PUNA POWER PLANT LEASE TRANSACTIONS

12 Months Ended

Dec. 31, 2011

PUNA POWER PLANT LEASE TRANSACTIONS

NOTE 12 — PUNA POWER PLANT LEASE TRANSACTIONS

In 2005, the Company’s wholly owned subsidiary in Hawaii, Puna Geothermal Ventures (“PGV”), entered into transactions involving the Puna geothermal power plant located on the Big Island of Hawaii (the “Puna Power Plant”).

Pursuant to a 31-year head lease (the “Head Lease”), PGV leased its geothermal power plant to an unrelated company in return for prepaid lease payments in the total amount of $83.0 million (the “Deferred Lease Income”). The carrying value of the leased assets as of December 31, 2011 and 2010 amounted to $42.4 million and $45.1 million, net of accumulated depreciation of $20.0 million and $17.3 million, respectively. The unrelated company (the “Lessor”) simultaneously leased back the Puna Power Plant to PGV under a 23-year lease (the “Project Lease”). PGV’s rent obligations under the Project Lease will be paid solely from revenues generated by the Puna Power Plant under a PPA that PGV has with Hawaii Electric Light Company (“HELCO”). The Head Lease and the Project Lease are non-recourse lease obligations to the Company. PGV’s rights in the geothermal resource and the related PPA have not been leased to the Lessor as part of the Head Lease but are part of the Lessor’s security package.

The Head Lease and the Project Lease are being accounted for separately. Each was classified as an operating lease in accordance with the accounting standards for leases. The Deferred Lease Income is amortized into revenue, using the straight-line method, over the 31-year term of the Head Lease. Deferred transaction costs amounting to $4.2 million are being amortized, using the straight-line method, over the 23-year term of the Project Lease.

Future minimum lease payments under the Project Lease, as of December 31, 2011, are as follows:

	(Dollars in thousands)
Year ending December 31:
2012	$	8,199
2013		8,062
2014		8,647
2015		8,222
2016		8,374
Thereafter		30,623
Total	$	72,127

Depository accounts

As required under the terms of the lease agreements, there are certain reserve funds that need to be managed by the indenture trustee in accordance with certain balance requirements. Such reserve funds amounted to $3.9 million and $8.1 million as of December 31, 2011 and 2010, respectively, and were included in restricted cash accounts in the consolidated balance sheets. As of December 31, 2010, $1.7 million of such accounts were classified as non-current, since they were invested in auction rate securities which experienced multiple failed auctions due to a lack of liquidity in the market for these securities, as explained in Note 7. The Company had no investments in auction rate securities at December 31, 2011. The remaining $6.4 million at December 31, 2010 and the total amount of $3.9 million as of December 31, 2011, were classified as current as they were used for current payments.

Distribution account

PGV maintains an account to deposit its remaining cash, after making all of the necessary payments and transfers as provided for in the lease agreements, in order to make distributions to the Company’s wholly owned subsidiary, Ormat Nevada. The distributions are allowed only if PGV maintains various restrictive covenants under the lease agreements, which include limitations on additional indebtedness. As of December 31, 2011 and 2010, the balance of such account was $0.