- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
[ X ]/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ]/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromFOR THE TRANSITION PERIOD FROM ___________ toTO _____________
Commission File No.COMMISSION FILE NO. 33-7591
------------
Oglethorpe Power Corporation
(An Electric Membership Corporation)--------------------------
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP CORPORATION)
(Exact name of registrant as specified in its charter)
GeorgiaGEORGIA 58-1211925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Post Office BoxPOST OFFICE BOX 1349
2100 East Exchange Place
Tucker, GeorgiaEAST EXCHANGE PLACE
TUCKER, GEORGIA 30085-1349
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 270-7600
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. YesYES X No
------- -------NO
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The Registrant
is a membership corporation and has no authorized or outstanding equity
securities.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------THE REGISTRANT IS A
MEMBERSHIP CORPORATION AND HAS NO AUTHORIZED OR OUTSTANDING EQUITY SECURITIES.
OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
Page No.MARCH 31, 1998
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997 3
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited) for the Three Months
Ended March 31, 1998 and 1997 5
Condensed Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1998 and 1997 6
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
as of June 30, 1997 (Unaudited)March 31, 1998 and December 31, 1996...................................... 3
Condensed Statements of Revenues and Expenses (Unaudited)
for the Three Months and Six Months Ended
June 30, 1997
and 1996..................................... 5
Condensed Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 1997 and 1996............ 6
Notes to the Condensed Financial Statements................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 15
Item 6. Exhibits and Reports on Form 8-K...................... 15
SIGNATURES.......................................................... 16
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
June 30, 1997 and December 31, 1996
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
1996
ASSETS (UNAUDITED)
------------ -----------Assets (Unaudited)
--------------------------
Electric plant, at original cost:
In service............................................ $4,904,500 $5,742,597service $ 4,909,129 $ 4,910,067
Less: Accumulated provision for depreciation.......... (1,350,645) (1,488,272)depreciation (1,442,137) (1,412,287)
------------- ------------
-------------
3,553,855 4,254,3253,466,992 3,497,780
Nuclear fuel, at amortized cost....................... 86,793 86,722
Plant acquisition adjustments, at
amortized cost...................................... -- 4,153cost 87,879 90,423
Construction work in progress......................... 13,928 31,181progress 13,968 13,578
------------- ------------
3,568,839 3,601,781
------------- 3,654,576 4,376,381
------------ -------------
Investments and funds:
Decommissioning fund, at market 114,081 105,817
Deposit on Rocky Mountain transactions, at cost 53,056 52,176
Bond, reserve and construction funds, at market.............................................. 32,331 53,955
Decommissioning fund, at market....................... 94,782 86,269market 32,254 33,160
Investment in associated organizations, at cost................................................ 15,395 15,379
Deposit on Rocky Mountain transactions,cost 15,709 15,940
Other, at cost................................................ 59,436 41,685cost 4,645 4,641
------------- ------------
219,745 211,734
------------- 201,944 197,288
------------ -------------
Current assets:
Cash and temporary cash investments, at cost................................................ 41,532 132,783cost 58,515 63,215
Other short-term investments, at market............... 93,682 91,499
Receivables........................................... 120,105 113,289market 98,512 97,022
Receivables 94,775 105,993
Inventories, at average cost.......................... 85,907 89,825cost 76,377 65,528
Prepayments and other current assets.................. 12,133 14,625assets 11,698 12,530
------------- ------------
339,877 344,288
------------- 353,359 442,021
------------ -------------
Deferred charges:
Premium and loss on reacquired debt, being
amortized........................................... 191,153 201,007amortized 194,974 196,583
Deferred amortization of Scherer leasehold........................................... 93,460 90,717leasehold 97,088 96,303
Deferred debt expense, being amortized................ 12,748 21,703
Other................................................. 36,795 33,058amortized 16,362 15,345
Other 42,552 43,823
------------- ------------
350,976 352,054
------------- ------------
$ 4,479,437 $ 4,509,857
------------- ------------
------------- 334,156 346,485
------------ -------------
$4,544,035 $5,362,175
------------ -------------
------------ -------------
The accompanying notes are an integral part of these condensed financial
statements.
3
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
June 30, 1997Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 1998 and December 31, 19961997
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
EQUITY AND LIABILITIES (UNAUDITED) 1996
------------ -------------Equity and Liabilities (Unaudited)
--------------------------
Capitalization:
Patronage capital and membership fees
(including unrealizedunrealized(gain) loss of ($1,302)122)
at June 30, 1997March 31, 1998 and ($844)$107 at December 31, 19961997
on available-for-sale securities..........................................securities) $ 321,855338,364 $ 356,229330,509
Long-term debt........................................ 3,279,702 4,052,470debt 3,225,356 3,258,046
Obligations under capital leases...................... 291,111 293,682leases 287,078 288,638
Obligation under Rocky Mountain transactions.......... 59,436 41,685transactions 53,056 52,176
------------ -------------
3,952,104 4,744,066
------------
-------------3,903,854 3,929,369
------------ ------------
Current liabilities:
Long-term debt and capital leases due within
one year..................................... 97,724 159,622year 92,196 89,556
Notes payable -
Accounts payable...................................... 49,733 42,891payable 33,403 51,103
Accrued interest...................................... 7,995 15,931interest 14,332 12,961
Accrued and withheld taxes............................ 14,160 4,940taxes 5,308 517
Other current liabilities............................. 6,077 9,540liabilities 6,137 8,428
------------ -------------
175,689 232,924
------------
-------------151,376 162,565
------------ ------------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized................ 61,993 58,527amortized 60,137 60,756
Net benefit of Rocky Mountain transactions,
being amortized 91,578 92,375
Net benefit of sale of income tax benefits,
being amortized..................................... 38,044 42,049
Net benefit of Rocky Mountain transactions,
being amortized..................................... 93,967 70,701amortized 32,037 34,039
Accumulated deferred income taxes..................... 60,325 61,985taxes 63,117 63,117
Decommissioning reserve............................... 133,945 124,468
Other................................................. 27,968 27,455reserve 151,222 142,354
Other 26,116 25,282
------------ -------------
416,242 385,185
------------
-------------
$4,544,035 $5,362,175424,207 417,923
------------ -------------
------------
-------------$ 4,479,437 $ 4,509,857
------------ ------------
------------ ------------
The accompanying notes are an integral part of these condensed financial
statements.
4
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF REVENUES AND EXPENSES (UNAUDITED)Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited)
For the Three Months Ended March 31, 1998 and Six Months ended June 30, 1997
and 1996
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)----------------------------------------------------------------------------
(dollars in thousands)
THREE MONTHS SIX MONTHS
---------------------- ----------------------1998 1997
1996 1997 1996
---------- ---------- ---------- -------------------------------
Operating revenues:
Sales to Members...................................... $230,180 $255,981 $487,211 $502,439Members $ 231,943 $ 257,031
Sales to non-Members.................................. 12,696 19,247 27,150 43,478
---------- ---------- ----------non-Members 3,324 14,454
----------- ----------
Total operating revenues................................ 242,876 275,228 514,361 545,917
---------- ---------- ----------revenues 235,267 271,485
----------- ----------
Operating expenses:
Fuel.................................................. 46,704 55,418 91,593 103,658
Production............................................ 33,948 31,628 69,544 61,997Fuel 39,867 44,889
Production 46,932 48,853
Purchased power....................................... 62,321 58,162 120,311 122,226
Power delivery........................................ 101 4,206 3,979 7,864power 54,564 57,991
Depreciation and amortization......................... 30,142 36,564 66,381 73,090
Taxes other than income taxes......................... 5,595 7,342 13,215 14,726amortization 31,123 36,239
Other operating expenses.............................. 2,642 9,394 10,098 16,274
---------- ---------- ----------expenses - 5,695
----------- ----------
Total operating expenses................................ 181,453 202,714 375,121 399,835
---------- ---------- ----------expenses 172,486 193,667
----------- ----------
Operating margin........................................ 61,423 72,514 139,240 146,082
---------- ---------- ----------margin 62,781 77,818
----------- ----------
Other income (expense):
Interest income....................................... 6,320 4,680 13,755 8,740income 7,840 7,434
Amortization of net benefit of sale of
income tax benefits........................................ 2,799 2,008 5,597 4,015
Amortization of deferred margins...................... -- 6,966 -- 17,154benefits 2,798 2,798
Allowance for equity funds used during
construction... (35) 43 49 90
Other................................................. 2,061 386 3,569 1,021
---------- ---------- ----------construction 22 84
Other 125 1,507
----------- ----------
Total other income...................................... 11,145 14,083 22,970 31,020
---------- ---------- ----------income 10,785 11,823
----------- ----------
Interest charges:
Interest on long-term debtlong-term-debt and other obligations...... 67,251 82,329 147,808 164,360obligations 66,145 80,557
Allowance for debt funds used during construction..... (193) (464) (545) (978)
---------- ---------- ----------construction (205) (352)
----------- ----------
Net interest charges.................................... 67,058 81,865 147,263 163,382
---------- ---------- ----------charges 65,940 80,205
----------- ----------
Net margin..............................................margin 7,626 9,436
Net change in unrealized gain (loss) on available
for sale securities 229 (947)
----------- ----------
Comprehensive margin $ 5,5107,855 $ 4,732 $ 14,947 $ 13,7208,489
----------- ----------
---------- ---------- ----------
---------- ---------- --------------------- ----------
The accompanying notes are an integral part of these condensed financial
statements.
5
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the SixThree Months Ended June 30,March 31, 1998 and 1997
and 1996
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
1996
---------- -------------------------------
Cash flows from operating activities:
Net margin..................................................................................margin $ 14,9477,626 $ 13,720
---------- ----------9,436
----------- -----------
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation and amortization............................................................. 99,558 88,441amortization 43,554 56,911
Net benefit of Rocky Mountain transactions................................................ 23,266 --transactions - 24,859
Deferred gain from Corporate Restructuring................................................ 4,670 --Restructuring - 4,757
Allowance for equity funds used during construction....................................... (49) (90)construction (22) (84)
Amortization of deferred margins.......................................................... -- (17,154)gains (619) (585)
Amortization of net benefit of sale of income
tax benefits................................ (5,597) (4,015)
Other..................................................................................... (1,556) 2,783benefits (2,798) (2,798)
Deferred income taxes - (1,362)
Other 4,206 2,227
Change in net current assets, excluding long-term
debt due within one year, notes payable and deferred
margins to be refunded within one year:
Receivables............................................................................... (6,815) (10,157)
Inventories............................................................................... (5,063) (5,113)Receivables 11,218 14,092
Inventories (10,849) (1,530)
Prepayments and other current assets...................................................... 2,062 (189)assets 831 (2,413)
Accounts payable.......................................................................... 7,495 (14,616)payable (17,700) (1,930)
Accrued interest.......................................................................... (7,816) (3,907)interest 1,371 (1,568)
Accrued and withheld taxes................................................................ 9,220 13,686taxes 4,791 4,042
Other current liabilities................................................................. 2,869 (5,142)
---------- ----------liabilities (2,291) (3,356)
----------- -----------
Total adjustments....................................................................... 122,244 44,527
---------- ----------adjustments 31,692 91,262
----------- -----------
Net cash provided by operating activities................................................. 137,191 58,247
---------- ----------activities 39,318 100,698
----------- -----------
Cash flows from investing activities:
Property additions.......................................................................... (39,386) (51,727)additions (8,085) (24,962)
Net proceeds from bond, reserve and construction
funds...................................... 21,378 2,664
Decreasefunds 938 21,793
(Decrease) Increase in investment in associated
organizations.......................................... (16) 389organizations 231 (51)
Increase in other short-term investments.................................................... (2,395) (9,984)investments (1,293) (1,766)
Increase in decommissioning fund............................................................ (4,521) (3,245)fund (3,808) (2,423)
Net assets soldcash received in Corporate Restructuring.................................................. 717,907 --
Net liabilities extinguished in Corporate Restructuring..................................... (694,412) --
---------- ----------Restructuring - 20,175
Other - (4,168)
----------- -----------
Net cash used in(used in) provided by investing activities..................................................... (1,445) (61,903)
---------- ----------activities (12,017) 8,598
----------- -----------
Cash flows from financing activities:
Debt proceeds, net.......................................................................... 111,306 397net (2,198) 101,149
Debt payments............................................................................... (286,397) (42,430)payments (30,820) (239,805)
Retirement of patronage capital.............................................................capital - (48,863)
--
Other....................................................................................... (3,043) (3,091)
---------- ----------Other 1,017 (2,159)
----------- -----------
Net cash used in financing activities..................................................... (226,997) (45,124)
---------- ----------activities (32,001) (189,678)
----------- -----------
Net decrease in cash and temporary cash
investments........................................... (91,251) (48,780)investments (4,700) (80,382)
Cash and temporary cash investments at beginning
of period....................................period 63,215 132,783
201,151
---------- --------------------- -----------
Cash and temporary cash investments at end
of period..........................................period $ 41,53258,515 $ 152,371
---------- ----------
---------- ----------52,401
----------- -----------
----------- -----------
Cash paid for:
Interest (net of amounts capitalized)....................................................... $ 145,39258,026 $ 157,88376,871
Income taxes................................................................................ $ 830 $ --taxes - 3,525
The accompanying notes are an integral part of these condensed financial
statements.
6
Oglethorpe Power Corporation
Notes to Condensed Financial Statements
June 30,OGLETHORPE POWER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997 and 1996
(A) The condensed financial statements included herein have been prepared by
Oglethorpe Power Corporation (Oglethorpe), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC).
In the opinion of management, the information furnished herein reflects
all adjustments (which include only normal recurring adjustments) and
estimates necessary to present fairly, in all material respects, the
results for the periods ended June 30, 1997March 31, 1998 and 1996.1997. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such SEC rules and
regulations, although Oglethorpe believes that the disclosures are
adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included
in Oglethorpe's latest Annual Report on Form 10-K, as filed with the SEC.
Certain amounts for 19961997 have been reclassified to conform with the
current period presentation.
7
ItemITEM 2. Management's DiscussionMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and Analysis of Financial Condition
and Results of Operations
GENERAL
CORPORATE RESTRUCTURING1997
As reported in its Annual Report on Form 10-K for the fiscal year ended December
31, 1996,1997, Oglethorpe and its 39 retail electric distribution cooperative members
(the Members) completed a corporate restructuring (the Corporate Restructuring)
on March 11, 1997. Pursuant to the Corporate
Restructuring,1997, in which Oglethorpe was divided into three specialized
operating companies to respond to increasing competition and regulatory changes incompanies. Oglethorpe now operates the electric industry. Oglethorpe's transmissionpower supply business, was transferred to,
and is now owned and operated by, Georgia
Transmission Corporation (An
Electric Membership Corporation) (GTC), a recently formed Georgia electric
membership corporation. Oglethorpe's system operations operates the transmission business was
transferred to, and is now owned and operated by, Georgia
System Operations Corporation (GSOC), operates the system operations business.
The Condensed Statement of Revenues and Expenses for the three months ended
March 31, 1998 reflects Oglethorpe's operations solely as a recently formed Georgia nonprofit corporation.
Oglethorpe continues to operate its power supply
business. Oglethorpe
retained allcompany, whereas the Condensed Statement of its ownedRevenues and leased generation assets. Oglethorpe also
continues to administer itsExpenses for the three
months ended March 31, 1997 reflects Oglethorpe's operations as a combined power
purchase contractssupply, transmission and provide marketing
support functions to the Members. Immediately aftersystem operations company. Although the Corporate
Restructuring Oglethorpe's corporate name was changed from "Oglethorpe Power
Corporation (An Electric Membership Generation & Transmission Corporation)"
to "Oglethorpe Power Corporation (An Electric Membership Corporation)".
POWER MARKETER ARRANGEMENTS
Oglethorpe is utilizing long-term power marketer arrangements to reduce the
cost of power to the Members. Oglethorpe has entered into power marketer
agreements with LG&E Power Marketing Inc. (LPM) effective January 1, 1997,
for approximately 50% of the load requirements of the Members and with Morgan
Stanley Capital Group Inc. (Morgan Stanley) effective May 1, 1997, with
respect to 50% of the forecasted load requirements of the Members. Under
these power marketer agreements, Oglethorpe purchases energy at fixed prices
covering a portion of the costs of energy to its Members. LPM and Morgan
Stanley, in turn, have certain rights to market excess energy from the
Oglethorpe system. All of Oglethorpe's existing generating facilities and
power purchase arrangements are available for use by LPM and Morgan Stanley
for the term of the respective agreements. Oglethorpe continues to be
responsible for all the costs of its system resources but receives revenue
from LPM and Morgan Stanley for the use of the resources.
8
Separate Dispatch of Plant Wansley
As discussed in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Plant Wansley ownership and operating agreements were
amended to allow each co-owner to dispatch separately its respective
ownership interest in conjunction with contracting separately for long-term
coal purchases procured by Georgia Power Company (GPC) and to procure
separately long-term coal purchases. Pursuant to the amendments, Oglethorpe
began separately dispatching Wansley Units No. 1 and No. 2 on May 1, 1997.
Oglethorpe continues to use GPC as its agent for fuel procurement.
Results of Operations
Corporate Restructuring
Oglethorpe and the Members completed the Corporate Restructuring on March 11, 1997. As of that date, Oglethorpe transferred its transmission business and
assets1997, pursuant to GTC and reflected the transfer of its system operations assets to
GSOC. However, the Boards of Directors ofrestructuring
agreement among Oglethorpe, GTC and GSOC,
determined that for ratemaking purposes all revenues and expenses related to
operations of GTC and GSOC would remain with Oglethorpe until April 1, 1997.
Pursuant to this approach, all transmission-related and systems
operations-related revenues were assigned to Oglethorpe, and all
transmission-related and systems operations-related costs were paid or
reimbursed by Oglethorpe during the period March 11, 1997 through March 31,
1997. As a result, the Condensed Statements of Revenues and Expenses for the
six months ended June 30, 1997 reflect operations as a combined power supply,
transmission and system operations company through March 31, 1997, and
operations solely as a power supply company thereafter. Therefore, decreasesDecreases in operating revenues, power delivery expenses, depreciation and amortization, taxes other
than income taxes,operating expenses, operating margin, other
operating income and net interest charges and net margin from
19961997 to 19971998 are primarily attributable to the Corporate Restructuring.
See Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 19961997 for a pro forma presentation of the Statement of Revenues and Expenses
for the year ended December 31, 1997, reflecting the exclusion of the
transmission and system operations businesses, as though the Corporate
Restructuring had occurred at the beginning of 1996, for the year
ended December 31, 19961997 (Note 11 of Notes to
Financial Statements).
For the Three Months and Six Months Ended March 31, 1997 and 1996
Oglethorpe's net margin for the three months and six months ended June 30, 1997
was $5.5 million and $14.9 million, respectively, compared to $4.7 million and
$13.7 million for the same periods of 1996.
Operating RevenuesOPERATING REVENUES
Revenues from sales to Members for the three months and six months ended June
30, 1997March 31, 1998 were
10.1% and 3.0%9.8% lower compared to the same period of 1996. The
decrease in revenues1997. Revenues from Members was attributablewere
lower primarily due to reducedthe removal of capacity revenues relating to the
transmission business, however, this decrease was offset
somewhat by an increase in energy revenues from sales to Members for the three
months and six months ended June 30, 1997 of 9.7% and 14.6% compared to the same
periods of 1996, respectively.business. Although Megawatt-hour (MWh) sales to the Members were
6.1% and
9
3.5% lower in the current three-month and six-month periods compared to the
same periods of 1996. As a result,increased
7.5%, energy revenues from Members increased only 5.3%. Consequently,
Oglethorpe's average energy revenue per MWh from sales to Members for the
three-month and six-month periods were
16.8% and 19.0% higherperiod was 2.1% lower in 19971998 compared to 1996, respectively, primarily due
to the expiration of the short-term1997. This decrease
resulted from lower average fuel cost and lower average purchased power marketer arrangement with Enron
Power Marketing Inc. (EPMI) that had allowed Oglethorpe to passthrough
significant savings in the first six months of 1996. During the first eight
months of 1996, Oglethorpe had a power marketer arrangement with EPMI to
supply 100% of the load requirements of the Members. As notedcost
discussed below under "General--Power Marketer Arrangements" above, Oglethorpe has entered into
power marketer arrangements with LPM effective January 1, 1997 for
approximately 50% of the load requirements of the Members and with Morgan
Stanley effective May 1, 1997 with respect to 50% of the forecasted load
requirement of the Members."Operating Expenses".
Sales to non-Members were primarily madefrom energy sales to other utilities and
power marketers, and pursuant to contractual arrangements with GPC and from energy sales to other non-Member utilities and power
marketers.Georgia Power
Company (GPC). The following table
8
summarizes the amounts of non-Member revenues from these sources for the three
months ended March 31, 1998 and six months ended June 30, 1997 and
1996:
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -------------------
1997 1996 1997 1996
------ ------ ------- -------
(dollars in thousands)
GPC-Power supply arrangements $4,763 $3,208 $12,565 $ 7,9251997:
Three Months
Ended March 31,
-------------------
1998 1997
--------- --------
(dollars in thousands)
Sales to other utilities $ 2,225 $ 4,263
Sales to power marketers 1,099 432
GPC - Power supply arrangements 0 7,579
ITS transmission agreements 0 2,180
-------- --------
Total $ 3,324 $ 14,454
-------- --------
-------- --------
Sales to other utilities 5,629 10,517 9,663 22,799
Salesrepresent sales made directly by Oglethorpe.
Oglethorpe sells for its own account any energy in excess of the portion of its
resources dedicated to Morgan Stanley Capital Group Inc. (Morgan Stanley) that
is not scheduled by Morgan Stanley pursuant to its power marketer arrangement.
Under the LG&E Energy Marketing Inc. (LEM) and Morgan Stanley power marketer
arrangements, sales to the power marketers represented the net energy
transmitted on behalf of LEM and Morgan Stanley off-system on a daily basis from
Oglethorpe's total resources. Such energy was sold to LEM and Morgan Stanley at
Oglethorpe's cost, with certain limited adjustments set forth in the
arrangements. The volume of sales to power marketers 2,304 3,837 2,736 7,697
ITS transmission agreements -- 1,685 2,186 5,057
------ ------ ------- -------
Total $12,696 $19,247 $27,150 $43,478
------ ------ ------- -------
------ ------ ------- -------depends primarily on the
power marketers' decisions for servicing their load requirements.
The revenues from power supply arrangements with GPC were derived in 1997 from
energy sales arising from dispatch situations whereby GPC caused Plant Wansley
to be operated when Oglethorpe's system did not require all of its contractual
entitlement to the generation. These revenues compensated Oglethorpe for its
costs because, under the operating agreement (before it was recently
amended), Oglethorpe
was responsible for its share of fuel costs any time a unit operated. Such sales to GPC were higher in 1997 compared to the same
periods of 1996. As noted under "General--Separate Dispatch of Plant
Wansley" above, withWith the
commencement of the separate dispatch of Plant Wansley as of May 1, 1997, this
type of sale to GPC has ended.
Sales to other non-Member utilities in 1997 represent sales made directly by
Oglethorpe. Oglethorpe sells for its own account any energy available from
the portion of its resources dedicated to Morgan Stanley that is not
scheduled by Morgan Stanley pursuant to its power marketer arrangement. Such
sales during the first six months of 1996 were initiated by EPMI. Where EPMI
did not have a
10
contractual relationship with the purchaser and Oglethorpe did, Oglethorpe
recorded the sale and credited the revenues to EPMI in its monthly billing.
Under the current LPM and Morgan Stanley power marketer arrangements, and
previously, under the EPMI power marketer arrangement, sales to the power
marketers represented the net energy transmitted on behalf of LPM, Morgan
Stanley and EPMI off-system on a daily basis from Oglethorpe's total
resources. Such energy was sold to LPM, Morgan Stanley and EPMI at
Oglethorpe's cost, subject to certain limitations. The volume of sales to
power marketers depends primarily on the power marketers' decisions for
servicing their load requirements.
Another source of non-Member revenues was payments received from GPC for use of
the Integrated Transmission System (ITS) and related transmission interfaces.
GPC compensated Oglethorpe to the extent that Oglethorpe's percentage of
investment in the ITS exceeded its percentage use of the system. In such case,
Oglethorpe was entitled to income as compensation for the use of its investment
by the other ITS participants. As a result of the Corporate Restructuring, all
of the revenues in this category have accrued to
GTCbeen GTC's revenues since April 1, 1997.
9
OPERATING EXPENSES
Operating Expenses
The overall decreaseexpenses were 10.9% lower in operating expenses for the three months and six
months ended June 30, 1997March 31, 1998
compared to the same periodsperiod of 1996 was primarily
attributable1997. Operating expenses were lower due to the
elimination of depreciation and amortization and other operating expenses
relating to the transmission business assumed by GTC in connection with the
Corporate Restructuring. However, the decreasedecreases in fuel expense and the increase in
production
operations and maintenance costs were unaffected bypurchased power expense did not result from the Corporate Restructuring. Fuel
costs decreased 15.7% and 11.6%11.2% in the three months ended March 31, 1998 from the same
periodsperiod of the prior year, respectively, even thoughwhile total MWhs of generation decreased only 9.1% and 5.7%, respectively.2.8%.
Such savings in average fuel costscost resulted from the difference in the mix of
generation, with morea higher percentage of the generation from nuclear and less
from fossil generation inthan the comparable period for 1997. The decreaseshift in fossilthe mix of
generation resulted primarily from a decrease in fossil generation in 1998
resulting from maintenance outage during February and March 1997outages at Plant Scherer Unit No. 1. The higher nuclear generation during 1997 compared to
1996 was achieved as a result of having two refueling outages in the first
six months of 1996 compared to one in 1997. Conversely, the increase in
production operations2 and maintenance costs was primarily attributable to the
maintenance outage at Plant
SchererWansley Unit No. 1. Effective January 1, 1996,
the costs of nuclear refueling outages are deferred and amortized over the
18-month period following the outage.2.
Purchased power cost for the sixthree months ended June 30, 1997March 31, 1998 was 5.9% lower
compared to the same period of 1996 was virtually unchanged.1997. A total of 16.8% fewer8.6% more MWhs were purchased
in 19971998 compared to 1996, but1997. Consequently, the average cost of purchased power expense
increasedper
MWh has decreased by 18.4%13.4%. As noted under "Operating Revenues" above, significant
energy costThe savings were derived inprimarily as a result of the
first six monthselimination, effective September 1, 1997, of 1996 fromanother 250-megawatt component
block under the EPMI power supply arrangement.
The decrease in otherBlock Power Sale Agreement between Oglethorpe and GPC.
Other operating expenses for 1997 compared toreflect expenses for the same
periodspower delivery
portion of the prior yearbusiness which was due primarilysubsequently transferred to transfer of administrative and
general expenses relating to the transmission and system operations
businessesGTC in connection
with the Corporate Restructuring.
11
Other IncomeOTHER INCOME
Other income for the three months and six months ended June 30, 1997March 31, 1998 decreased compared to the
same periodsperiod of 1996 primarily as1997. For 1997, the caption "Other" reflected a resultmargin of
Oglethorpe utilizing, as planned, all remaining amounts available under its
deferredapproximately $720,000 related to Oglethorpe's marketing support services which
was subsequently transferred to EnerVision. In 1998, EnerVision's margin rate mechanism during 1996. (For a discussion of deferred
margins, see Note 1 of Notes to Financial Statements in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.) Interest
income was higher in the three-month and six-month periods of 1997 compared
to the same periods of 1996 partly due to higher earnings from the
decommissioning fund and partly due to income from the deposits from the
Rocky Mountain transactions. The deposits were made in December 1996 and
January 1997.
Financial Condition
Corporate Restructuring
As of March 11, 1997, Oglethorpe transferred its transmission business and
assets to GTC. Thereafter, the assets, liabilities and equity of GTC were no
longer a part of Oglethorpe. The purchase price for the transmission
business was based on an appraisal of the fair market value of such business,
as determined by an independent appraiser, and was
approximately $708
million. The purchase price was paid primarily by GTC's assumption of a
portion (approximately 16.86%) of Oglethorpe's long-term secured debt in an
amount equal to approximately $686 million. Approximately $541 million of
this debt (payable to RUS, Federal Financing Bank (FFB) and CoBank, ABC
(CoBank)) became the sole obligation of GTC, and Oglethorpe was released from
all liability with regard to this indebtedness. The remaining debt assumed
by GTC in connection with the Corporate Restructuring, approximately $145
million, relates to Oglethorpe's pollution control revenue bonds (PCBs).
While GTC assumed and agreed to pay this $145 million of debt, Oglethorpe is
not legally released from its liability for this debt. The remainder of the
purchase price was paid by GTC from cash obtained through a borrowing from
National Rural Utilities Cooperative Finance Corporation (CFC) and the
assumption of approximately $1 million of other Oglethorpe liabilities.
Oglethorpe also made a special patronage capital distribution of
approximately $49 million to the Members which was used by the Members to
establish equity in and to provide initial working capital to GTC.
On October 1, 1996, Oglethorpe transferred to GSOC its system operations
assets, consisting of its system control center and related energy control
and revenue metering systems equipment. The purchase price of these assets
totaled approximately $9.4 million and was funded by GSOC's assumption of
Oglethorpe's obligations under an existing note held by the Rural Utilities
Service (RUS), by delivery of a purchase money note payable to Oglethorpe and
by the assumption of certain other liabilities of Oglethorpe. From October
1, 1996 to March 11, 1997, Oglethorpe was the sole member of GSOC; therefore,
the assets transferred to GSOC remained in the consolidated balance sheet of
Oglethorpe. The Members and GTC became members of GSOC on March 11, 1997;
and thereafter the assets, liabilities and equity of GSOC were no longer a
part of Oglethorpe.
Most of the remaining comparisons of the balance sheets as of June 30, 1997
and December 31, 1996 are in addition to the effects of the Corporate
Restructuring described above.$100,000. See Oglethorpe's Annual Report on Form 10-K for the
fiscal year ended December 31, 19961997 for further discussion of EnerVision.
INTEREST CHARGES
Net interest charges for the three months ended March 31, 1998 decreased
compared to the same period of 1997 primarily due to the debt assumed by GTC in
connection with the Corporate Restructuring.
NET MARGIN AND COMPREHENSIVE MARGIN
Oglethorpe's net margin for the three months ended March 31, 1998 was $7.6
million compared to $9.4 million for the same period of 1997. Since
Oglethorpe's margin requirement is based on a pro forma
12ratio applied to interest charges,
the reduction in interest charges resulting from the Corporate Restructuring
also reduced Oglethorpe's margin requirement.
Comprehensive margin is now reported on the Condensed Statement of Revenues and
Expenses, consistent with Statement No. 130, "Reporting Comprehensive Income",
issued by the Financial
10
presentationAccounting Standards Board. This Statement requires the reporting of all
components of changes in equity on the Balance SheetStatement of Revenues and Expenses. For
Oglethorpe, the post-restructuring Oglethorpe as of
December 31, 1996 (Note 11 of Notes to Financial Statements).only additional item being reported is the net change in
unrealized gains (losses) on investments in available-for-sale securities.
FINANCIAL CONDITION
Total assets and total equity plus liabilities as of June 30, 1997March 31, 1998 were $4.5
billion which after adjustment for the Corporate Restructuring, was $85$30 million less than the comparable total at December 31, 19961997 due
primarily to depreciation of plant and due to the decrease in cash and temporary cash
investments.
Assetsplant.
ASSETS
Property additions for the sixthree months ended June 30, 1997March 31, 1998 totaled $39.4$8.1
million primarily for purchases of nuclear fuel and includedfor additions, replacements
and improvements to transmission
and distribution facilities (subsequently sold to GTC) for the first three
months of 1997 and existing generation facilities.
All plant acquisition adjustments were relatedThe increase in the decommissioning investment fund and the decommissioning
reserve resulted from earnings of the fund. An amount equal to transmission plant. Asthe earnings of
the fund was accrued as an increase to the decommissioning reserve.
The decrease in receivables resulted from the normal seasonable variations in
the receivable balance from the Members at year-end 1997 compared to the balance
at March 31, 1998.
Inventories increased primarily as a result of the Corporate Restructuring discussed above, Oglethorpe no longer has
any plant acquisition adjustments.
The decrease in construction work in progress resultedcoal inventories for Plants
Scherer and Wansley returning to more normal levels at March 31, 1998 from the projects sold to
GTC and GSOC in the Corporate Restructuring.
The decrease in the bond, reserve and construction funds was attributable to the
utilization of available excess debt service reserve funds for debt service
payments.
The increase in the deposit on, the obligation under and net benefit of the
Rocky Mountain transactions resulted from the completion of the lease
transactions for the remainder of Oglethorpe's interest in Rocky Mountain in
January 1997. For a discussion of the Rocky Mountain transactions, see Notes 1
and 2 of Notes to Financial Statements in Oglethorpe's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
The decrease in cash and temporary cash investments was partly due to the
payment of the $49 million special patronage capital distribution made in
connectionlower
1997 year-end levels caused by problems associated with the Corporate Restructuring discussed above and partly due to a
prepayment in 1997 of Federal Financing Bank (FFB) debt made from the proceeds
of the December 1996 and January 1997 Rocky Mountain transactions.
Prepayments and other current assets decreased due to a $1.1 million decrease in
the estimated payment made to GPC for Plant Hatch and Plant Wansley
operations and maintenance costs for July 1997 compared to the estimate paid for
January 1997.
The change in premium and loss on reacquired debt resulted partly from premiums
paid in connection with FFB debt prepayment and the Pollution Control Bond (PCB)
refunding, excluding the effect of the portion of these costs assumed by GTC in
the Corporate Restructuring.
The decrease in deferred debt expense resulted partly from unamortized issuance
cost related to the PCB refunding being converted to premium and loss on
reacquired debt and partly from the portion of these costs assumed by GTC in the
Corporate Restructuring.
13
Equity and Liabilities
The decrease in patronage capital and membership fees is the result of the $49
million special patronage capital distribution made in connection with the
Corporate Restructuring, discussed above.
The decrease in long-term debt due within one year resulted primarily from the
prepayment of FFB debt, discussed above. In addition, the balance reflects the
impact of the Corporate Restructuring.rail transportation.
EQUITY AND LIABILITIES
Accounts payable increaseddecreased due to normal variations in the timing of payables
activity.
The decrease in accrued interest resulted partly from the portion of debt
assumed by GTC in the Corporate Restructuring and partly from other factors.
Accrued and withheld taxes increased as a result of the normal monthly accruals
of property taxes, which are generally paid in the fourth quarter of the year.
OtherThe decrease in other current liabilities decreased partly dueprimarily resulted from $3.0 million
lower negative cash at March 31, 1998 than compared to the year-end accrual for
employee incentive pay (subsequently paid in March 1997) and partly due to the
Corporate Restructuring.
14
negative cash at 1997
year-end.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 17, 1997, PECO Energy Company--Power Team ("PECO") filed an
application with the Federal Energy Regulatory Commission ("FERC") pursuant
to Section 211 of the Federal Power Act requesting FERC to compel Oglethorpe
and/or GTC to provide PECO with 250 MW of firm point-to-point transmission
service from the Tennessee Valley Authority ("TVA")-Integrated Transmission
System ("ITS") interface to the Florida-ITS interface for an initial
three-year period, with an automatic roll-over provision. PECO also seeks
$10,000 per day in penalties from Oglethorpe and/or GTC, alleging bad faith
and delays in negotiations. In their FERC response, GTC and
Oglethorpe contend that they negotiated with PECO in good faith, and thus
there is no reasonable basis for imposing the penalties sought by PECO. GTC
also responded that it does not have firm "available transfer capability"
at the TVA-ITS interface to fulfill PECO's request, after taking into account
the need to protect system reliability, existing firm commitments, and use of
the TVA-ITS interface to serve "native load," in accordance with North
American Electric Reliability Council guidelines. In the event GTC is ordered
by FERC to provide the requested service, PECO would be required to
compensate GTC at rates set by FERC in the order. As a consequence of any
such order, power purchased by Oglethorpe for delivery through the TVA-ITS
interface would probably be curtailed, and could result in higher purchased
power cost than would otherwise be the case. Although FERC transmission
pricing policy is designed to ensure that a transmission provider is fully
compensated for the cost of providing transmission service, potentially
including opportunity cost, there can be no assurance that rates ordered by
FERC for service to PECO would fully compensate GTC, Oglethorpe and the
Members for the use of the transmission system and for any resulting increase
in the cost of power.
ItemITEM 6. Exhibits and Reports on FormEXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
- ----------- -----------
10.8.6 Supplemental Agreement to the Amended and Restated Wholesale
Power Contract, dated as of May 1, 1997 by and between
Oglethorpe and Altamaha Electric Membership Corporation,
together with a Schedule identifying 38 other
substantially identical Supplemental Agreements.EXHIBITS
11
NUMBER DESCRIPTION
- --------- ------------
10.1.3(c) Second Amendment to Supporting Assets Lease No. 2, dated as of
October 3, 1989, together with a Schedule identifying three
substantially identical Second Amendments to Supporting Assets
Leases.
10.1.4(c) Second Amendment to Supporting Assets Sublease No. 2, dated as of
October 3, 1989, together with a Schedule identifying three
substantially identical Second Amendments to Supporting Assets
Subleases.
27.1 Financial Data Schedule (for SEC use only).
- ----------------------------
(b) Reports on FormREPORTS ON FORM 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended June 30,
1997.
15March 31,
1998.
12
SIGNATURES
Pursuant to the requirements 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.
Oglethorpe Power Corporation
(An Electric Membership Corporation)
Date: August 11, 1997May 14, 1998 By: /s//S/ T. D. Kilgore
----------------------------------KILGORE
-------------------------------------
T. D. Kilgore
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1997 /s/ MacMay 14, 1998 /S/ MAC F. Oglesby
----------------------------------OGLESBY
-------------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: August 11, 1997 /s/ RobertMay 14, 1998 /S/ THOMAS A. SMITH
-------------------------------------
Thomas A. Smith
Senior Financial Officer
(Principal Financial Officer)
Date: May 14, 1998 /S/ ROBERT D. Steele
----------------------------------STEELE
-------------------------------------
Robert D. Steele
Controller
(Chief Accounting Officer)
1613