The net profits and losses of the Partnership are currently allocated to Toyan, Palm, IPILP, and Thaleia (collectively, the "Partners") based on the following ownership percentages:
Toyan 30.05%
Palm 10%*
IPILP 19.95%
Thaleia 40%*
*Now beneficially owned by Cogentrix.
The changes in ownership were the subject of notices of self-recertification of Qualifying Facility status filed by the Partnership with the Federal Energy Regulatory Commission on August 21, 1998, November 16, 1998, June 4, 1999, September 21, 1999, and November 24, 1999.
All distributions other than liquidating distributions will be made based on the Partners' percentage interest as shown above, in accordance with the project documents and at such times and in such amounts as the Board of Control of the Partnership determines.
The Partnership is managed by PG&E National Energy Group Company ("NEG"), formerly known as PG&E Generating Company, pursuant to a Management Services Agreement (the "MSA"). The Facility is operated by PG&E Operating Services Company ("PG&E OSC"), formerly known as U.S. Operating Services Company, pursuant to an Operation and Maintenance Agreement (the "O&M Agreement"). NEG and PG&E OSC are general partnerships indirectly wholly owned by NEG, Inc., an indirect wholly owned subsidiary of PG&E Corporation.
In December 2000, and in January and February 2001, PG&E Corporation and NEG completed a corporate restructuring that involved the use or creation of limited liability companies ("LLCs") as intermediate owners between a parent company and its subsidiaries. One of these LLCs is PG&E National Energy Group, LLC, which owns 100% of the stock of NEG. After the restructuring was completed, two independent rating agencies, Standard and Poor's and Moody's Investor Services issued investment grade ratings for NEG and reaffirmed such ratings for certain NEG subsidiaries. On April 6, 2001, Pacific Gas and Electric Company (the "Utility"), another subsidiary of PG&E Corporation, filed a voluntary petition for relief under the provisions of Chapter 11 of the U.S. Bankruptcy Code. Pursuant to Chapter 11 of the U.S. Bankruptcy Code, the Utility retains control of its assets and is authorized to operate its business as a debtor-in-possession while being subject to the jurisdiction of the Bankruptcy Court. On September 20, 2001, the Utility and PG&E Corporation jointly filed a plan of reorganization that entails separating the Utility into four distinct businesses. The plan of reorganization does not directly affect NEG or any of its subsidiaries. Subsequent to the bankruptcy filing, the investment grade ratings of NEG were reaffirmed on April 6 and 9, 2001. On July 31, 2002, Standard and Poor's downgraded NEG, Inc. to BB+ with CreditWatch with negative implications from BBB with a stable outlook. On August 5, 2002, Moody's downgraded NEG, Inc. to Ba2 from Baa2 and maintained its negative rating outlook. Neither agency took any ratings action with respect to the rating of the Partnership's debt. NEG's management believes that the credit agency action will have no impact on the financial condition or results of operations of the Partnership. In addition, NEG's management believes that NEG and its direct and indirect subsidiaries, including the Partnership, would not be substantively consolidated with PG&E Corporation in any insolvency or bankruptcy proceeding involving PG&E Corporation or the Utility.
6
2. BASIS OF PRESENTATION:
The consolidated balance sheet as of June 30, 2002, and the consolidated statements of operations and cash flows for the six months ended June 30, 2002 and 2001, have been prepared by the Partnership, without audit and in accordance with the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of June 30, 2002, and the results of operations and cash flows for the six months ended June 30, 2002 and 2001.
The financial statements and related notes contained herein should be read in conjunction with the Partnership's Annual Report on Form 10-K for the year ended December 31, 2001.
Investments Held by Trustee
The investments held by trustee represent bond and equity proceeds and revenue funds held by a bond trustee/disbursement agent and are carried at cost, which approximates market. All funds are invested in either Nations Treasury Fund-Class A or other permitted investments for longer periods. The Partnership also maintains restricted investments covering a portion of the Partnership's debt as required by the financing documents. The proceeds include $12,501,000 of restricted tax-exempt debt service reserve required by the financing documents and are classified as a noncurrent asset on the accompanying balance sheets. The Partnership maintains restricted investments covering a portion of debt principal and interest payable, as required by the financing documents. These investments are classified as current assets in the accompanying consolidated balance sheets. A qualifying facility ("QF") reserve of $3,000,000 is also held in long-term assets in the accompanying balance sheets.
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Property, Plant and Equipment
Property, plant and equipment, which consist primarily of the Facility, are recorded at actual cost. The Facility is depreciated on a straight-line basis over 35 years, with a residual value on the Facility approximating 25 percent of the gross Facility costs.
Other property and equipment are depreciated on a straight-line basis over the estimated economic or service lives of the respective assets (ranging from five to seven years). Routine maintenance and repairs are charged to expense as incurred.
Derivative Financial Instruments
The Partnership adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"("SFAS No. 133"), as amended by SFAS Nos. 137 and 138, on January 1, 2001. This standard requires the Partnership to recognize all derivatives, as defined in the statements listed above, on the balance sheet at fair value. Derivatives, or any portion thereof, that are not effective hedges must be adjusted to fair value through income. If derivatives are effective hedges, depending on the nature of the hedges, changes in the fair value of derivatives either will offset the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or will be recognized in other comprehensive income, a component of partners' capital, until the hedged items are recognized in earnings. The Partnership has certain derivative commodity contracts for the physical delivery of purchase and sale quantities transacted in the normal course of business. Since these activities qualify as normal purchase and sale activities, the Partnership has not recorded the value of the related contracts on its balance sheet, as permitted under the standards.
In December 2001, the FASB approved an interpretation issued by the Derivatives Implementation Group ("DIG") that changes the definition of normal purchases and sales for certain power contracts. Based on the Partnership's current analysis, the power contract with FPL is a derivative, but qualifies as a normal purchase and sales exemption, thus is exempt from the requirements of SFAS No. 133 and is not reflected on the balance sheet at fair value. The FASB has also approved another DIG interpretation that disallows normal purchases and sales treatment for commodity contracts (other than power contracts) that contain volumetric variability or optionality. Based on the Partnership's current analysis, the commodity contracts held by the Partnership are exempt from the requirements of SFAS No. 133.
8
Adoption of New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, entitled, Business Combinations. This statement prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001 and applies to all business combinations accounted for under the purchase method that are completed after June 30, 2001. This statement was adopted on January 1, 2002, and did not have an impact on the Partnership's consolidated financial statements.
Also in June 2001, the FASB issued SFAS No. 142, entitled, Goodwill and Other Intangible Assets. This statement eliminates the amortization of goodwill, and requires goodwill to be reviewed periodically for impairment. This statement also requires the useful lives of previously recognized intangible assets to be reassessed and the remaining amortization periods to be adjusted accordingly. This statement is effective for fiscal years beginning after December 15, 2001, for all goodwill and other intangible assets recognized on the Partnership's consolidated balance sheets at that date, regardless of when the assets were initially recognized. This statement was adopted on January 1, 2002, and did not have an impact on the Partnership's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, entitled, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 supercedes SFAS No. 121, entitled, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, but retains its fundamental provisions for recognizing and measuring impairment of long-lived assets to be held and used. This statement also requires that all long-lived assets to be disposed of by sale are carried at the lower of carrying amount or fair value less cost to sell, and that depreciation should cease to be recorded on such assets. SFAS No. 144 standardizes the accounting and presentation requirements for all long-lived assets to be disposed of by sale, superceding previous guidance for discontinued operations of business segments. This statement is effective for fiscal years beginning after December 15, 2001. This statement was adopted on January 1, 2002, and did not have an impact on the Partnership's consolidated financial statements.
3. DEPOSITS:
In 1991, in accordance with the Planned Unit Development Zoning Agreement between the Partnership and Martin County, the Partnership deposited $1,000,000 in trust with the Board of County Commissioners of Martin County (the "PUD Trustee"). Income from this trust will be used solely for projects benefiting the community of Indiantown. On July 23, 2025, the PUD Trustee is required to return the deposit to the Partnership. As of June 30, 2002 and December 31, 2001, estimated present value of this deposit was $178,279 and $171,737, respectively. The remaining balance has been included in property plant, and equipment as part of total construction expenses.
9
In 2002, deposits totaling $710,000 have been paid to General Electric Energy Services for stator bars and long shelf items to perform full repairs to the generator during the 2002 fall scheduled outage.
4. DEBT SERVICE RESERVE LETTER OF CREDIT:
The Partnership entered into a debt service reserve letter of credit and reimbursement agreement, dated as of November 1, 1994, with BNP Paribas (formerly known as Banque Nationale de Paris) pursuant to which a debt service reserve letter of credit in the amount of approximately $60 million was issued. On January 11, 1999, in accordance with the Partnership's financing documents, the debt service reserve letter of credit was reduced to approximately $30 million. BNP Paribas notified the Partnership on May 18, 2001 of its intention not to extend the term of the agreement, which expires on November 22, 2005. Pursuant to the terms of the Disbursement Agreement, available cash flows are required to be deposited on a monthly basis beginning on May 22, 2002 into the Debt Service Reserve Account or the Tax Exempt Debt Service Reserve Account, as the case may be, until the required Debt Service Reserve Account Maximum Balance is achieved, which is $29,925,906. No funds have been deposited as of June 30, 2002.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements of the Partnership and the notes thereto included elsewhere in this report.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements included herein are forward-looking statements concerning the Partnership's operations, economic performance and financial condition. Such statements are subject to various risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including general business and economic conditions; the performance of equipment; levels of dispatch; the receipt of certain capacity and other fixed payments; and electricity prices.
General
The Partnership is primarily engaged in the ownership and operation of a non-utility electric generating facility. From its inception and until December 21, 1995, the Partnership was in the development stage and had no operating revenues or expenses. On December 22, 1995 the Facility commenced commercial operation. As of June 30, 2002, the Partnership had approximately $607.6 million of property, plant and equipment (net of accumulated depreciation) consisting primarily of purchased equipment, construction related labor and materials, interest during construction, financing cost, and other costs directly associated with the construction of the Facility. For the six months ended June 30, 2002, the Partnership had total operating revenues of approximately $82.3 million, total operating costs of approximately $53.2 million, and total net interest expenses of approximately $26.8 million, resulting in net income of approximately $2.3 million.
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The Partnership's fuel supplier is in bankruptcy. Please see Part II, Item 5, Other Information, for a description of the bankruptcy and the Partnership's actions in respect of the bankruptcy.
The Partnership has obtained all material environmental permits and approvals required as of June 30, 2002, in order to continue the operation of the Facility. Certain of these permits and approvals are subject to periodic renewal. Certain additional permits and approvals will be required in the future for the continued operation of the Facility. The Partnership is not aware of any technical circumstances that would prevent the issuance of such permits and approvals or the renewal of currently existing permits.
Results of Operations
For the six months ending June 30, 2002 and 2001, the Facility achieved an average Capacity Billing Factor ("CBF") of 89.79% and 98.91%, respectively. The CBF measures the overall availability of the Facility, but gives a heavier weighting to on-peak availability. The lower CBF in 2002 resulted from decreased availability in the fall of 2001 primarily caused by boiler tube leaks and repairs to the generator, which required the Facility to be out of service for eleven days. For the six months ended June 30, 2002 and 2001, respectively, this resulted in earning monthly capacity payments aggregating $56.7 million and $56.6 million. In addition to the monthly capacity payments, the Partnership is entitled to capacity bonus payments if the CBF, at the end of each month, exceeds certain levels. Since the CBF was below these levels due to the decreased availability in the fall of 2001, no bonus has been received in 2002 compared to $5.6 million in the same period in 2001.
During the six months ended June 30, 2002, the Facility was dispatched by FPL and generated 1,159,324 megawatt-hours compared to 1,259,288 megawatt-hours during the same period in 2001. The decrease in 2002 was due to a unit outage to repair condenser tube leaks and for a scheduled two week outage in 2002 compared to only a scheduled one week outage in 2001. The monthly dispatch rate for the first six months of 2002 ranged from 78% to 94%, as compared to a range of 89% to 95% for the corresponding period in 2001.
Net income for the six months ended June 30, 2002, was approximately $2.3 million compared to the net income of approximately $10.1 million for the corresponding period in the prior year. The $7.8 million decrease is primarily attributable to not receiving monthly capacity bonus payments of $5.6 million in 2002 due to the lower CBF resulting from decreased availability in the fall of 2001. Additionally, there was a decrease in net energy margins of $3.3 million. This was due in part to higher costs of coal of $2.0 million under the amended contract for coal supply (see Part II, Item 5, Coal Supplier Bankruptcy). The energy margins were narrowed also because of a decrease in the index used to adjust quarterly the mine coal component of the unit energy cost in the Power Purchase Agreement ("PPA") with FPL. This index decrease reduced energy revenue by $1.6 million, but was offset by reduced ash disposal and lime costs of $0.3 million as a result of lower mega-watt generation. Offsetting these variances is a decrease in general and administrative costs of $0.8 million and a decrease in net non-operating expenses of $0.3 million.
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Net income for the three months ended June 30, 2002 was approximately $0.5 million compared to the net income of approximately $5.1 million for the corresponding period in the prior year. The $4.6 million decrease is primarily attributable to not receiving monthly capacity bonus payments of $2.8 million in 2002 and lower electric energy revenue of $2.4 due to a lower price per megawatt-hour and lower mega-watt generation. This is offset by lower interest expense in 2002 of $0.5 million.
Operating Revenues
For the six months ended
June 30, 2002 June 30, 2001
Revenues $ 82.3 million $ 91.7 million
KWhs 1,159,324,000 1,259,288,000
Average Capacity Billing Factor 89.79% 98.91%
Average Dispatch Rate 87.65% 91.38%
For the six months ended June 30, 2002, the Partnership had total operating revenues of approximately $82.3 million as compared to $91.7 million for the corresponding period in the prior year. The $9.4 million decrease in operating revenue is primarily due to lower energy revenue resulting from the decrease in the index used to adjust the unit energy cost paid by FPL and from decreased capacity bonus payments due to the lower CBF resulting from decreased availability primarily caused by boiler tube leaks and repairs to the generator.
Cost of Sales
Costs of sales for the six months ended June 30, 2002, were approximately $48.2 million on sales of 1,159,324 MWhs as compared to $48.8 million on sales of 1,259,288 MWhs for the corresponding period in the prior year. The overall cost of fuel and ash decreased $0.5 million due to lower dispatch causing lower fuel consumption; however, the cost per ton of coal increased as a result of the amended coal purchase agreement, resulting in a disproportionate decrease in fuel and ash costs as compared to the lower dispatch. There was also a decrease in operating and maintenance costs of $0.1 million.
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Non-Operating Income (Expense)
Net interest expense for the six months ended June 30, 2002, was approximately $26.8 million compared to $27.1 million for the same period in the prior year. June 2002 and December 2001 payments on Series A-9 of the first mortgage bonds decreased interest expense by approximately $0.8 million. This was offset by reduced interest income earned of $0.4 million in 2002 as compared to the corresponding period in 2001 due to lower rates on investments held by the trustee.
Liquidity and Capital Resources
Net cash provided by operating activities for the six months ended June 30, 2002 was approximately $5.3 million as compared to $20.6 million for the corresponding period in 2001. The decrease is primarily driven by the reduction in net income, a decrease in 2002 in accrued liabilities for a payment of 2001 property taxes processed in March 2002, and the effect of coal invoices paid net ten days after receipt of each shipment in accordance with the amended coal purchase agreement. Previously, coal invoices were paid twenty days after receipt of each invoice for all coal loaded for delivery during the preceding month.
Net cash provided by investing activities for the six months ended June 30, 2002 was approximately $0.4 million primarily due to a decrease in investments held by the trustee, partially offset by capital expenditures. This compares to an increase in net cash used for investing activities for the six months ended June 30, 2001 of approximately $1.4 million primarily driven by capital expenditures and an increase in investments held by the trustee.
Net cash used in financing activities for the six months ended June 30, 2002 and 2001 was $5.7 million and $18.0 million, respectively. A capital distribution of $12.4 million was made in 2001; however, no distributions were made in 2002.
On November 22, 1994 the Partnership and ICL Funding issued first mortgage bonds in an aggregate principal amount of $505 million (the "First Mortgage Bonds"), $236.6 million of which bear an average interest rate of 9.26% and $268.4 million of which bear an interest rate of 9.77%. Concurrently with the Partnership's issuance of its First Mortgage Bonds, the Martin County Industrial Development Authority issued $113 million of Industrial Development Refunding Revenue Bonds (Series 1994A) which bear an interest rate of 7.875% (the "1994A Tax Exempt Bonds"). A second series of tax exempt bonds (Series 1994B) in the approximate amount of $12 million, which bear an interest rate of 8.05%, were issued by the Martin County Industrial Development Authority on December 20, 1994 (the "1994B Tax Exempt Bonds" and, together with the 1994A Tax Exempt Bonds, the "1994 Tax Exempt Bonds"). The First Mortgage Bonds and the 1994 Tax Exempt Bonds are hereinafter collectively referred to as the "Bonds."
Certain proceeds from the issuance of the First Mortgage Bonds were used to repay $421 million of the Partnership's indebtedness and financing fees and expenses incurred in connection with the development and construction of the Facility and the balance of the proceeds were deposited in various restricted funds that are being administered by an independent disbursement agent pursuant to trust indentures and a disbursement agreement. Funds administered by such disbursement agent are invested in specified investments. These funds together with other funds available to the Partnership were being used: (i) to finance completion of construction, testing, and initial operation of the Facility; (ii) to finance construction interest and contingency; and (iii) to provide for initial working capital.
13
The proceeds of the 1994 Tax Exempt Bonds were used to refund $113 million principal amount of Industrial Development Revenue Bonds (Series 1992A and Series 1992B) previously issued by the Martin County Industrial Development Authority for the benefit of the Partnership, and to fund, in part, a debt service reserve account for the benefit of the holders of its tax-exempt bonds and to complete construction of certain portions of the Facility.
The Partnership's total borrowings from inception through June 30, 2002 were $769 million. The equity loan of $139 million was repaid on December 26, 1995. As of June 30, 2002, the borrowings included $125 million from the 1994 Tax Exempt Bonds and all of the available First Mortgage Bond proceeds. The First Mortgage Bonds have matured as follows:
Series Aggregate Principal Amount Date Matured and Paid
A-1 $4,397,000 June 15, 1996
A-2 4,398,000 December 15, 1996
A-3 4,850,000 June 15, 1997
A-4 4,851,000 December 15, 1997
A-5 5,132,000 June 15, 1998
A-6 5,133,000 December 15, 1998
A-7 4,998,000 June 15, 1999
A-8 4,999,000 December 15, 1999
As of June 30, 2002, the Partnership has made semi-annual installments totaling $28,404,234 for the A-9 series, which does not fully mature until December 15, 2010.
The weighted average interest rate paid by the Partnership on its debt for the six months ended June 30, 2002 and 2001, was 9.202% and 9.197%, respectively.
The Partnership, pursuant to certain of the Project Contracts, is required to post letters of credit, which, in the aggregate, will have a face amount of no more than $65 million. Certain of these letters of credit have been issued pursuant to a Letter of Credit and Reimbursement Agreement with Credit Suisse and the remaining letters of credit will be issued when required under the Project Contracts, subject to conditions contained in such Letter of Credit and Reimbursement Agreement. As of June 30, 2002, no drawings have been made on any of these letters of credit. The Letter of Credit and Reimbursement Agreement has a term of seven years subject to extension at the discretion of the banks party thereto. In September 2001, Credit Suisse notified the Partnership of its intention not to extend the term of these agreements, which are due to expire in the fourth quarter of 2002. The current amount of these letters of credit is $13.1 million, which, if not renewed 30 days prior to expiration, will convert into letter of credit loans. The Partnership hopes to obtain a replacement letter of credit provider before the current letters of credit expire, although there are no assurances the Partnership will be successful.
14
The Partnership entered into a debt service reserve letter of credit and reimbursement agreement, dated as of November 1, 1994, with BNP Paribas (formerly known as Banque Nationale de Paris) pursuant to which a debt service reserve letter of credit in the amount of approximately $60 million was issued. On January 11, 1999, in accordance with the Partnership's financing documents, the debt service reserve letter of credit was reduced to approximately $30 million, which, together with cash in the debt service reserve account, represents the maximum remaining semi-annual debt service on the First Mortgage Bonds and the 1994 Tax Exempt Bonds. BNP Paribas notified the Partnership on May 18, 2001 of its intention not to extend the term of the agreement, which expires on November 22, 2005. Pursuant to the terms of the Disbursement Agreement, available cash flows are required to be deposited on a monthly basis beginning on May 22, 2002 into the Debt Service Reserve Account or the Tax Exempt Debt Service Reserve Account, as the case may be, until the required Debt Service Reserve Account Maximum Balance is achieved, which is $29,925,906. No funds have been deposited as of June 30, 2002. The Partnership hopes to obtain a replacement letter of credit provider before the current letter of credit expires.
In order to provide for the Partnership's working capital needs, the Partnership entered into a Revolving Credit Agreement with Credit Suisse dated as of November 1, 1994. In September 2001, Credit Suisse notified the Partnership of its intention not to extend the term of the agreement, which expired on November 22, 2001. The Partnership is actively engaging in discussions with other financial institutions to obtain another working capital facility. The Partnership believes that it has adequate cash flow from operations to timely fund all of its working capital, capital expenditures and major maintenance requirements even if no replacement working capital facility is obtained.
See Report on Form 10-K dated December 31, 2001 for qualitative and quantitative disclosures about market risk regarding the fair value of debt.
Accounting Principles Issued But Not Yet Adopted
In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Statements ("SFAS") No. 143, "Accounting for Asset Retirement Obligations." This statement is effective for fiscal years beginning after June 15, 2002. SFAS No. 143 provides accounting requirements for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Under the statement, the asset retirement obligation is recorded at fair value in the period in which it is incurred by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value in each subsequent period and the capitalized cost is depreciated over the useful life of the related asset. The Partnership is currently evaluating the impact of SFAS No. 143 on its consolidated financial statements.
15 In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This statement eliminates the current requirement that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classification. In addition, SFAS 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sale-leaseback accounting rules. The statement also contains other 46 nonsubstantive corrections to authoritative accounting literature. The changes related to debt extinguishment will be effective for fiscal years beginning after May 15, 2002, and the changes related to lease accounting will be effective for transactions occurring after May 15, 2002. The Partnership does not expect that implementation of this statement will have a significant impact on its consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force ("EITF") Issue No. 94-3. This statement is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The Partnership does not expect that implementation of this statement will have a significant impact on its consolidated financial statements.
PART II
OTHER INFORMATION
Item 5 OTHER INFORMATION
Coal Supplier Bankruptcy
Indiantown Cogeneration, L.P. (Partnership) has a coal purchase agreement (the "Coal Purchase Agreement") with Lodestar Energy, Inc. (LEI) pursuant to which LEI supplies all of the coal for the facility.
16
As previously reported, on April 27, 2001, an order for relief was entered in the Involuntary Petition under Chapter 11 of the United States Bankruptcy Code with respect to LEI and its parent, Lodestar Holdings Inc. ("LHI"), in the U.S. Bankruptcy Court in Lexington, Kentucky. Since that time, LHI and LEI have been operating their business as "debtors in possession." On October 3, 2001, LEI filed a motion with the Bankruptcy Court seeking to reject the Coal Purchase Agreement. The Partnership and LEI agreed to and executed Amendment No. 3 to the Coal Purchase Agreement effective October 16, 2001 (the "Amendment"). The principal change effected in the Coal Purchase Agreement by the Amendment is an increase from $26.632 to $34.00 per ton in the base coal price for coal delivered after October 16, 2001, with a 2% additional increase in the base coal price effective October 16, 2002. The agreement also reduced the amount of ash the Partnership is required to provide to LEI. The transportation and administrative fees the Partnership is required to pay remain unchanged, but will continue to adjust in accordance with the terms of the Coal Purchase Agreement. The Amendment also includes market price reopener provisions, beginning October 16, 2003.
Other than with respect to developments that may have a material impact on the Partnership or its business operations, the Partnership is under no obligation nor does it intend to continuously provide updates of the LEI bankruptcy proceedings. However, copies of all pleadings filed with the Bankruptcy Court are available from the office of the clerk of the Bankruptcy Court.
Governmental Approvals
The Partnership has obtained all material environmental permits and approvals required, as of June 30, 2002, in order to continue commercial operation of the Facility. Certain of these permits and approvals are subject to periodic renewal. Certain additional permits and approvals will be required in the future for the continued operation of the Facility. The Partnership is not aware of any technical circumstances that would prevent the issuance of such permits and approvals or the renewal of currently issued permits.
Newly Appointed Officers
A Board of Control written consent in lieu of a meeting was executed on April 1, 2002 for the Partnership. The following tables set forth the names and positions of newly appointed officers.
17
Indiantown Cogeneration, L.P.
Name Position
John R. Cooper* Senior Vice President and Treasurer
Thomas E. Legro Vice President, Controller and
Principal Accounting Officer
Indiantown Cogeneration Funding Corporation
Name Position
John R. Cooper* Vice President, Chief Financial
Officer, Treasurer and Principal
Accounting Officer
Thomas E. Legro Vice President and Controller
*John R. Cooper has been elected to the additional position of Treasurer,
replacing David N. Bassett.
Thomas E. Legro is Vice President, Controller and Chief Accounting Officer of PG&E
National Energy Group, Inc., an affiliate of the Partnership, and has been with PG&E
National Energy Group, Inc. since July 2001. From January 1994 to June 2001, Mr. Legro
was Vice President and Controller of Edison Mission Energy.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Reports on Form 8-K:
The Partnership filed a current report on Form 8-K on May 15,
2002, announcing a change of certifying accountants.
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b) Exhibits:
Exhibit
No. Description
99.1 Certification of P. Chrisman Iribe, President of Indiantown Cogeneration, L.P.
and Indiantown Cogeneration Funding Corporation, pursuant to 18 U.S.C. Section 1350.
99.2 Certification of Thomas E. Legro, Vice President, Controller and Principal Accounting
Officer of Indiantown Cogeneration, L.P., pursuant to 18 U.S.C. Section 1350.
99.3 Certification of John R. Cooper, Vice President, Treasurer, Chief Financial Officer
and Principal Accounting Officer of Indiantown Cogeneration Funding Corporation, pursuant to
18 U.S.C. Section 1350.
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SIGNATURE
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.
INDIANTOWN COGENERATION, L.P.
(Co-Registrant)
Date: August 14, 2002 __________________________________
Thomas E. Legro
Vice President, Controller and Principal
Accounting Officer
INDIANTOWN COGENERATION FUNDING
CORPORATION
(Co-Registrant)
Date: August 14, 2002 __________________________________
John R. Cooper
Vice President, Treasurer, Chief Financial
Officer and Principal Accounting Officer
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