Mail Stop 0308
May 13, 2005
VIA U.S. MAIL AND FACSIMILE
Mr. Wayne F. Irmiter
Vice President and Controller
Salton Sea Funding Corporation
302 S. 36th Street, Suite 400
Omaha, Nebraska 68131
RE: Form 10-K for the Year Ended December 31, 2004
File No. 33-95538
Dear Mr. Irmiter:
We have reviewed your filing and have the following
comments. If you disagree with a comment, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the Year Ended December 31, 2004
General
1. Unless otherwise indicated, where a comment below requests
additional disclosures or other revisions to be made, please
include
the additional disclosures and revisions in your future annual and
quarterly filings, as applicable.
Item 1. Business
General, page 4
2. Please consider including an organization chart reflecting the
ownership of Funding Corporation and the Guarantors indicating the
types of legal entities, ownership percentages and general
partners,
where applicable. Please tell us the owners of and their
ownership
interests in Fish Lake Power LLC, Salton Sea Power LLC, CE Salton
Sea, Inc., San Felipe Energy Company, Conejo Energy Company,
Niguel
Energy Company and VPC Geothermal LLC. Please also tell us the
ownership interest of CalEnergy Operating Corp., Niguel, San
Felipe
and Conejo in Elmore, Leathers and Del Ranch. In addition, please
tell us the ownership interest of Vulcan Power Company and VPC
Geothermal LLC in Vulcan/BN Geothermal Power Company.
Zinc Recovery Project and Minerals Assets, page 7
3. We note your use of the terms "extractable mineral", "mineral
reserves" and "mineral assets" in your filing. Please be advised
that these terms are only permitted in filings if you have proven
or
probable reserves as defined in Industry Guide 7. Since you have
not
disclosed any quantities of proven or probable reserves, please
remove all references to "reserves" throughout your document or
tell
us why a revision is unnecessary.
Item 6. Selected Financial Data, page 11
4. We note that total revenue, net income (loss), total assets and
total stockholder`s equity of Funding Corporation and total assets
and total guarantors` equity of Partnership Guarantors as of and
for
the most recent year presented do not agree to the financial
statements included in the filing. Please advise or revise.
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations
Results of Operations for the Years Ended December 2004 and 2003,
page 15
5. Please provide an analysis and discussion of the changes in
interest income and expense and the effective tax rates of Funding
Corporation for the periods presented.
6. In each circumstance where you identify a significant change
between periods in key financial data or indicators, please
provide
an analysis and discussion of the underlying business reasons for
the
change. For example, explain why:
* Depreciation and amortization of the Salton Sea Guarantors
decreased;
* Maintenance of Partnership Guarantors increased; and
* Energy tax credits and percentage depletion increased.
Results of Operations for the Years Ended December 2003 and 2002,
page 16
7. Please explain to us how the Salton Sea and Partnership
Guarantors
account for disputed revenues as a result of uncontrollable force
events and related adjustments to their allowances for doubtful
accounts. Please also explain to us how you account for bad debt
provisions and recoveries unrelated to uncontrollable force
events.
8. In circumstances where you describe more than one reason for a
significant change between periods in key financial data or
indicators, please quantify the incremental impact of each
individual
item on the overall change. For example, please quantify the
impact
of:
* lower production and higher average rates on revenues and
operating
income of the Salton Sea and Partnership Guarantors;
* lower brine pond and legal expenses and the increase in repair
costs associated with uncontrollable force events; and
* the changes in salvage value assumptions of the Salton Sea and
Partnership Guarantors and higher depreciation of the Salton Sea
Guarantors.
9. Please discuss the change in accounting principle to adopt SFAS
142 in 2002 and the effects of its adoption on the loss from
continuing operations of the Salton Sea Guarantors.
10. Please disclose the aggregate amount of business interruption
insurance recoveries and the line item in the statements of
operations that includes the recoveries in the notes to the
financial
statements of the Salton Sea Guarantors as required by EITF 01-13.
Please tell us whether the Guarantors realized any other business
interruption insurance recoveries, and the amounts thereof, during
the periods presented.
Liquidity and Capital Resources, page 19
11. Please provide a more insightful analysis of the trends and
variability in cash flows for each of the periods presented and an
evaluation of the ability of Funding Corporation and the
Guarantors
to meet their cash requirements over both the short and long term.
In that regard, consider including a discussion, to the extent
material, of:
* trends in cash flows generated by operations and the reasons for
the variability in accounts receivable and other operating assets
and
liabilities to the extent necessary for investors to ascertain the
likelihood that past performance is indicative of future
performance;
* the relative significance of cash management policies on cash
flows
from investing activities and the variability in amounts payable
to
and receivable from affiliates and their importance to liquidity;
* existence and timing of commitments for capital expenditures
and/or
expected changes in capital expenditures; and
* other known and reasonably expected cash requirements, such as
those related to discontinued operations.
Please refer to SEC Release No. 33-8350.
Contractual Obligations and Commercial Commitments, page 21
12. We note that Funding Corporation maintains an inventory of
geothermal property leases to support the Salton Sea and
Partnership
projects. Please explain to us why the contractual payment
obligations of Funding Corporation and/or the Guarantors during
the
term of the geothermal property leases are not disclosed in the
table. See Item 303(a)(5) of Regulation S-K. If the contractual
obligations are variable and unknown, they may be excluded from
the
table provided the nature of obligations and other appropriate
information, such as the amounts paid during the periods presented
and estimates of future variability, is disclosed in a footnote to
the table. In addition, please tell us what consideration you
gave
to disclosing information related to geothermal property leases in
a
manner similar to operating lease disclosures required by
paragraph
16 of SFAS 13 in the notes to financial statements of Funding
Corporation and/or the Guarantors.
13. Please tell us whether Funding Corporation and/or the
Guarantors
have entered into obligations to purchase goods and services under
agreements that are enforceable and legally binding. If so,
please
disclose the purchase obligations in accordance with Item 303(5)
of
Regulation S-K.
Critical Accounting Policies, page 19
14. Please provide a more insightful, quantified analysis about
the
uncertainties associated with the methods, assumptions and
estimates
underlying critical accounting measurements. For example,
accounts
receivable collectability and impairment of long-lived assets are
cited as critical accounting policies. However, it is not clear
what
the effect of significant changes in estimates would have on the
financial statements of Funding Corporation and/or the Guarantors.
In addition, discuss to the extent material, how accurate your
estimates and assumptions have been in the past and whether the
estimates are reasonably likely to change in the future. Please
refer to SEC Release No. 33-8350.
Item 8. Financial Statements and Supplementary Data
General
15. Every issuer of a registered security that is guaranteed and
every guarantor of a registered security must file the financial
statements required by Rule 3-10 of Regulation S-X. We have the
following comments regarding the form and content of the financial
statements included in your Annual Report.
a. Please tell us your basis for filing combined financial
statements
for the Salton Sea and Partnership Guarantors. If you have relied
on
one of the exceptions of the general rule of paragraph (a)(1) of
Rule
3-10 of Regulation S-X, please tell us the exception you relied
upon
and explain to us in detail why you comply with the conditions in
the
exception.
b. Please tell us why you present condensed combining financial
information in the notes to financial statements of the
Partnership
Guarantors and not in the notes to financial statements of the
Salton
Sea Guarantors.
c. Please tell us your basis for including the assets and
liabilities
of the Salton Sea IV project, as opposed to the financial
statements
of Fish Lake, in the combined financial statements of the Salton
Sea
Guarantors. Further, please tell us your basis for including the
proportionate share of the partnerships in which CEOC, VPC, CE
Turbo
and CalEnergy Minerals have an undivided interest in each asset
and
are proportionately liable for their share of the liabilities, as
opposed to the financial statements of the limited partnership
guarantors, in the combined financial statements of the
Partnership
Guarantors. Refer to EITF 00-1.
d. We note that the form of the Partnership and Royalty
guarantees
are limited to available cash flows. It appears that these
limitations on the form of the guarantees violate the exception
provided by Rule 3-10(b) - (g) which requires a full and
unconditional guarantee for guarantors seeking to avoid the
general
rule of Regulation S-X 3-10(a)(1) requiring a full set of
financial
statements for each guarantor. Please explain to us why these
limitations on your Partnership and Royalty guarantees do not
violate
the notion of "full" and "unconditional".
16. Please confirm to us, if true, that all current assets and
liabilities in excess of 5% of total current assets or
liabilities,
as applicable, are separately stated in the balance sheets or in
the
notes to the financial statements of the Guarantors. Otherwise,
please state separately the amounts in excess of 5% of total
current
assets and liabilities for each period presented either on the
face
or in the notes to the financial statements as required by Rules
5-
02(9) and (20) of Regulation S-X.
17. We note that you have not disclosed information about asset
retirement obligations in the financial statements of the Salton
Sea
and Partnership Guarantors. Please confirm to us, if true, that
you
do not have a legal obligation associated with the retirement of
the
geothermal power plants or the zinc recovery project. Otherwise,
please disclose the information required by paragraph 22 of SFAS
143.
18. Please tell us if the power purchase and sales agreements of
the
Salton Sea and Partnership Guarantors permit net settlement as
described in paragraphs 9(a) and 57(c)(1) of SFAS 133. Please
also
tell us and disclose how the Salton Sea and Partnership Guarantors
recognize revenue associated with fixed or scheduled price periods
and variable price periods of their power sales agreements.
Please
refer to EITF 91-6 and EITF 96-17.
19. Please tell us the cost and accumulated depreciation and
amortization of long-lived assets and goodwill on a push-down
basis
that were written-off by each Salton Sea and Partnership
guarantors
as a result of the decision to cease the operations of the zinc
recovery project. Please explain to us in detail why long-lived
assets, including mineral reserves and goodwill of guarantors
other
than CalEnergy Minerals qualify as a component of an entity for
reporting in discontinued operations. See paragraph 41 of SFAS
144.
Please provide to us a detailed description of mineral reserves
written-off and tell us whether they were proven reserves or
probable
(indicated) reserves and why, and your basis for initially
recording
the mineral reserves. Please refer to Industry Guide 7. In
addition, please tell us the amortization (or depletion) policies
and
methods for the mineral assets of the Salton Sea and Partnership
Guarantors. If you assigned an indefinite life to any mineral
reserves, please explain to us your basis for doing so.
20. Please tell us whether the Salton Sea and Partnership
Guarantors
accounted for impairment of the long-lived assets of the zinc
recovery project as assets held for sale or as abandoned and how
the
fair value or salvage value of the assets was determined. In that
regard, tell us, as applicable:
* the estimated fair value of the assets, the estimated costs to
sell
the assets and the items included therein together with their
amounts, or the estimated salvage value of the assets and the
items
and their amounts included therein;
* how you treated decommissioning costs in your estimates, the
amount
of estimated decommissioning costs and whether you reduced the
carrying amount of the assets to an amount below zero or recorded
a
liability; and
* when you ceased operations and whether you revised the estimated
useful lives of depreciable and amortizable assets while the
assets
were in use after management`s decision to cease operations.
21. Please disclose the amount of tax-related balances due to or
from
affiliates in the financial statements of Funding Corporation and
the
Partnership Guarantors for each period presented as required by
paragraph 49(a) of SFAS 109. Please tell us if there were any
changes in the method of allocating tax expense or benefits during
the years presented.
22. Please disclose selected quarterly financial data of Funding
Corporation and the Guarantors in accordance with Item 302 of
Regulation S-K.
23. We understand that outstanding bonds are secured by the
capital
stock of certain subsidiaries of CE Generation. Please tell us
whether those subsidiaries are Guarantors included in the combined
financial statements of the Salton Sea and Partnership Guarantors.
If not, tell us whether the financial statements of the
subsidiaries
of CE Generation whose securities secure the bonds are required to
be
filed pursuant to Rule 3-16 of Regulation S-X. In doing so,
please
provide your calculations to us. See paragraph (b) of Rule 3-16.
Salton Sea Funding Corporation
Financial Statements
Statements of Operations, page 27
24. Please tell us your basis in GAAP for classifying your share
of
the cumulative effect of the change in accounting principal of the
Salton Sea Guarantors in a manner similar to an extraordinary
item.
Please refer to paragraph 19(d) of APB 18 and paragraph 20 of APB
20.
Notes to Financial Statements
General
Note 2. Summary of Significant Accounting Policies
Investment in Guarantors, page 31
25. You disclose that Funding Corporation owns a 1% interest in
each
of the Guarantors. However, this statement does not appear to be
consistent with the various disclosures relating to ownership of
the
Guarantors throughout the filing, including the signature pages.
For
example, in the signature pages you indicate that Salton Sea Power
Company is the general partner of Salton Sea Brine Processing,
L.P.
and Salton Sea Power Generation, L.P. Please advise. In doing
so,
tell us the nature and percentage ownership in each guarantor.
Please also tell us and expand your disclosure to explain why you
have the ability to exercise significant influence over the
operational and financial policies of each guarantor. Please
refer
to APB 18 and EITF D-46.
Note 3. Mineral Resources and Zinc Recovery Project, page 32
26. Please tell us how you calculated the amount of the long-lived
asset charge of the Salton Sea and Partnership Guarantors included
in
net loss for the year ended December 31, 2004.
Note 4. Senior Secured Notes and Bonds
27. Please disclose significant covenants of your bond indentures,
the effects of noncompliance with such covenants and the existence
of
cross-default provisions. If none or you believe your existing
disclosure complies with GAAP, please explain your reasons to us.
Please tell us whether there are any significant restrictions
which
limit distributions, loans or advances to the owners of Funding
Corporation and the Guarantors. If so, please disclose the
restrictions in the appropriate financial statements. See Rule 4-
08(e) of Regulation S-X.
Salton Sea Guarantors
Financial Statements
General
28. Please explain to us how you have complied with the disclosure
requirements of SAB Topic 4:F for each period presented. Please
specifically address, as applicable, the disclosures regarding:
* amounts of equity attributable to each ownership class;
* changes in the number of equity units authorized and outstanding
for each ownership class;
* the aggregate amount of income allocated to each ownership
class;
and
* results of operations on a per-unit basis.
In doing so, please tell how you classify and report equity of
guarantors organized as a limited liability company or as a
corporation.
Notes to Financial Statements, page 40
Note 1. Organization and Operations, page 49
29. Please tell us the percentage ownership of each of the Salton
Sea
Projects held by SSBP, SSPG, Salton Sea Power and Fish Lake. If
these entities hold in the aggregate 100% of the ownership in the
Salton Sea Projects, please clarify the disclosure indicating that
each owns 100% interests in the Salton Sea Projects.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation, page 40
30. Please tell us how and to what extent the financial statements
of
CE Salton Sea Inc. and Fish Lake are reflected in the combined
financial statements. In doing so, tell us whether Fish Lake has
any
assets or liabilities other than its 1% interest in the Salton Sea
IV
project and your basis in GAAP for combining the assets and
liabilities of the Salton Sea IV Project with the financial
statements of SSBP, SSPG and Salton Sea Power.
Partnership Guarantors
Financial Statements
General
31. Please disclose your inventory valuation method and the nature
and amounts of inventory by class. Please also disclose the
nature
of the costs included in inventory. Please refer to chapter 4 of
ARB
43 and Rule 5-02(6) of Regulation S-X.
Notes to Financial Statements, page 40
Basis of Presentation, page 52
32. You disclose that the Partnership Guarantors include Salton
Sea
Minerals Corp., San Felipe, Conejo, Niguel and VPCG. However, it
does not appear that you have included the financial statements of
these entities in the filing. Please advise.
Reclassifications, page 52
33. It appears that the reclassifications relating to amounts due
from affiliates had a material effect on cash flows from operating
activities. Please explain to us the circumstances that resulted
in
the reclassifications and why the reclassifications are not
disclosed
as a correction of an error in accordance with APB 20.
Management Fee, page 54
34. Please tell us how you account for management fees payable to
you
under the Magma Services Agreement. Please disclose the amount of
management fees received for each year presented and the line item
in
the statement of operations that includes the fees.
Note 3. Discontinued Operations - Mineral Resources and Zinc
Recovery Project, page 55
35. Please tell us the items in the tabular presentation of
discontinued operations and their amounts which are included in
the
$390 million impairment charge. In doing so, please tell us the
amount of income tax expense or benefits related to the reversal
of
book and tax basis differences and the amount of income tax
benefits
previously recognized on operating losses.
36. Please tell us and disclose the amount of the fixed contract
price for the decommissioning contract.
37. Please revise your disclosure to provide all of the
disclosures
required by paragraph 20 of SFAS 146 for your discontinued zinc
recovery project.
Note 8. Condensed Financial Information, page 59
38. Please tell us whether "Vulcan Power", "Vulcon BNG" and "Turbo
Turbo" and "Turbo" in the headings are the same entities referred
to
as VPC, Vulcan and CE Turbo.
Item 9A. Controls and Procedures, page 72
39. Please confirm to us, if true, that your chief accounting
officer
is also your principal (or chief) financial officer.
Schedule II
40. Please revise to describe deductions in a footnote to the
table.
In doing so, please disclose the amounts of write-offs and the
amounts of recoveries credited to expense and/or other accounts,
as
applicable. Please refer to Item 12-09 of Regulation S-X.
Signatures
41. Any person who occupies more than one of the specified
positions
must indicate each capacity in which he or she signs the report.
See
General Instruction D to Form 10-K. Please file an amendment
containing the signatures of the chief financial officer and
controller and principal accounting officer or persons performing
similar functions of each corporation, partnership and Limited
Liability Company.
Exhibit Index
42. Please revise your filing to include a list of all of your
subsidiaries including the percentage of ownership in each
subsidiary
as exhibit 21. Refer to Item 601 of Regulation S-K.
* * * * * *
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide, in writing, a statement from the company acknowledging
that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in our review of your filing
or
in response to our comments on your filing.
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a supplemental response letter that keys your responses to
our comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
If you have any questions regarding these comments, please
direct them to Bill Thompson, Staff Accountant, at (202) 551-3344,
or
in his absence, to the undersigned at (202) 551-3716.
Sincerely,
William Choi
Accounting Branch Chief
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May 13, 2005
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