each of the future periods noted as of December 31, 2018 (in millions):
 
 
Amount
2019
 
$
79

2020
 
66

2021
 
67

2022
 
67

2023
 
67

Thereafter
 
276

Total
 
$
622

Contract Balances
The Company did not record any contract assets as none of its right to payment was subject to something other than passage of time. The Company also did not record any contract liabilities as it recognizes revenue only at the amount to which it has the right to invoice for the electricity and RECs delivered; therefore, there are no advanced payments or billings in excess of electricity or RECs delivered.
4.    Divested Operations
Chilean Sale
On May 21, 2018, the Company, through its indirect wholly-owned subsidiaries, entered into a stock purchase agreement with a third party pursuant to which the Company agreed to sell, and the buyer agreed to purchase, certain subsidiaries which hold approximately a 71% interest in El Arrayán Wind and assets and rights relating to ownership and operation of an extension of the trunk transmission system in Chile (Chilean Sale). El Arrayán Wind is a wind electric generation facility located approximately 400 kilometers north of Santiago on the coast of Chile in which the Company had an owned interest of approximately 81 megawatts (MW).
On August 20, 2018, the Company completed the Chilean Sale for cash proceeds of $70 million. The Company measured impairment expense as the difference between the carrying amount of the net assets and fair value less estimated costs to sell. As a result, the Company recorded a total impairment expense of $7 million for the year ended December 31, 2018 in the consolidated statements of operations.
The operating results of El Arrayán Wind were included on the consolidated statements of operations through the date of sale.

F-22


5.    Acquisitions
All acquisitions completed during 2018 and 2017 were in alignment with the Company's strategy to expand its portfolio of power generating projects.
Stillwater Acquisition
On November 20, 2018, a subsidiary of the Company acquired 100% of Stillwater Wind LLC, an 80 MW wind project located in Stillwater County, Montana, for a total consideration of $111 million, net of cash acquired, in addition to $1 million of capitalized transaction-related expenses. PSP Investments and Allianz Renewable Energy Partners of America, LLC, whom are noncontrolling interests, contributed $95 million of the total consideration.
The fair value of the purchase consideration, including transaction-related expenses of the asset acquisition, is allocated to the relative fair value of the individual assets, operating contracts and liabilities assumed. No gain or loss was recognized upon acquisition.
MSM Acquisition
On August 10, 2018, the Company subscribed for (1) a 51% limited partnership interest in MSM LP Holdings LP, which holds 99.98% of the economic interests in MSM. MSM operates the approximately 143 MW wind project located in the Chaudière-Appalaches region south of Québec City, Canada, which achieved commercial operation in the first quarter of 2018. The Company also acquired (1) 70% of the issued and outstanding shares in the capital of Pattern MSM GP Holdings Inc. and (2) 70% of the issued and outstanding shares in the capital of Pattern Development MSM Management ULC from Pattern Energy Group LP for aggregate consideration of $31 million, net of cash acquired.
MSM was determined to be a VIE, for which the Company is the primary beneficiary. The Company recorded the fair value of the individual assets, operating contracts and liabilities of the VIE, which did not meet the definition of a business. The noncontrolling interest was recorded at fair value estimated using the purchase price paid by PSP Investments pursuant to the purchase and sale agreement. No gain or loss was recognized upon acquisition. The Company incurred transaction-related expenses of $1 million which were recorded in net earnings (loss) on transactions in the consolidated statements of operations for the year ended December 31, 2018.
Japan Acquisitions
On March 7, 2018, the Company acquired (1) Tsugaru Holdings, which owns a 122 MW wind project company located in Aomori Prefecture, Japan that is expected to commence commercial operations in early to mid-2020; (2) Ohorayama, a 33 MW wind project company located in Kochi Prefecture, Japan that commenced commercial operations in March 2018; (3) Kanagi, a 10 MW solar project company located in Shimane Prefecture, Japan that commenced commercial operations in 2006; (4) Otsuki, a 12 MW wind project company located in Kochi Prefecture, Japan that commenced commercial operations in 2006; and (5) Futtsu, a 29 MW solar project company located in Chiba Prefecture, Japan that commenced commercial operations in 2016 (collectively referred to as the Japan Acquisition) for total consideration of $264 million, net of cash acquired, of which $106 million is a contingent payment. As part of the acquisition, the Company also assumed $181 million of debt. The Company incurred transaction related expenses of $1 million which were recorded in net earnings (loss) on transactions in the consolidated statements of operations for the year ended December 31, 2018.
Contingent purchase consideration with a fair value of $103 million, subject to foreign currency exchange rate changes, is contingent upon term conversion of the Tsugaru construction loan or the commencement of commercial operations of Tsugaru. Both the term loan conversion and commencement of commercial operations are expected to occur in 2020. Upon the term conversion of the Ohorayama construction loan in June 2018, the Company was obligated to make a $3 million payment, subject to foreign currency exchange rate changes, to Pattern Energy Group LP. The Company paid this consideration in July 2018. See Note 14, Fair Value Measurement for further discussion on the fair value of the contingent consideration. The Company recorded the fair value of the individual assets, operating contracts and assumed liabilities of the Japan acquisition. The noncontrolling interest was recorded at fair value estimated using a projected cash flow stream of distributable cash, discounted to present value with a discount rate reflecting the cost of equity adjusted for control premium. Deferred tax liabilities were established as part of acquisition accounting due to temporary tax to book basis differences as a result of the step up in fair value related to property, plant and equipment, which established goodwill for $60 million. The valuation of certain assets and liabilities in the Japan Acquisition is final as of December 31, 2018. The Japan Acquisition provides the Company with an established presence in Japan to support future growth plans and provides diversification which is of benefit to the risk profile of the Company's overall operating project portfolio.

F-23


As a result of the Japan Acquisition, for the year ended December 31, 2018, property, plant and equipment, net, increased by $7 million, construction in progress decreased by $3 million, other assumed liabilities increased by $6 million and deferred tax liabilities decreased by $2 million from the preliminary purchase price allocation primarily related to a change in the estimated cost of asset retirement obligations and deferred tax liabilities.
Broadview Acquisition
On April 21, 2017, the Company completed the acquisition of (1) a 99% ownership interest in Western Interconnect, a 35-mile 345 kV transmission line; and (2) a 100% ownership interest in Broadview Project which indirectly owns 100% of the Class B membership interest in Broadview Energy Holdings LLC (Broadview Holdings), which consists of the 324 MW Broadview wind power projects, for total consideration of $190 million, net of cash acquired and a post-closing payment of approximately $21 million contingent upon the commercial operation of the Grady Project. The Grady Wind Energy Center, LLC (the Grady Project) is a wind power project on the Identified ROFO Projects list being developed by Pattern Development. The identifiable assets, operating contracts and liabilities assumed for the Broadview Project 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.
Meikle Acquisition
On August 10, 2017, the Company acquired (1) a 50.99% limited partnership interest in Meikle, a 179 MW wind project company located in the Peace River Regional District of British Columbia, Canada, which achieved commercial operations in the first quarter of 2017; and (2) 70% of the issued and outstanding shares of Meikle Wind Energy Corp. for a total consideration of $58 million, net of cash acquired, in addition to $1 million of capitalized transaction-related expenses. The fair value of the purchase consideration, including transaction-related expenses of the asset acquisition, and fair value of the noncontrolling interest was allocated to the relative fair value of the individual assets, operating contracts and liabilities assumed. The noncontrolling interest was recorded at fair value estimated using the purchase price paid by the affiliate of PSP Investments pursuant to the purchase and sale agreement.
The aggregate purchase prices of the acquisitions were allocated as follows (in millions):
 
December 31,
 
2018
 
2017
 
Japan Acquisition(1)
 
MSM(2)
 
Stillwater(2)
 
Broadview(1)
 
Meikle(2)
Purchase price
 
 
 
 
 
 
 
 
 
Cash paid for acquisitions, net of cash and restricted cash acquired
$
158

 
$
31

 
$
111

 
$
169

 
$
58

Contingent consideration
106

 

 

 
21

 

 
$
264

 
$
31

 
$
111

 
$
190

 
$
58

Allocation
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
$
269

 
$
270

 
$
120

 
$
628

 
$
376

Construction in progress
179

 

 

 

 

Intangibles
103

 

 

 
22

 
29

Goodwill
60

 

 

 

 

Other assets acquired
20

 
38

 
4

 
12

 
8

Debt
(181
)
 
(196
)
 

 
(51
)
 
(266
)
Deferred tax liabilities
(65
)
 

 

 

 

Advanced lease revenue

 
(29
)
 

 

 

Other liabilities assumed
(110
)
 
(14
)
 
(13
)
 
(95
)
 
(24
)
Assets and liabilities assumed before noncontrolling interests
275

 
69

 
111

 
516

 
123

Less: noncontrolling interests
(11
)
 
(38
)
 

 
(326
)
 
(65
)
Total consideration allocated to acquired assets and liabilities
$
264

 
$
31

 
$