Ormat Technologies Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Ormat Technologies, (ORA)

Ormat Technologies (NYSE:ORA)

Q1 2013 Earnings Call

May 08, 2013 9:00 am ET

Executives

Rob Fink - Account Director In Investor Relations

Yehudit Bronicki - Chief Executive Officer, Director, Chairman of Compensation Committee, Chief Executive Officer of Ormat Industries, President of Ormat Systems, General Manager of Ormat Industries and Director of Ormat Industries

Yoram Bronicki - President, Chief Operating Officer, Director, Member of Nominating & Corporate Governance Committee and Director of Ormat Industries

Doron Blachar - Chief Financial Officer

Analysts

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Scott Reynolds - Jefferies & Company, Inc., Research Division

Michael Klein - Sidoti & Company, LLC

Mark Barnett - Morningstar Inc., Research Division

Gregg Orrill - Barclays Capital, Research Division

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Operator

Ladies and Gentlemen, thank you for standing by, and welcome to the Ormat Technologies First Quarter 2013 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Mr. Rob Fink of KCSA Strategic Communications. Sir, you may begin your conference.

Rob Fink

Thank you, Paula. hosting the call today are Dita Bronicki, Chief Executive Officer; Yoram Bronicki, President and Chief Operating Officer; Doron Blachar, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations.

Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts and projections about future events that are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company's plans, objectives and expectations for future operations and are based on management's current estimates and projection of future results or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties.

For a discussion of such risks and uncertainties, please see Risk Factors as described in Ormat Technologies' Annual Report on Form 10-K filed with the SEC on March 11, 2013.

In addition, during this call, statements may include financial measures as defined as non-GAAP financial measures by the SEC, such as adjusted EBITDA. The presentation of financial information is not intended to be considered an isolation or as a substitute for financial information prepared and presented in accordance with GAAP.

Management of Ormat Technologies believes that adjusted EBITDA may provide meaningful supplemental information regarding liquidity measurements that both management and investors benefit from referring to this non-GAAP financial measure in assessing Ormat Technologies' liquidity and when planning and forecasting future periods. This non-GAAP financial measure may also facilitate management's internal comparison to the company's historical liquidity.

Before I turn the call over to management, I would like to remind everyone that the slide presentation accompanying this call may be accessed on the company's website at ormat.com under the IR Event & Presentation link that's found in the Investor Relations section.

With that all said, I would now like to turn the call over to Dita. Dita, the call is yours.

Yehudit Bronicki

Thank you, Rob, and good morning, everyone, and thank you for joining us on this rainy day New York for the presentation of our first quarter 2013 results and outlook for the near future.

Before we start the update on the quarter, I want to welcome a new member on the Ormat management team. I'm pleased to introduce Doron Blachar, who officially joined Ormat as our CFO on April 2. Doron has a long track record as a finance professional, including significant experience with several U.S. listed public companies. Doron will review the financial following you on operational overview.

Let me start with Slide 4 that lists some of the major milestones achieved since the beginning of the year. And we have a positive impact on our near and longer term future.

Replacement of 2 our Standard Offer #4 contract with higher rate fixed-price RDAs contract and new PPA provide those projects favorable returns, the signature of the joint operating contract and the energy sales contract in Sarulla. The commercial operation of Olkaria Plant 2, which increased our generating capacity to 611 megawatts and the continued flow of new orders in our product segment, which brought our backlog to $224 million as of May 7, 2013.

I would like to turn the call over to Yoram to expand on these milestones and provide a review of our operations. Following Yoram, Doron will review the financial and I will return for closing remarks before opening the call for Q&A.

Yoram Bronicki

Thank you, Dita, and good morning, everyone. Starting with Slide 6. The total generation for the first quarter 2013 was approximately 1.08 million-megawatt hours, which is an increase of 4.2% from the same quarter last year. The growth in generation is mainly due to successful completion of McGinness Hills in 2012, a plant and a resource that exceeded our expectations.

Since the beginning of the year, we have been very busy in activities that we expect to positively affect the rest of this year. On the operational side, these activities include pre-peak equipment maintenance and well work in a number of plants.

On the project side, we have been working on the Olkaria Plant 2 start up; enhancements of 2 facilities, Mammoth G1 and Heber 1; continue with the construction of a number of plants and as we have recently disclosed, we have accomplished some important milestones on the commercial aspects of new projects. The increase in our generating capacity was masked by the scheduled maintenance activity that was performed this quarter, as well as by some of the unscheduled outages that we have had in some of our power plants. A big factor that affected us this quarter, and will continue to affect us in the second quarter, is the congestion in the transmission lines at wheel power from the Imperial Valley to our customers. This had an effect on both generation and energy prices. We expect this event to end this month at least through the peak period.

As Dita mentioned, we terminated the old Standar Offer#4 PPAs of G1 and G3 in the Mammoth complex and at the beginning of April, started to sell power to Pacific Gas and Electric from the G3 plant. G3 is expected to sell 12-megawatt on an annual average and we expect to sell an annual average of 6 megawatts from G1 once the enhancement is completed later this year.

For an update on our project pipeline, please turn to Slide 7. We have recently announced the commercial operation of the 36-megawatt plant 2 in the Olkaria complex in Kenya. The plant 2 commercial we're now working on the 16-megawatt plant 3 that we expect to complete in 2014.

In Wild Rose, we're in the midst of site construction. And as we have recently disclosed, just completed a 20-year fixed-price PPA with Southern California Public Power Authority. In Heber Solar, we continue with construction. As for Heber 1 enhancement, we have completed the resource portion of the work and are now in the procurement phase of the major component that will be used in the power block. Construction of Heber Solar and Wild Rose is expected to be completed in the second half of the year.

On Slide 8, you can see a list of projects in various stages of development. The cumulative generating capacity of this project is approximately 117 megawatts. However, the readiness for continued construction and expected economics will determine the release of each individual project and we are not planning to invest in all of them this year.

Two additional significant commercial milestones were met in Sarulla. We signed a joint operating contract and energy sales contract. The construction is expected to begin after the consortium obtains financing, which is expected to take approximately 1 year. First phase is scheduled to start operation in 2016. 2 additional phases are planned to be completed in stages within 18 months after the first one.

Together with the JOC, the consortium also signed an EPC contract in which we are the supplier and expect to recognize revenue of $254 million related to the equipment sale over the construction period.

In addition to our role as a supplier, we have a 12.75% equity stake in the project. Sarulla is expected to obtain construction and term loans under a nonrecourse or a limited recourse financing package of direct loans from the Japan Bank of International Corporation, JBIC and the Asian Development Bank, ADB, as well as loans to be provided by 5 commercial banks, which we refer to as MLAs. The MLAs are expected to be backed by political risk guarantees from JBIC.

Moving to Slide 9. We have 41 prospects in early explorational ore activity is yet to begin. Slide 10 provides an update on the product segment. As of May 7, 2013, our product backlog is approximately $224 million. This backlog includes a Thermo 1 project that was started up last month and is now in full commercial operation. We will recognize it as revenue once we get paid.

Before I turn the call to Doron, I would like to stress the high level of activity in our product segment and the positive effect that Sarulla may have on it for the future years. Doron?

Doron Blachar

Thank you, Yoram, and good morning, everyone. Before we begin the financial results of the first quarter of 2013, I would like to take a quick minute to thank the Bronicki, the Board and the extended Ormat family for providing me with this opportunity. Over the last 15 years, I've been working in global companies such as Amdocs, Teva and Shikun & Binui in senior financing position. My focus has always been on increasing shareholders value through profitable growth, strong control and optimizing the cost of capital. I'm excited for the opportunity that lie ahead, increasing shareholder value is a top priority. In the days, weeks and months ahead, I will continue to acquaint myself with all facets of this great company, as well as stay active role with the investor effort. I look forward to meeting all of you in the near future.

Now, back to the presentation. Beginning on Slide 12 with the results for the quarter ended March 31, 2013, total revenue for the first quarter declined 8% from $132.4 million in the first quarter of 2012 to $121.7 million this year.

In our Electricity segment, as you can see on Slide 13, revenue has declined from $82.2 million in the first quarter of last year to $71.1 million this quarter. The year-over-year decline was primarily related to the transition to variable asset prices in the Standard Offer #4 PPAs that are tied to the natural gas prices.

Although we see an increase in natural gas prices year-over-year, the SRAC is still lower than the fixed-price we had in the first quarter last year. As a reminder, the Standard Offer #4 PPA in California switched from a fixed rate to a valuable rate in May 2012.

At the end of last year, we hedged against gas prices. As you can see, we recorded this quarter a loss of $4.6 million. On a positive note, gas prices are higher this year than last year. And if they remain the same way, our financial performance will benefit from the trends in 2014. Lower rates in Puna and Amatitlan and reduced generation in certain plants also impacted our revenue. The added generation from the McGinness Hills plant, which began commercial operation in July 2012 and higher rates in Tuscarora, which started to receive commercial rate in the second quarter of 2012, partially offset the decrease in revenue.

In the product segment on Slide 14, revenues in the first quarter of 2013 increased slightly year-over-year from $50.1 million in the first quarter of 2012 to $50.6 million this year. Product segment revenue has remained strong as a result of the increase in new customer orders that we secured over the last 2 years.

Moving to Slide 15, the company's combined gross margin for the first quarter was 22.8%, compared to 30.1% in the first quarter of 2012. The electricity segment gross margin was 19.9% for the quarter, compared to 29.6% in the same period last year.

In the product segment, gross margin for the quarter was 26.8%, compared to 30.9% in the same period last year. The decrease in the product gross margin is mainly attributable to a different product mix and different margin in the various sales contract.

Moving to Slide 16, operating income in the first quarter of 2013 was $8.5 million, compared to $25.7 million in the first quarter of 2012. The decrease was primarily attributable to the reduction in gross margin, as the result of the decline in the Electricity segment revenues I just discussed.

Operating income was also impacted by one-time early termination fee of $9 million related to the Mammoth complex contracts replacement. The fee was included in selling and marketing expense and was allocated to the Electricity segment.

Moving to Slide 17. Interest expenses. Net of capitalized interest for the first quarter was $15.9 million, compared to $14.9 million in the same period last year. The $1 million increase is attributable to $0.9 million interest related to the sale of tax benefit, $0.7 million decrease related to the interest capitalized to projects, partially offset due to a lower interest related to our net debt.

Moving to Slide 18. Net loss for the quarter was $1.9 million or $0.05 per share, compared to net income of $8 million or $0.17 per share in the first quarter last year. Net income excluding one-time termination fee of $9 million related to the replacement of the Mammoth PPAs and $4.6 million loss related to the oil and gas derivative instruments was $11.6 million or $0.26 per share.

That's shown in the following slide, Slide 19. Adjusted EBITDA for the first quarter of 2013 was $45.8 million compared to $51.5 million in the same period last year. Net cash provided by operating activities was $18.2 million in the quarter, compared to $41.9 million in the same period last year.

In January, Ormat closed on the transaction with JPMorgan capital corporation to monetize production tax credit or PPCs associated with certain geothermal plants in California and Nevada. Under the terms of the deal, Ormat transferred the plants into new entity, ORTP.

In the return for the tax benefit, JPMorgan paid approximately $35.7 million in cash to Ormat at closing and will make additional payments of approximately 25% over the value of the PPC generated by the portfolio over time. The initial payment and subsequent payments will be treated as cash flow from financing activities. Accounting wise on the balance sheet, we have included the liability associated with the sale of the tax benefit in amount of approximately $30 million and the noncontrolling interest in an amount of $5 million.

The P&L includes interest expense of around $1 million that represents the interest on the liability and a profit from the sale of the tax benefit in the amount of $2 million.

Moving to Slide 20. Cash and cash equivalents, marketable securities and short-term benefit deposits as of March 31, 2013 were $60.6 million. The accompanying slide breaks down the use of cash during the 3 quarters. Our long-term debt as of March 31, 2013 and the payment schedule are presented in Slide 21 of the presentation.

That concludes my financial overview. I would like now to turn the call back to Dita. Dita?

Yehudit Bronicki

Thank you, Doron. If you could key please turn to Slide 23, you will see the capital requirements for the remainder of 2013. We plan to invest a total of $173 million, $124 million expected to be invested in projects that are fully released for construction including, Mammoth and the Heber enhancement and an additional $49 million for development of new projects, exploration, maintenance CapEx and enhancement to the production facility. As you can see on the right side of the slide, we have sufficient capital resources to support our investment claim.

Turning to Slide 24, which presents our revenue forecast for 2013, we reaffirmed our 2013 guidance and expect total revenues to be between $515 million to $535 million with electricity revenues between $335 million and $345 million and product segment revenue between $180 million and $190 million.

Looking forward, while there are still uncertainties in the regulatory environment in the United States, we believe that the regulatory support for new bill in the U.S. will continue. A recent example is the MLP a Master Limited Partnership introduced a few weeks ago. And internationally, we are benefiting from our experience, capabilities and reputation in all aspects of geothermal development to participate in the geothermal development activities in Latin America, Southeast Asia and Africa. We look forward to keeping you updated on new developments and we achieve additional milestones. We would like to thank you for your support and at this time, I would like to open the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Dan Mannes at Avondale.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

A couple of quick follow-up questions. First on your mark-to-market on your oil and gas just so I understand it, this relates to the mark-to-market for the back 3 quarters for Q2, '3 and '4 and the realized impact of the hedges in the first quarter is not included in that $4.6 million? If you could just clarify, that will be helpful.

Doron Blachar

The $4.6 million represents the remaining cost that will be in the next few quarters. So Q1 is already the actuals and the mark-to-market actually looks to the expected oil and gas prices for next 9 months, compared to the hedge that we did. And we report accounting wise this expense in the quarter. So the simple answer, if the gas and oil prices hold as we're expected on March 31, there will not be an additional impact on the next quarter.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Got it. So whatever amount that -- whatever loss were incurred on those hedges are included in that $9 million year-over-year variance relative to the SO#4 contracts.

Doron Blachar

Can you repeat that?

Daniel J. Mannes - Avondale Partners, LLC, Research Division

So whatever portion of those hedges were realized in the first quarters losses would be included in the year-over-year variance that was $9.4 million, which was the variance on the SO#4 contracts?

Yoram Bronicki

Directionally, I think you're correct Dan, but I think that we need to go over the numbers that we -- I don't if Smadar can clarify this. I mean, I think that what Dan is asking is, we basically included -- we included when we say that the difference is about $9 million. This is actual rates that we got this quarter compared to the same quarter in 2012.

Yehudit Bronicki

It does not include the hedge loss.

Yoram Bronicki

Does not include the hedge loss, but does include the proceeds from whatever hedging we have done.

Doron Blachar

It includes the hedging, but in Q1 doesn't include the $4.6 million.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

That's exactly what I was asking. And as it relates to your adjusted EBITDA calculation, the $4.6 million is that included in the adjusted EBITDA or excluded?

Yehudit Bronicki

It is not included -- not adjusted for the $4.6 million, because it's not a one-time change right?

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Perfect that helps a lot. Real quick, you mentioned Dita at the end on the -- of the MLP bill. I think this is probably a good forum to maybe talk briefly about where this might fit in for you. Do you see the potential if this bill passes that some of your assets would be MLP eligible and is that something that could be interesting for you down the road?

Yehudit Bronicki

To be perfectly honest, we are still analyzing the impact of the MLP bill, but what I can share with you my understanding of it is that it will definitely provide low-cost capital for future development. Very similar to the tax partnership transactions that we did or releasing transaction that we did before. There's another way to take advantage of such benefit, which we cannot take advantage of. And as a result of it, get lower cost capital than otherwise available. Is it also an opportunity for the existing assets? This is where we are not 100% clear.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Is that because of the project debt?

Yehudit Bronicki

It's the projects -- it's the tax monetization of certain of the assets. It's the start of this allum play I'm not sure how they can fit within MLP. We have not done that analysis.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Understood. And then real quick on the operating cost side. It looks like both R&D cost and your -- and selling and marketing -- I'm sorry -- and G&A, look like they're both down sequentially from the fourth quarter. Anything to read into that? Are we looking at maybe a little bit of a lower overhead during the balance of '13?

Yehudit Bronicki

Yes, we are. We have -- we are talking about efficiencies. They are not a huge number but here.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Okay, and the one -- last one.

Yehudit Bronicki

The selling and marketing, Dan, is a coincidence. It's not -- because selling and marketing really depends if we not realized the $9 million of the termination fee there. The rest of it is depending what kind of products they order you have in a certain quarter and what are the selling and marketing expenses associated with the specific product. But G&A has been slightly reduced, you're right.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

Right. So on sales and marketing, we always want that number to go higher because that means you're selling -- you're probably building more backlog.

Yehudit Bronicki

Correct.

Daniel J. Mannes - Avondale Partners, LLC, Research Division

And then one last one -- just on the Heber and Mammoth repowering. Are those -- is the work on that mostly done, at least on Mammoth? Or -- I know Heber I think was a little bit longer, or is there still significant work on those that still needs to be completed?

Yoram Bronicki

No, actually in both cases, in Mammoth, we have basically removed the old plant and we're now in the process of assembling or installing the new equipment. So quite a bit of work yet. And on Heber, there are 2 elements to the enhancement. The first one was developing a new area -- a new resource area, so a different resource. We have drilled 3 wells and that work is completed and the wells are successful. And some of them are already flowing into the plants. So this is almost done. And then the next portion is to redesign the power cycle to match what we believe the long-term properties of the resource will be and there, engineering is done, but we're in procurement. And so this is a -- this will take us more than 2013 to complete. We're thinking about completion sometime in 2014. So quite a bit of work there.

Operator

Your next question comes from Scott Reynolds of Jefferies.

Scott Reynolds - Jefferies & Company, Inc., Research Division

I just wanted to get a sense of how the margin, especially on the electricity side, are looking to trend at the gross margin level for the next few quarters. Obviously we have some moving pieces with new contracts and different plants coming online. So I was hoping we could get some color on that.

Yehudit Bronicki

By blending new plants online, the traditional gross margin, we certainly may cancel the lower gross margin on the Standard Offer #4 contract. And if we look into the future. And we have 2 contracts at Mammoth that will have provisional gross margin, we have the Olkaria with a provisional gross margin. The weight of McGinness Hills that is already reflected this quarter, but we continue to contribute. So we definitely agree a high -- we definitely expect a higher gross margin than -- a slightly higher gross margin that what we have in this quarter.

Scott Reynolds - Jefferies & Company, Inc., Research Division

Okay, that's fair. Could you give us an update on the solar projects? And how that process is progressing. Also is that -- those should have -- they'll produce somewhat, but overall, they'll have a lower generating effect on your overall asset base. So should we expect much of an impact from those? And what are the margins on those projects relative to your current asset base?

Yehudit Bronicki

I think we addressed it in our year end quarter call, but the only solar activity in Israel is not going to be -- to provide the results that we initially expected there. And we may even discontinue this activity. So we are left with Heber Solar that we are building. And this is a project that may extend by sales, but this is about all that we have in the solar activity.

Operator

Your next question comes from Michael Klein of Sidoti & Company.

Michael Klein - Sidoti & Company, LLC

Can you talk about the performance at North Brawley in the quarter, whether or not it was EBITDA positive? And how its financial performance was versus your expectations?

Yoram Bronicki

It was not EBITDA positive. First quarter is a lower rates quarter and one where we typically do work in preparation for the high rates in the second and the third quarter. But no dramatic news in Brawley either not positive, not negative. It is -- as we said, we expect this to be for now, a 27-megawatt plant, this is how we operate it. Nothing dramatic or exciting there.

Michael Klein - Sidoti & Company, LLC

Okay. So you're comfortable with where the plant is now and the outlook going forward? Is that correct?

Yoram Bronicki

Yes.

Michael Klein - Sidoti & Company, LLC

Okay, and can you just talk from a high level what the biggest risks are to bringing these additional plants online by the end of 2013? It seems like you have most of the steps completed at this point, but what are the biggest risks to getting the power online?

Yoram Bronicki

Actually, we don't see any substantial risk other than global issues that we cannot control. We're well away on the work. The equipment has been manufactured, as in mostly on-site permits are and resource work was completed. So there is really nothing major. It's all -- it seems to be very, very good.

Operator

[Operator Instructions] Your next question comes from Mark Barnett of Morningstar.

Mark Barnett - Morningstar Inc., Research Division

Just a quick -- I actually am not able to access the presentation slides, so pardon me if this is very clear. But aside from the time frame that you just gave on the Heber and the Mammoth work, are there any other changes that you made to your development timetable during this quarter? For any kind of projects currently...

Yoram Bronicki

No, no changes from the previous presentation.

Mark Barnett - Morningstar Inc., Research Division

And a quick question on the grid curtailment. Is that still something that you had mentioned that might be an issue through the second quarter of this year? Do you have any idea what the rough financial impact of not being able to sell that power might be for the quarter? Or is that the tough number to pin down?

Yoram Bronicki

You asked about the congestion on transmission?

Mark Barnett - Morningstar Inc., Research Division

Right.

Yoram Bronicki

So the cumulative impact in the first quarter was about $2 million, a little over $2 million. We do not expect that -- the same impact in that second quarter. It would be really in order of magnitude lower probably a few dozen thousand dollars or something in that area. I don't have a quite estimate, but not a substantial number beyond the new factor of it. And as far as we know now, there's no -- during the high load, high rate areas -- periods of the year, we don't expect any of that to continue. Not the schedule maintenance at least. Unscheduled could happen or failure could happen, of course, anytime.

Mark Barnett - Morningstar Inc., Research Division

Okay, great. And just one last quick question if I may. I know it's a little bit early and that I think you had mentioned this might take the next year to actually issue the financing and you've mentioned nonrecourse and some limited recourse financing. Do you have any idea for what the general capital structure might look like is that going to be fairly similar to U.S. construction? Or might that have a slightly different profile?

Yehudit Bronicki

Our experience from international financing of reported finance is very similar to U.S. financing. Typically, debt-to-equity ratio of 20% to 30% equity and a similar amount of that. Maybe in the case of Sarulla because the cost of financing is very long-term, the equity ratio maybe slightly lower, but it is not known yet and because there is a strong EPC contract, the construction financing is to be similar to term financing. So we don't expect any major difference from what we project other projects.

Operator

Your next question comes from Gregg Orrill of Barclays.

Gregg Orrill - Barclays Capital, Research Division

I was wondering if you could give an update on any additional milestones you're watching for Sarulla?

Yehudit Bronicki

The next major milestone is close of financing, which is expected to be, as we say, the year after filing the contract, so April of 2014, that's the major milestone. Insignificant, if you will, milestone like signing the actual PPAs or the supply contract we have with the signed terms sheet, but we don't have an actual PPA. But I don't think that those are major milestones for the development. It's really the work that is to be done.

Operator

Your next question comes from JinMing Liu of Ardour Capital.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Just a follow up on the transmission congestion problem. How did that problem affect your average price in the first quarter? And what exactly happened that caused the congestion?

Yoram Bronicki

So -- I can't give you the calculation on the average price. The impact was about $2 million. So I think that you can back calculate this, if not, we'll see if we can help, but if Smadar can answer that after I've finished. But the causes, there are few lines that export power from the Imperial Valley into the California ISO transmission network. And basically, every project is assigned room on one of the lines. In our case, the line is called Path 42. And this is a line that has been scheduled for maintenance, and also for upgrading. Both activities that are somewhat related, but not identical. And when they do the work, and this is really the extent of my knowledge, when they do the work, they basically limit -- they don't shut down transmission on that line altogether, but they limit the amount of power that can be exported on their line and typically, it is done in a pro rata way. So all the projects that export power on the line take -- if they need to take off 100 megawatts of capacity from the line, they will prorate each of the projects based on their transmission rights on the line. And at that point this forces us to reduce generation, adapt it to what we're allowed to put on that line. So basically, if you'd like slowdown, turn down the plants. Generally, it is not a full outage of the plant, it's just -- we're able to -- we are required to reduce it to 85% or 90% of capacity, but there were cases where the implications where that we were better off not sending any power on that line. So does that answer the question?

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Yes. And -- so the problem is temporary. It should be resolved before the peak season.

Yoram Bronicki

Correct, correct. As far as we know, this should have ended either this week or last week.

Operator

At this time, there are no further questions. This does conclude today's conference. Thank you for your participation. You may now disconnect.

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