Derivative Financial Instruments

The Company uses various financial instruments to minimize the impact of variable market conditions on its results of operations. The Company employs natural gas forward contracts to protect against the economic impact of natural gas market prices and the Company uses interest rate swaps to minimize the impact of fluctuations from interest rate changes on its outstanding debt where LIBOR is applied. The Company does not enter into derivative contracts for trading or speculative purposes.

The fair values of the derivatives as of June 30, 2018 and December 31, 2017 on the Company's consolidated balance sheets were as follows:



	June 30, 2018		December 31, 2017

Derivatives designated as hedging instruments
Other long-term assets	$	912	$	52
Total assets	$	912	$	52
Interest rate swap
Accrued other current liabilities	$	155	$	845
Derivative liabilities	2,528		5,060
Total liabilities	$	2,683	$	5,905

Natural Gas Derivatives

On September 1, 2011, the Company entered into a fixed price fixed quantity fuel forward contract with a gas supplier. This fuel forward contract is used as part of the Company’s program to manage the risk for controlling the overall cost of natural gas. The Company's PPA Company I is the only PPA Company for which gas was provided by the Company. The fuel forward contract meets the definition of a derivative under US GAAP. The Company has not elected to designate this contract as a hedge and, accordingly, any changes in its fair value is recorded within cost of revenue in the statements of operations. The fair value of the contract is determined using a combination of factors including the Company’s credit rate and future natural gas prices.

For the three months ended June 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a gain of $0.8 million and $0.9 million, respectively. For the six months ended June 30, 2018 and 2017, the Company marked-to-market the fair value of its fixed price natural gas forward contract and recorded a loss of $0.1 million and $0.7 million, respectively. For the three months ended June 30, 2018 and 2017, the Company recorded gains on the settlement of these contracts of $1.2 million and $1.1 million, respectively. For the six months ended June 30, 2018 and 2017, the Company recorded gains on the settlement of these contracts of $2.3 million and $2.2 million, respectively. Gains and losses were recorded in cost of revenue on the consolidated statement of operations.

Interest Rate Swaps

PPA Company IIIb - In September 2013, PPA Company IIIb entered into an interest rate swap arrangement to convert a variable interest rate on debt to a fixed rate. The Company designated and documented its interest rate swap arrangement as a cash flow hedge. The swap’s term ends on October 1, 2020 which is concurrent with the final maturity of the debt floating interest rates reset on a quarterly basis. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive loss and was recognized as interest expense on settlement. The notional amounts of the swap were $25.2 million and $25.6 million as of June 30, 2018 and December 31, 2017, respectively. The Company measures the swap at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk.

The Company recorded a gain of $17,000 and a loss of $14,000 during the three months ended June 30, 2018 and 2017, respectively, due to the change in swap’s fair value. The Company recorded a gain of $54,000 and a loss of $30,000 during the six months ended June 30, 2018 and 2017, respectively, attributable to the change in swap’s fair value. These gains and losses were included in other expense, net in the consolidated statement of operations.

PPA Company V - In July 2015, PPA Company V entered into nine interest rate swap agreements to convert its floating-rate loan into a fixed-rate loan. The loss on the swaps prior to designation was recorded in current-period earnings. In July 2015, the Company designated and documented its interest rate swap arrangements as cash flow hedges. Three of these swaps matured in 2016, three will mature on December 21, 2021 and the remaining three will mature on September 30, 2031. The Company evaluates and calculates the effectiveness of the hedge at each reporting date. The effective change was recorded in accumulated other comprehensive loss and was recognized as interest expense on settlement. The notional amounts of the swaps were $187.9 million and $188.1 million as of June 30, 2018 and December 31, 2017, respectively. The Company measures the swaps at fair value on a recurring basis. Fair value is determined by discounting future cash flows using LIBOR rates with appropriate adjustment for credit risk. The Company recorded a gain of $55,000 and $20,000 during the three months ended June 30, 2018 and 2017, respectively, attributable to the change in swaps’ fair value. The Company recorded a gain of $109,000 and a gain of $53,000 attributable to the change in valuation during the six months ended June 30, 2018 and 2017. These gains were included in other expense, net in the consolidated statement of operations.

The changes in fair value of the derivative contracts designated as cash flow hedges and the amounts recognized in accumulated other comprehensive loss and in earnings for the year ended December 31, 2017, and in the six months ended June 30, 2018, were as follows:



Balances at December 31, 2016	$	6,937

Loss recognized in other comprehensive loss	669
Amounts reclassified from other comprehensive loss to earnings	(1,563		)
Net gain recognized in other comprehensive loss	(894		)
Gain recognized in earnings	(190		)
Balances at December 31, 2017	$	5,853

Gain recognized in other comprehensive loss	(3,622		)
Amounts reclassified from other comprehensive loss to earnings	(297		)
Net gain recognized in other comprehensive loss	(3,919		)
Gain recognized in earnings	(163		)
Balances at June 30, 2018	$	1,771

6% Convertible Promissory Notes

On December 15, 2015, January 29, 2016, and September 10, 2016, the Company issued $160.0 million, $25.0 million, and $75.0 million, respectively, of 6% Convertible Promissory Notes ("6% Notes") that mature in December 2020. The 6% Notes are convertible at the option of the holders at a conversion price per share equal to the lower of $46.37 and 75% of the offering price of the Company’s common stock sold in an initial public offering. The valuation of this embedded put feature is recorded as a derivative liability in the consolidated balance sheet. The notes were initially recorded net of a discount of $6.3 million and the fair value of the embedded derivatives within the notes was $115.8 million. Fair value was determined using the binomial lattice method. The debt discount is being amortized through interest expense on the consolidated statements of operations over an accelerated three year amortization period based on when the Notes become puttable.

The Company measures the fair value of the derivatives at each reporting date and the Company recorded a loss of $23.5 million and a loss of $0.5 million attributable to the change in valuation for the three months ended June 30, 2018 and 2017, respectively. The Company recorded a gain of $2.4 million and a loss of $31.0 million attributable to the change in valuation for the six months ended June 30, 2018 and 2017, respectively. These gains and losses were included within loss on revaluation of warrant liabilities and embedded derivatives in the consolidated statement of operations.