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Not Blowing Hot Air: Ormat To Take Up To $230 Million Charge In Q4

January 23, 2013

Geothermal power isn’t as simple as it sounds according to Ormat Technologies (ORA :NYSE) as the company warned investors today that it would be recording a non-cash pre-tax charge of up to $230 million for Q4 12012.

Ormat is having difficulties with its North Brawley power plant that was supposed to reach an output capacity of 50 megawatts (MW). But unfortunately for Ormat and power purchase agreement (PPA) recipient Southern California Edison (SCE) (EIX :NYSE), the plant has been delivering between 20 MW and 33 MW despite increased capital expenditures to improve the situation.

The $230 million impairment charge will cover the entire year of 2012. Ormat had been seeking to avoid this situation next year by renegotiating its PPA with SCE but was unable to reach an agreement. Instead, Ormat has decided to operate the North Brawley plant at 27 MW.

In addition to the North Brawley charge, Ormat announced that it was advised by its parent company to record a pre-tax, non-cash charge in a currently estimated amount of between $30 million and $40 million during the fourth quarter of 2012 for impairment to the company’s Jersey Valley power plant. Ormat has independently conducted its own impairment test for the Jersey Valley power plant and has concluded that no impairment charge is required.

Shares of Ormat were flat in afternoon trading.

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