SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993
Commission File No. 1-9874
CALIFORNIA ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10831 Old Mill Road, Omaha, NE 68154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 330-8900
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
Common Stock, $0.0675 New York Stock Exchange
par value ("Common Stock") Pacific Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: N/A
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:
Yes [X] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Based on the closing sales price of Common Stock on the New York
Stock Exchange on March 21, 1994, the aggregate market value of
the Common Stock held by non-affiliates of the Company was
$614,595,732.
34,382,978 shares of Common Stock were outstanding on
March 21,1994.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into this Form 10-K, in response to
Item 3 Part I, Items 6 through 8 of Part II, and Items 10 through
13 of Part III, are the portions indicated herein of (i) the
annual report of California Energy Company, Inc. (the "Company")
to security holders for the fiscal year ended December 31, 1993
(the "Annual Report"), and (ii) the Company's proxy statement
dated for the annual meeting of stockholders to be held on May
12, 1994 (the "Proxy Statement").
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Business . . . . . . . . . . . . . . . . . . . 1
GENERAL . . . . . . . . . . . . . . . . . . . . . . . 1
International Activities . . . . . . . . . . . 2
Geothermal Energy . . . . . . . . . . . . . . . 3
The Independent Power Production Market and
Competition . . . . . . . . . . . . . 3
Business Development Strategies . . . . . . . . 4
THE COSO PROJECT . . . . . . . . . . . . . . . . . . 4
The Coso Geothermal Resource . . . . . . . . . 5
The Coso Facilities . . . . . . . . . . . . . . 6
The Navy I Project . . . . . . . . . . 6
The BLM Project . . . . . . . . . . . 7
The Navy II Project . . . . . . . . . 7
Power Transmission Lines . . . . . . . 7
Management of the Coso Joint Ventures . . . . . 7
Plant Operation and Maintenance
Agreements . . . . . . . . . 8
Field Operation and Maintenance
Agreements . . . . . . . . . 8
Coso Royalty and Other Revenue Sharing
Agreements . . . . . . . . . . . . . . 9
The Navy Contract . . . . . . . . . . 9
Navy I Project . . . . . . . . . . . . 9
Navy II Project . . . . . . . . . . . 9
Termination . . . . . . . . . 10
The BLM Lease . . . . . . . . . . . . 10
Other Revenue Sharing Arrangements . . 11
SO4 Power Sales Agreements . . . . . . . . . . 11
Capacity Payments . . . . . . . . . . 11
Capacity Bonus Payments . . . . . . . 11
Energy Payments . . . . . . . . . . . 12
Non-Recourse Coso Project Financing . . . . . . 13
Security . . . . . . . . . . . . . . . 13
Priority of Payments . . . . . . . . . 14
Conditions to Cash Distributions From the
Coso Joint Ventures . . . . . 14
Required Geothermal Percentage . . . . 14
Debt Service Reserve and Contingency
Funds . . . . . . . . . . . . 14
Support Loans and Project Loan Pledge
Agreements . . . . . . . . . 15
Interest in Caithness Partnerships . . . . . . 15
Coso Joint Venture Notes due to the Company . . 15
OTHER DOMESTIC PROJECTS AND DEVELOPMENT
OPPORTUNITIES . . . . . . . . . . . . . . . . . 15
Desert Peak . . . . . . . . . . . . . . . . . . 15
Roosevelt Hot Springs . . . . . . . . . . . . . 16
Yuma . . . . . . . . . . . . . . . . . . . . . 16
Newberry . . . . . . . . . . . . . . . . . . . 16
Glass Mountain . . . . . . . . . . . . . . . . 17
INTERNATIONAL GEOTHERMAL AND
OTHER DEVELOPMENT OPPORTUNITIES . . . . . . . . . . . 17
International Joint Venture Agreements . . . . 17
Kiewit Joint Venture . . . . . . . . . 18
Distral Joint Venture . . . . . . . . 18
The Philippines . . . . . . . . . . . . . . . . 18
Upper Mahiao . . . . . . . . . . . . . 19
Mahanagdong . . . . . . . . . . . . . 21
Casecnan . . . . . . . . . . . . . . . 21
Indonesia . . . . . . . . . . . . . . . . . . . 22
Dieng . . . . . . . . . . . . . . . . 22
Patuha . . . . . . . . . . . . . . . . 23
REGULATORY AND ENVIRONMENTAL MATTERS . . . . . . . . 23
Environmental Regulation . . . . . . . . . . . 23
Federal Energy Regulations . . . . . . . . . . 24
Permits and Approvals . . . . . . . . . . . . . 24
INSURANCE. . . . . . . . . . . . . . . . . . . . . . 25
EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . 25
Item 2. Properties . . . . . . . . . . . . . . . . . . 25
Item 3. Legal Proceedings. . . . . . . . . . . . . . . 25
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . . . 25
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 5. Market for Registrant's Common Equity and
Related Stockholder's Matters . . . . . . . . . 26
Item 6. Selected Financial Data . . . . . . . . . . . . 27
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation. . 27
Item 8. Financial Statements and Supplementary Data . . 27
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Item 10. Directors and Executive Officers of the
Registrant. . . . . . . . . . . . . . . . . . . 28
Item 11. Executive Compensation. . . . . . . . . . . . . 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 29
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . 29
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . 30
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
PART I
Item 1. Business
GENERAL
California Energy Company, Inc. (the "Company"), together with
its subsidiaries, is primarily engaged in the exploration for and
development of geothermal resources and the development, ownership
and operation of environmentally responsible independent power
production facilities worldwide utilizing geothermal resources and
other energy sources such as hydroelectric, natural gas, oil and
coal. The Company was an early participant in the domestic
independent power market and is now one of the largest geothermal
power producers in the United States. The Company is also actively
pursuing opportunities in the international independent power
market. The Company is a Delaware corporation which was formed in
1971. The Company's Common Stock is traded on the New York,
Pacific and London Stock Exchanges under the symbol "CE".
Approximately 37% of the Company's Common Stock is owned by a Peter
Kiewit Sons', Inc. subsidiary, Kiewit Energy Company (references
herein to "Kiewit" means Peter Kiewit Sons', Inc. and its
affiliates including Kiewit Energy Company, Kiewit Diversified
Group Inc. and Kiewit Construction Group Inc. or other subsidiaries
thereof, as applicable). Kiewit is a large construction, mining
and telecommunications company headquartered in Omaha, Nebraska.
Kiewit is a joint venture participant in certain of the Company's
international private power projects.
Through its subsidiaries, the Company currently has
substantial ownership interests in, and operates, four geothermal
facilities that are qualified facilities under the Public Utility
Regulatory Policies Act of 1978 ("PURPA"), which requires electric
utilities to purchase electricity from qualified independent power
producers. Three of the Company's geothermal power production
facilities are located at the Naval Air Weapons Station at China
Lake, California (together, the "Coso Project") and are each owned
by separate partnerships (collectively the "Coso Joint Ventures"
and individually the "Navy I Joint Venture", the "BLM Joint
Venture" and the "Navy II Joint Venture"). The Company owns an
interest of approximately 50% in each of the Coso Joint Ventures
and, through a subsidiary, acts as the managing general partner of
each. The Coso Project continues to constitute the Company's
primary source of electrical generation capacity constituting an
aggregate generating capacity of approximately 240 net megawatts
("NMW"). The Coso Project power production facilities have a gross
capacity of approximately 88 megawatts ("MW") each (referred to
individually as the "Navy I Project", the "BLM Project" and the
"Navy II Project"). The Coso Joint Ventures sell all electricity
generated by the Coso Projects pursuant to three long-term "Interim
Standard Offer No. 4" contracts (the "SO4 Agreements") between each
of the Coso Joint Ventures and Southern California Edison Company
("SCE"). These SO4 Agreements provide for energy payments,
capacity payments and capacity bonus payments. The fixed price
periods for energy payments of the SO4 Agreements extend until
August 1997, March 1999 and January 2000 for each of the Navy I
Joint Venture, the BLM Joint Venture and the Navy II Joint Venture,
respectively. Energy payments under the SO4 Agreements have been
fixed at rates ranging from 10.1 cents per kilowatt hour ("kWh") in 1993
to 14.6 cents per Kwh in August 1998. After the fixed price period
expires for each of the Coso Projects, the energy will be purchased
at SCE's then prevailing avoided cost (as determined by the
California Public Utilities Commission) which at present is
substantially lower than the current energy payments under the SO4
Agreement. In addition to the energy payments, SCE makes fixed
annual capacity payments to the Coso Joint Ventures, and under
certain circumstances is required to make capacity bonus payments.
The price for capacity and capacity bonus payments is fixed for the
life of the SO4 Agreements. See "The Coso Project -- SO4 Power
Sales Agreements."
The Company also owns and operates a 10 MW geothermal power
plant located at Desert Peak, Nevada which is a qualified facility
that sells power to Sierra Pacific Power Company, and operates and
owns a 70% interest in a geothermal steam field at Roosevelt Hot
Springs, Utah, which supplies 25 MW of geothermal steam to Utah
Power & Light Company under a 30-year steam sales agreement.
Pursuant to a memorandum of understanding, the Company has
commenced early stage site work on a proposed 30 MW geothermal
project at Newberry, Oregon (the "Newberry Project"), which is
expected to be completed in early 1997 and to be wholly owned and
operated by the Company.
In September 1993, the Company acquired The Ben Holt Co., a 30
person engineering firm located in Pasadena, California which
specializes in the design of geothermal power plants and has
international experience. The Ben Holt Co. will provide support to
the Company's domestic and international projects as well as
continue its services to third parties.
Domestically, the Company plans to focus on developing and
operating geothermal power projects, an area in which the Company
believes it has a competitive advantage due to its geotechnical and
project management expertise and extensive geothermal
leaseholdings. The Company intends to continue to pursue
geothermal opportunities in the Pacific Northwest where it has
extensive geothermal leaseholdings. In March 1993, the Company
acquired 26,000 acres of geothermal leases and three successful
production wells in the Glass Mountain area of Northern California.
In addition, the Company has diversified into other environmentally
responsible sources of power generation. The Company is currently
constructing a 50 NMW natural gas fired cogeneration project in
Yuma, Arizona (the "Yuma Project"), which is expected to be wholly
owned by the Company and to sell electricity to San Diego Gas &
Electric Company ("SDG&E") under a 30-year power sales contract.
The Company anticipates that this project will be completed by mid-
year 1994. See "Other Domestic Projects and Development
Opportunities - Yuma." The Company expects future diversification
through the selective acquisition of partially developed or
existing power generating projects and intends to maintain a
significant equity interest in, and to operate, the projects which
it develops or acquires.
International Activities
The Company presently believes that the international
independent power market holds the majority of new opportunities
for financially attractive private power development in the next
several years. The Company is actively pursuing selected
opportunities in nations where power demand is high and the
Company's geothermal resource development and operating experience,
project development expertise and strategic relationships are
expected to provide it with a competitive advantage. The Company
believes that the opportunities to successfully develop, construct,
finance, own and operate international power projects are
increasing as several countries have initiated the privatization of
the power generation capacity and have solicited bids from foreign
developers to purchase existing generating facilities or to develop
new capacity. Some of these countries, such as the Philippines and
Indonesia, also have extensive geothermal resources.
The Company has recently entered into international joint
venture agreements with Kiewit and Distral S.A. ("Distral"), firms
with significant power plant construction experience, in an effort
to augment and accelerate the Company's capabilities in foreign
energy markets. Joint venture activities with Distral are expected
to be conducted in South America, Central America and the Caribbean
and joint venture activities with Kiewit are expected to be
conducted in Asia, in particular the Philippines and Indonesia, and
in other regions not covered by the Distral joint venture
agreement. See "International Geothermal and Other Development
Opportunities - International Joint Venture Agreements."
The Company has obtained "take-or-pay" power sales contracts
for two geothermal power projects in the Philippines aggregating
approximately 300 MW in capacity. The Upper Mahiao project (the
"Upper Mahiao Project"), a 120 MW geothermal facility with an
estimated total project cost of approximately $226 million, is
expected to be constructed on the island of Leyte and will be over
95% owned and operated by the Company. A syndicate of
international banks is expected to provide approximately $170
million project finance construction loan for the project. The
Company's equity commitment to such project would be approximately
$56 million. The Export-Import Bank of the United States ("ExIm
Bank") is expected to provide the term loan that would be used to
refinance the construction loan for this project, as well as
political risk insurance to the syndicate of commercial banks for
the construction loan. The Company intends to arrange for similar
insurance on its equity investment through the Overseas Private
Investment Corporation ("OPIC") or from other governmental agencies
or commercial sources. The Company expects that both the
construction and the term loan agreements for the Upper Mahiao
Project will be executed in April 1994 and that the notice to
proceed will be issued promptly thereafter under the construction
contract, which was executed in January 1994. Commercial operation
of this project is presently scheduled for mid-year 1996.
The Mahanagdong project (the "Mahanagdong Project"), a 180 MW
geothermal project with an anticipated total project cost of
approximately $310 million, is expected to be operated by the
Company and owned 45% by the Company, 45% by Kiewit and up to 10%
by another industrial company. The Company's equity investment for
the Mahanagdong Project would be approximately $40 million, and the
Company intends to obtain political risk insurance on its
investment similar to that for the Upper Mahiao Project. The
Company is in the process of arranging construction financing for
this project from a syndicate of international banks on terms
similar to those of the Upper Mahiao Project construction loan.
The construction financing is expected to close in mid-year 1994,
with commercial operation presently scheduled for mid-year 1997.
See "International Geothermal and Other Development Opportunities -
The Philippines."
The Company has been awarded the geothermal development rights to
three geothermal fields in Indonesia at Dieng, Patuha and
Lampung/South Sumatra, the initial phases of which could aggregate
an additional generating capacity of 500 NMW. The Company is
currently negotiating power sales contracts for these projects in
Indonesia. See "International Geothermal and Other Development
Opportunities - Indonesia."
Geothermal Energy
Geothermal energy can be economically extracted when water
contained within porous and permeable rock formations comes
sufficiently close to molten rock to heat the water to temperatures
of 400 degrees Fahrenheit or more. The heated water then ascends
towards the surface of the earth, where it can be extracted by
drilling geothermal production wells. The energy necessary to
operate a geothermal power plant is typically obtained from several
such wells, which are drilled using established technology similar
to that employed in the oil and gas industry.
The geothermal production wells are normally located within
approximately one to two miles of a power plant, as geothermal
fluids cannot typically be transported economically over longer
distances. From the well heads, the heated fluid flows through
pipelines to a series of separators, where it is separated into
water "brine" and steam. The steam is passed through a turbine
which drives a generator to generate electricity. Once the steam
has passed through the turbine it is then cooled and condensed back
into water, which along with any brine and noncondensable gases is
returned to the geothermal reservoir via injection wells. The
geothermal reservoir is a renewable source of energy if natural
ground water sources and reinjection of extracted geothermal fluids
are adequate to replenish the geothermal reservoir after the
withdrawal of geothermal fluids. Geothermal plants in the United
States are eligible to be "Qualified Facilities" under PURPA. See
"Regulatory and Environmental Matters"
The Independent Power Production Market and Competition
In the United States, the independent power industry expanded
rapidly in the 1980's, facilitated by the enactment of PURPA.
PURPA was enacted to encourage the production of electricity by
non-utility companies. According to the Utility Data Institute and
the North American Electricity Reliability Council, independent
power producers were responsible for about 50,000 MW, or 43%, of
the U.S. electric generation capacity which has come on line since
1980.
As the size of United States independent power market has
increased, available domestic power capacity and competition in the
industry have also significantly increased. The Company competes
with other independent power producers including affiliates of
utilities, in obtaining long-term contracts to sell electric power
and steam to utilities. In addition, utilities may elect to expand
or create generating capacity through their own direct investments
in new plants. Over the past decade, obtaining a power sales
contract from a U.S. utility has generally become increasingly
difficult, expensive and competitive. Many states now require
power sales contracts to be awarded by competitive bidding, which
both increases the cost of obtaining such contracts and decreases
the chances of obtaining such contracts as bids significantly
outnumber awards in most competitive solicitations. Many of the
Company's competitors have more extensive and more diversified
developmental or operating experience (including international
experience) and greater financial resources than the Company. The
federal Energy Policy Act of 1992 is expected to further increase
domestic competition.
Due to the rapidly growing demand for new power generation
capacity in many foreign countries and resulting privatization of
power development, significant new markets for independent power
generation now exist outside the United States. The Company
intends to take advantage of opportunities in these new markets and
to develop, construct and acquire generation projects outside the
United States. See "International Geothermal and Other Development
Opportunities."
Business Development Strategies
The Company is focusing on market opportunities domestically
in which it believes it has relative competitive advantages, such
as geothermal (because of the Company's geotechnical and project
management expertise and extensive geothermal leaseholdings). In
addition, the Company expects to consider diversification into
other environmentally responsible sources of energy, primarily
through the selected acquisition of partially developed or existing
power generating projects.
The Company is also actively pursuing selected opportunities
abroad in developing nations where power demand is high and the
Company's geothermal operating experience, project development
expertise and strategic relationships with Kiewit and Distral are
expected to provide it with a competitive advantage. The Company
believes that the opportunities to successfully develop, construct
and finance international projects are increasing as several
countries, including the Philippines and Indonesia, have initiated
the privatization of their power generation capacity and have
solicited bids from foreign developers for the purchase of existing
generating capacity or the development of new capacity. In
evaluating and negotiating international projects, the Company
intends to employ a strategy whereby a substantial portion of the
political and financial risks are, through contract provisions or
insurance coverage, borne by parties other than the Company;
however, there can be no assurance that such insurance will be
available on commercially reasonable terms, or that such third
parties will perform such contract provisions.
THE COSO PROJECT
In 1979, the Company entered into a 30-year contract (the
"Navy Contract") with the United States Department of the Navy
("the Navy") to explore for, develop and generate electricity from
geothermal resources located on approximately 5,000 acres of the
Naval Air Weapons Station at China Lake, California. In 1985, the
Company entered into a 30-year lease (the "BLM Lease") with the
United States Bureau of Land Management ("BLM") for approximately
19,000 acres of land adjacent to the land covered by the Navy
Contract. The Company formed the Coso Joint Ventures with one
primary joint venture partner, Caithness Corporation ("Caithness"),
to develop and construct the three facilities which comprise the
Coso Project. The Coso Joint Ventures entered into contracts to
supply electricity to SCE. The contracts were entered into
pursuant to the provisions of PURPA, which, subject to certain
conditions, requires electric utilities to purchase electricity
from qualifying independent power producers.
The three joint ventures which own the Coso Projects are (i)
Coso Finance Partners, which owns the Navy I Project, (ii) Coso
Energy Developers, which owns the BLM Project, and (iii) Coso Power
Developers, which owns the Navy II Project. The Company holds
ownership interests of approximately 46% in the Navy I Joint
Venture; of approximately 48% in the BLM Joint Venture, after
payout to the Company and its joint venture partner; and of 50% in
the Navy II Joint Venture. The remaining portions are owned by
partnerships formed by Caithness and certain investors (the
"Caithness Partnerships"). In addition, the Company indirectly
holds rights to certain cash flows from the Caithness Partnerships
in the BLM Project, and, to a lesser extent, the Navy I Project and
Navy II Project. See "The Coso Project -- Interest in Caithness
Partnerships". Each of the Coso Joint Ventures is managed by a
management committee which consists of two representatives from the
Company and two representatives from the Caithness Partnerships.
The Company also acts as the operator of each of the fields and
plants, for which it receives fees from the Coso Joint Ventures.
The Coso Geothermal Resource
The area in which the Coso Projects are located has been
designated as a "Known Geothermal Resource Area" ("KGRA") by the
United States Department of the Interior, Bureau of Land Management
("BLM") pursuant to the Geothermal Steam Act of 1970. Areas are
designated as KGRAs when the BLM determines that a commercially
viable geothermal resource is likely to exist. There are over 100
other KGRAs in the United States.
The Coso geothermal resource is located in Inyo County,
California, approximately 150 miles northeast of Los Angeles. The
Coso geothermal resource is a liquid-dominated hot water resource
contained within the heterogeneous fractured granitic rocks of the
Coso mountains. It is believed that the heat source for the Coso
geothermal resource is a molten rock or "magma" body located
beneath the field at a depth of six to seven miles. Water in the
system is believed to be supplied from groundwater flow from the
Sierra Nevada mountains located approximately 10 miles west of the
site.
Production is obtained by drilling wells into the fracture
systems, which tap into these reservoirs of hot water. As is
common in this type of geothermal resource, the heterogeneous,
fractured structure makes it somewhat difficult to predict the
performance of new wells even when the new wells are located in
relatively close proximity to existing wells. Geothermal
exploration, development and operations are subject to
uncertainties similar to those typically associated with oil and
gas exploration and development, including dry holes and
uncontrolled well flows. The success of geothermal projects
ultimately depends on the heat content of the extractable fluids,
the geology of the reservoir, the reservoir's actual life, and
operational factors relating to the extraction of the fluids,
including operating expenses, electricity price levels and capital
expenditure requirements. Because of the geological complexities
of geothermal reservoirs, the geographic area and sustainable
output of a geothermal reservoir can only be estimated and cannot
be definitively established. There is, accordingly, a risk of an
unexpected decline in the capacity of geothermal wells, and a risk
of a geothermal reservoir not being sufficient for sustained
generation of the electrical power capacity desired.
Average production of a typical new geothermal production well
is expected by the Coso Joint Ventures to decline 35% to 45% in the
first year, 15% to 25% in the second year, 5% to 15% in the third
year and 5% or less each year thereafter, due to mechanical
deterioration of the well bore, well bore scaling, a decline in
well pressure due to the withdrawal of geothermal fluids, and other
chemical and physical factors. The Coso Joint Ventures have
adopted a program of geothermal well replacement which is intended
to compensate for production decreases.
Production available at the wellhead for the Navy I Project,
the BLM Project and the Navy II Project presently is in excess of
the steam necessary for power production at full capacity for each
plant. Under the loans financing the power plants, each Joint
Venture is required to meet a steam covenant as of May 1st of each
year which requires geothermal reserves of 125% of the resource
required to operate each plant at full capacity.
Management of the Company believes, based on geological and
engineering surveys and analysis of wells drilled, that the Coso
Projects' geothermal resource is sufficient to supply steam to the
Coso Projects of adequate temperature and in sufficient quantities
for the respective terms of the SO4 Agreements. Because of the
uncertainties related to developing, exploring and operating
geothermal resources and the limited history of extracting the
geothermal resource at the sites of the Navy I Project, the BLM
Project and the Navy II Project, there is no assurance that the
geothermal reservoir will continue to supply steam to the Coso
Project at current levels for the remaining terms of the SO4
Agreements.
The Company believes that the facilities producing electricity
at the Coso Project emit significantly less emissions than
electricity production facilities using combustible materials as an
energy source. The geothermal fluids contain certain
noncondensable gases, such as hydrogen sulfide ("H2S"), carbon
dioxide ("C02"), hydrogen, nitrogen, ammonia, methane, and argon,
as well as traces of arsenic (a metal which remains dissolved in
the brine after separation). Certain of the Coso Joint Ventures
hold permits to operate the turbine-generator units which require
that the release of certain noncondensable gases be below specified
levels. The Coso Joint Ventures have, from time to time, exceeded
such levels, particularly with respect to the BLM Project. As a
result, new H2S emissions control systems were installed at the BLM
Project in 1992. H2S emissions control systems are also now under
contract to be installed at the Navy I Project and the Navy II
Project in 1994. Operating permits and California state laws
require that arsenic levels may not exceed specified levels so as
not to endanger worker health and safety. Arsenic comes into
contact with the interior of the pipes and turbine systems and may
be released into sumps during well tests. Failure to construct and
operate the Coso Projects within the applicable regulatory limits
may result in the applicable regulatory agencies levying fines on
the Coso Joint Ventures or curtailing operation of the Coso
Projects until compliance with the regulatory limits is achieved.
The Coso area is subject to frequent low-level seismic
disturbances, and more serious seismic disturbances are possible.
The Coso Project's wells and turbine generator units have been
designed and built to withstand relatively significant seismic
disturbances, but there can be no assurance that they will
withstand any particular disturbance. See "Insurance".
The Coso Facilities
The physical facilities used for geothermal energy production
are substantially the same at the Navy I Project, the BLM Project
and the Navy II Project.
The geothermal fluids produced at the wellhead consist of a
mixture of hot water and steam. The mixture flows from the
wellhead through a gathering system of insulated steel pipelines to
high pressure separation vessels called separators. There, steam
is separated from the water and is sent to a demister in the power
plant, where any remaining water droplets are removed. This
produces a stream of dry steam, which passes through the high
pressure inlet of a turbine generator, producing electricity. The
hot water previously separated from the steam at the high pressure
separators is piped to low pressure separators, where low pressure
steam is separated from the water and sent to the low pressure
inlet of a turbine generator. The hot water remaining after low
pressure steam separation is injected back into the Coso geothermal
resource.
Steam exhausted from the steam turbine is passed to a surface
condenser consisting of an array of tubes through which cold water
circulates. Moisture in the steam leaving the turbine generators
condenses on the tubes and, after being cooled further in a cooling
tower, is used to provide cold circulating water make up for the
condenser.
At the Navy I Project and the Navy II Project, the primary
atmospheric emission control system consists of the surface
condenser, noncondensable gas removal equipment, a gas compressor
unit and the injection wells. The noncondensable gas, which
consists primarily of CO2 with a small percentage of H2S, is
compressed, mixed with the hot water exiting the low pressure
separator and reinjected into the geothermal reservoir. The BLM
Project has the same injection facilities. The Coso Joint Ventures
believe that certain residual, noncondensable gases, primarily CO2
and a small percentage of H2S which were originally being returned
to the geothermal reservoir through the injection wells at the
respective Coso Projects were recycling into the production wells
supplying the Coso Projects, which, together with related equipment
problems, increased H2S emissions and reduced the ability to use
the energy content of the extracted geothermal fluids which in
turn reduced the overall electrical generating capacity for the
Coso Project. Therefore, in addition to the injection wells, a
Dow SulFerox H2S abatement system was installed at the BLM Project
and new LO-CAT II H2S abatement systems are under contract to be
installed at the Navy I Project and Navy II Project in 1994, as
described below.
All of the Coso Projects are designed to operate 24 hours a
day every day of the year. Currently, each year three of the nine
turbine generators are shut down for approximately two weeks for
regular inspection, maintenance and repair. The Company attempts
to schedule these shut-downs during off-peak periods. Weekend
outages are scheduled twice a year for all nine units.
The Navy I Project. The geothermal resource for the Navy I Project
currently is produced from approximately 32 wells located within a
radius of approximately 3,000 feet of the Navy I Project area. The
Navy I Project consists of three individual turbine generators,
each with approximately 32 MW of electrical generating capacity.
The Navy I Project has an aggregate gross electrical generating
capacity of approximately 96 MW, and operated at an average
operating capacity factor of 98.5% in 1991, 99.8% in 1992 and
111.2% in 1993, based on a capacity of 80 NMW.
The Navy I Joint Venture recently executed agreements with ARI
Technologies, Inc. for the Engineering, Procurement and
Construction of a LO-CAT II H2S abatement system and the right to
use that technology. The LO-CAT II H2S abatement system is
expected to be completed in 1994.
The BLM Project. The BLM Project's geothermal resource currently
is produced from approximately 20 wells located within a radius of
approximately 4,000 feet from either the BLM East or BLM West site.
The BLM Project consists of three turbine generators. Two of these
turbine generators are located at the BLM East site in a dual flash
system, each with a nameplate capacity of 29 MW; and one is located
at the BLM West site in a single flash system, with a nameplate
capacity of 29 MW. The BLM Project has an aggregate gross
electrical generating capacity of approximately 96 MW, and operated
at an average operating capacity factor of 71.4% in 1991, 87.2% in
1992, and 98.1% in 1993, based on a capacity of 80 NMW.
The BLM Joint Venture recently completed the construction of
two Dow SulFerox H2S abatement systems for the BLM Project which
have improved the BLM Project's operating efficiency. These H2S
abatement systems were designed by Dow Chemical USA and constructed
by Gilbert Industrial Corp.
The Navy II Project. The geothermal resource for the Navy II
Project currently is produced from approximately 25 wells located
within a radius of approximately 5,000 feet of the Navy II Project
area. The Navy II Project consists of three individual turbine
generators, each with approximately 32 MW of electrical generating
capacity. The Navy II Project has an aggregate gross electrical
capacity of approximately 96 MW, and operated at an average
operating capacity factor of 99.9% in 1991, 98.1% in 1992, and
102.6% in 1993, based on a capacity of 80 NMW.
The Navy II Joint Venture recently executed agreements with
ARI Technologies, Inc. for the Engineering, Procurement and
Construction of a LO-CAT II H2S abatement system and the right to
use that technology. The LO-CAT II H2S abatement system is
expected to be completed in 1994.
Power Transmission Lines. The electricity generated by the Navy I
Project is transmitted over a 28.8 mile 115 kilovolt ("kV")
transmission line to the SCE substation at Inyokern, California.
This transmission line is owned and operated by the Navy I Joint
Venture. The electricity produced by the BLM Project and the Navy
II Project is transmitted on a 230 Kv power line connected to the
SCE substation at Kramer Junction, California (the "Transmission
Line"). Coso Transmission Line Partners, a California general
partnership ("CTLP"), holds title to the Transmission Line and
related facilities, which are used by both the BLM Joint Venture
and the Navy II Joint Venture. The BLM Joint Venture and the Navy
II Joint Venture are the general partners of CTLP. CTLP charges
the BLM Joint Venture and the Navy II Joint Venture for its costs,
allocated in accordance with the proportion of the transmission
capability of the Transmission Line dedicated for each Project's
use. Pursuant to a Transmission Line Operation and Maintenance
Agreement dated as of July 28, 1989 between CTLP and the Company,
the Transmission Line is operated by the Company on behalf of CTLP
for an annual fee.
Management of the Coso Joint Ventures
The managing partner of the Navy I Joint Venture is China Lake
Operating Company ("CLOC"), the managing partner of the BLM Joint
Venture is Coso Hotsprings Intermountain Power, Inc. ("CHIP"), and
the managing partner of the Navy II Joint Venture is Coso
Technology Corporation ("CTC"). CLOC, CHIP and CTC are wholly-
owned subsidiaries of the Company. Each managing partner is
responsible for the conduct of the business of its Joint Venture,
and each has subcontracted with the Company to operate and maintain
its respective plant and geothermal field pursuant to operation and
maintenance agreements as described below. As such, the managing
partners have control over the day-to-day businesses of the Coso
Joint Ventures, including budgeting and development of the Coso
Projects, subject to the oversight of the Management Committee. No
managing partner may be removed without the consent of the Company.
The business operations of each Coso Joint Venture are
overseen by a management committee (each a "Management Committee").
In each case the Management Committee consists of two delegates
appointed by the managing partner and two delegates appointed by
the Caithness Partnerships. Pursuant to the partnership agreement
of each of the Coso Joint Ventures, each Management Committee holds
meetings on a quarterly basis and on such other dates as shall be
called by any of the partners. Action of the Management Committee
may be taken by majority vote of a quorum of at least three
delegates present at a meeting, or by written consent or confirmed
telephonic vote of at least three delegates.
The Management Committee of each of the Coso Joint Ventures
must consent to certain investment and business decisions of the
managing partners, including, without limitation, certain decisions
regarding contracts, engagement of outside consultants, termination
of the Coso Joint Ventures and approval of budgets. For the
purposes of the Coso Project Loans, if the annual budget proposed
by the managing partner is not approved by the Management Committee
in a timely fashion, the managing partner is required to retain an
independent engineering firm to review the proposed budget. If
this proposed budget is approved by the independent engineering
firm as reasonably designed to operate and maintain a facility of
this type and to maximize revenues and net income, the budget as
proposed by the managing partner is deemed to be approved.
Otherwise, any controversies or claims arising out of the
partnership agreements of the Coso Joint Ventures are to be settled
by binding arbitration.
Plant Operation and Maintenance Agreements. By a separate Plant
Operations and Maintenance Agreement ("Plant O&M Agreement") for
each Coso Joint Venture, dated July 15, 1988, in the case of the
Navy I Project, August 3, 1988, in the case of the BLM Project, and
December 30, 1988, in the case of the Navy II Project, the Company
has agreed to perform on behalf of CLOC, CHIP and CTC the operation
and maintenance services for the Coso Projects.
In each case, the Company's performance of these services will
be in accordance with an annual operating budget for each Coso
Project. Pursuant to each Plant O&M Agreement, the Company's
general duties include hiring and training of personnel, testing
and operation of the three turbine generators for each Coso
Project, providing inventories of tools and spare parts, upkeep of
the Transmission Line, furnishing reports required by SCE, the BLM,
the Navy or other governmental authorities, and protecting and
enforcing all warranty rights and claims related to each Coso
Project. Each Coso Joint Venture is a third-party beneficiary of
its respective Plant O&M Agreement.
CLOC, CHIP and CTC compensate the Company for its services
rendered under each Plant O&M Agreement, including reimbursement
for all of the Company's direct costs incurred in operating each
Coso Project, and the operator fees approved by the Coso Joint
Ventures' respective Management Committee. CLOC, CHIP and CTC have
the right to suspend all services performed by the Company under
the respective Plant O&M Agreements under certain circumstances,
including the inability of the Coso Projects or the Transmission
Line to operate for any reason, SCE's refusal or inability to
accept power generated by a Coso Project, or Navy or BLM activities
or restrictions which prohibit economic operation of the Navy I
Project, the BLM Project or the Navy II Project. In the event of
such suspension, CLOC, CHIP and CTC are relieved of their
respective obligations to compensate the Company after 30 days,
after compensating the Company for costs associated with winding
down or resumption of operations.
Each Plant O&M Agreement between CLOC, CHIP or CTC and the
Company may be terminated by the Company upon six months' notice.
Otherwise each Plant O&M Agreement may be terminated in the event
of an uncured default by either party and shall be terminated upon
the termination by SCE of the applicable SO4 Agreement upon the
occurrence of an uncured default thereunder. Under the current
financing arrangements for the Coso Project, the Plant O&M
Agreements have a term equal to the longest maturity of the notes
issued by Coso Funding Corporation and may not be terminated by a
Coso Joint Venture without the consent of the trustee under the
indenture for such notes, and any material amendments or
modifications must be approved by the trustee and an independent
engineering firm.
Field Operation and Maintenance Agreements. The arrangements for
the operation and maintenance of the Navy I, the BLM and the Navy
II geothermal resources are substantially the same as those for the
Navy I, the BLM, and the Navy II plants and facilities, as set
forth above. The obligations of the Company, pursuant to the three
Field Operations and Maintenance Agreements, dated July 15, 1988
for the Navy I Project, August 8, 1988 for the BLM Project, and
December 30, 1988 for the Navy II Project (each a "Field O&M
Agreement"), include performing all testing, permitting and record
keeping services required by the Navy I Joint Venture, the BLM
Joint Venture and the Navy II Joint Venture, the BLM, the Navy or
other government authorities, proper operation and maintenance of
the steam gathering, delivery and injection systems, maintenance of
a qualified staff, and contracting with drilling companies for
repair and replacement of wells. The compensation, suspension,
emergency procedure, third-party beneficiary and termination
provisions of each Field O&M Agreement are substantially the same
as the corresponding provisions in the Plant O&M Agreements, as set
forth above.
Coso Royalty and Other Revenue Sharing Agreements
The receipt of revenues from the Navy I Project, the BLM
Project and the Navy II Project are subject to the following
royalty and other revenue sharing arrangements:
The Navy Contract. In December 1979, the Company entered into the
30-year Navy Contract with the Government of the United States,
acting through the Navy, which granted to the Company exclusive
rights to explore, develop and use the geothermal resource located
within the Naval Air Weapons Station near China Lake, California,
in the Coso KGRA (the "Navy Contract"). The term of the Navy
Contract may be extended for an additional 10 years at the option
of the Navy.
The Navy Contract has been modified on several occasions to
provide for, among other things, assignment of all of the Company's
rights with respect to the Navy I Project and the Navy II Project
to the Navy I Joint Venture and the Navy II Joint Venture,
respectively. In accordance with the terms of the financing
arrangements for the Coso Project, the Navy I and Navy II Joint
Venture's rights and interests pursuant to the Navy Contract have
been assigned as security for the notes issued by Coso Funding
Corporation in connection with the refinancing of existing bank
debt of the Coso Project.
Navy I Project. Under the terms of the Navy Contract, as a royalty
for Unit 1 of the Navy I Project, the Navy I Joint Venture is
obligated to pay for electricity supplied by SCE to the Navy. This
obligation amounted to $9,620,900 in 1993 for 112 million kWh of
electricity. The Navy is obligated to reimburse the Navy I Joint
Venture for the electricity used, at a formula price specified in
the Navy Contract. For 1993, the reimbursement to the Navy I Joint
Venture equaled approximately 71% of the SCE price paid by the Coso
Joint Venture. The percentage reimbursement from the Navy is
escalated semi-annually, not to exceed 95% of the SCE price, in
accordance with a weighted index based on the Consumer Price Index
and price indices for the oil industry, the electric power plant
industry and the construction industry.
In addition, the Navy I Joint Venture is obligated to pay the
Navy the sum of $25.0 million in respect of Unit 1 of the Navy I
Project on December 31, 2009, which is the expiration date of the
initial term of the Navy Contract. This payment will be made from
a sinking fund, to which the Navy I Joint Venture has been making
payments since 1987. Payments to the sinking fund are to be made
at an annual rate of $600,000. As of December 31, 1993,
approximately $2.7 million was on deposit in this sinking fund,
representing both sinking fund payments and accrued interest.
For Units 2 and 3 at the Navy I Project, the Navy I Joint
Venture's royalty expenses are a fixed percentage of its
electricity sales. The royalty expense per Kwh remained constant
at 10.0% through 1993 and will escalate over the life of the Navy
Contract in accordance with the following schedule:
1994-1998. . . . . . . . . . . . . . . . . . . . . . 10.0%
1999-2003. . . . . . . . . . . . . . . . . . . . . . 15.0%
2004-2009. . . . . . . . . . . . . . . . . . . . . . 20.0%
Navy II Project. The Navy II Joint Venture's royalty expenses are
a fixed percentage of its electricity sales. The royalty expense
per Kwh remained constant at 4.0% through 1993 and will escalate
over the life of the Navy Contract in accordance with the following
schedule:
1994 . . . . . . . . . . . . . . . . . . . . . . . . .4.0%
1995-1999. . . . . . . . . . . . . . . . . . . . . . 10.0%
2000-2004. . . . . . . . . . . . . . . . . . . . . . 18.0%
2005-2010. . . . . . . . . . . . . . . . . . . . . . 20.0%
The Navy II Joint Venture is also obligated to pay any
shortfalls in the obligation of the Navy I Joint Venture to make
annual sinking fund payments of $600,000 in respect of the Navy I
Joint Venture's obligation in respect of Unit I of the Navy I
Project to pay the Navy the sum of $25.0 million on December 31,
2009.
Termination. The Navy has the right to terminate the Navy
Contract at any time by giving the Navy I Joint Venture or the Navy
II Joint Venture, or both, as applicable, six months prior written
notice for "reasons of national security, national defense
preparedness, national emergency, or for any reasons the
Contracting Officer shall determine that such termination is in the
best interest of the U.S. Government."
In the event of such termination, the United States Government
is required to pay the Navy I Joint Venture, or the Navy II Joint
Venture, or both, as applicable, for its unamortized exploratory
investment and for its investment in installed power plant
facilities, up to a maximum based on the nameplate capacity of the
turbine generators. With respect to each of the Navy I and Navy II
Joint Ventures, for the first aggregate 25 MW, the maximum is $2.7
million per MW, and for the next 25 MW (i.e. up to 50 MW), the
maximum payment is $2.5 million per MW. For 50-75 MW the maximum
payment is $1.4 million per MW for the Navy I Joint Venture and
$2.3 million per MW for the Navy II Joint Venture. For a total
nameplate capacity of 75 MW for either the Navy I Project or the
Navy II Project, the total maximum payment for termination
compensation would be $165.0 million for the Navy I Joint Venture,
and $187.5 million for the Navy II Joint Venture. The total
aggregate termination compensation for both the Navy I and Navy II
Joint Venture could therefore not exceed $352.5 million. There is
no provision in the contract to compensate either the Navy I or the
Navy II Joint Venture for the loss of anticipated profits resulting
from such termination.
The BLM Lease. On April 29, 1985 the Company and the BLM entered
into an "Offer to Lease and Lease for Geothermal Resources,"
#CA11402 effective as of May 1, 1985 (the "BLM Lease"), pursuant to
which the Company acquired a leasehold interest in approximately
2,500 acres of land, including rights to explore, develop and use
the geothermal resource thereon. All of the Company's rights
pursuant to the BLM Lease have been assigned to the BLM Joint
Venture. The BLM Lease was recorded on May 9, 1988 as Instrument
No. 88-2092 of the Official Records of Inyo County.
The primary term of the BLM Lease is 10 years, however, the
term extends automatically "for so long thereafter as geothermal
steam is produced to be utilized in commercial quantities but shall
in no event continue for more than forty years after the end of the
primary term." Such an automatic extension due to the continuation
of production is termed being "held by production." The BLM Joint
Venture also enjoys a preferential right of renewal of the BLM
Lease for a second forty-year term if the BLM Lease is held by
production at the termination of the forty-year automatic
extension. If the initial 10-year term expired at the present
time, the BLM Lease would be deemed to be "held by production,"
entitling the BLM Joint Venture to an automatic extension.
Royalties to the BLM are 10% of the amount of value of steam
produced, 5.0% of any by-products and 5.0% of commercially
demineralized water. These rates are fixed for the life of the BLM
Lease. Since increased steam production is required to increase
revenues, the royalties based on the value of the steam typically
increase with the revenues. Under the method which has been agreed
to for valuing the steam utilized by the BLM Project, the 10%
royalty translates to an approximate royalty rate of 5.1% on
revenues from electricity sales. The BLM Project does not
currently produce demineralized water, but the sulphur and carbon
dioxide by-products of the Dow SulFerox H2S abatement system are
subject to the BLM royalty schedule. The BLM has the right to
establish minimum production levels after notice and an opportunity
to be heard, and the right to reduce the above royalties if
necessary to encourage the greater recovery of leased resources, or
as otherwise justified.
In addition to the royalties mentioned above, the BLM Joint
Venture is also obligated to pay a royalty to Coso Land Company
("CLC"), an affiliate of the BLM Joint Venture (the "CLC Royalty").
The CLC Royalty is equal to 5.0% of the value of the steam utilized
by the BLM Project, but is subordinated to all other royalties, all
debt service of the BLM Joint Venture and all operating costs of
the BLM Project. The royalty may not be transferred without
consent and is unsecured.
Pursuant to the BLM Lease, the BLM Joint Venture must comply
with certain "Navy Constraints on Naval Weapon Center Lands." These
constraints include, among other things, certain security measures
and restrictions of access, the Navy's right to suspend operations
if an imminent threat to the environment is present, permitting
requirements, information and data exchange, and the Navy's right
of inspection. In addition, BLM leases can be terminated by
operation of law, as follows: (i) at the anniversary date, for
failure to pay the full amount of the annual rental by such date,
and (ii) at the end of the primary term, if there is no production
in commercial quantities, there is no producing well, or actual
drilling operations are not being diligently prosecuted.
Other Revenue Sharing Arrangements. The Company has outstanding
Senior Notes (the "Senior Notes"). The Senior Notes bear interest
at the rate of 12% per annum, plus 10% of the Company's share of
the net cash flow from the Coso Project through December 31, 1994.
SO4 Power Sales Agreements
The Navy I Joint Venture, the BLM Joint Venture and the Navy
II Joint Venture have acquired SO4 Agreements which were originally
executed by SCE and the China Lake Joint Venture ("CLJV"), and by
SCE and Coso Geothermal Company ("CGC"), each of which are
California general partnerships between the Company, Caithness and
others. Under the terms of the SO4 Agreements, the Navy I Joint
Venture, the BLM Joint Venture and the Navy II Joint Venture have
agreed to sell and SCE has agreed to purchase the net electrical
output of the Navy I, the BLM and the Navy II Projects. The SO4
Agreements require that each Coso Project maintain its status as a
qualifying facility under PURPA throughout its respective contract
term.
Pursuant to the SO4 Agreements, SCE must purchase all of the
net electrical output of the Navy I Project until August 2011, of
the BLM Project until March 2019 and of the Navy II Project until
January 2010. In each case, SCE must pay the Navy I Joint Venture,
the BLM Joint Venture and the Navy II Joint Venture capacity
payments, capacity bonus payments and energy payments in accordance
with each Coso Project's output.
Capacity Payments. A Coso Project qualifies for an annual capacity
payment by meeting specified performance requirements on a monthly
basis during an approximately four-month long peak period, which
currently runs during the months of June through September of each
year. The basic performance requirement is that the Coso Project
deliver an average kWh output during specified on-peak hours of
each month in the peak period at a rate equal to at least an 80%
Contract Capacity Factor. The "Contract Capacity Factor" equals
(1) a plant's actual electricity output, measured in kWhs, during
the hours of measurement, divided by (2) the product obtained by
multiplying the plant's "Contract Capacity," as stated in the SO4
Agreement applicable to such plant, by the number of hours in the
measurement period. If a Project maintains the required 80%
Contract Capacity Factor during the applicable periods, the annual
capacity payment will be equal to the product of the capacity
payment per kWh stated in its SO4 Agreement and the Contract
Capacity.
The Navy I Project has a Contract Capacity of 75 MW, and a
capacity payment per kW year of $161.20, for an annual maximum
capacity payment of $12,090,000. The BLM Project and the Navy II
Project each have a Contract Capacity of 67.5 MW, and capacity
payments per kW year of $175.00 and $176.00, respectively, yielding
annual maximum capacity payments of $11,812,500 and $11,880,000,
respectively. Although capacity prices per kWh remain constant
throughout the life of each SO4 Agreement, capacity payments are
disbursed by SCE on a monthly basis in accordance with a tariff
schedule filed with the CPUC. Payments are made unevenly
throughout the year, and are weighted toward the on-peak periods;
currently, approximately 84% of the capacity payments received by
the Coso Joint Ventures from SCE are paid in respect of peak
months, and 16% in respect of non-peak months. As of the end of the
1992 peak season, each of the Coso Projects earned, for the first
time, the maximum capacity and bonus payments available under its
respective SO4 Agreement for the peak months. In 1993 each of the
Coso Projects also earned the maximum capacity and bonus payments
available under its respective SO4 Agreement for the peak and non-
peak months.
Capacity Bonus Payments. Each Coso Joint Venture is entitled to
receive capacity bonus payments during both on-peak and non-peak
months by operating at a Contract Capacity Factor of between 85%
and 100% during on-peak hours of each month. A plant qualifies for
capacity bonus payments in respect of peak months provided that the
plant operates at least at an 85% Contract Capacity Factor during
the on-peak hours of the month, and qualifies in respect of non-
peak months if performance requirements for on-peak months have
been satisfied and the plant also operates at a Contract Capacity
Factor of at least 85% during mid-peak hours of the non-peak month.
Capacity bonus payments for each month increase with the level
of kWhs delivered between the 85% and 100% Contract Capacity Factor
levels during the month. The annual capacity bonus payment for
each month is equal to a percentage based on the plant's on-peak
Contract Capacity Factor (which percentage may not exceed 18% of
one-twelfth of the annual capacity payment).
Energy Payments. In addition to capacity and bonus payments, SCE
must make monthly energy payments to each Coso Joint Venture in
accordance with kWh of energy delivered by each Coso Project. The
energy price component for electricity delivered to SCE is subject
to different pricing mechanisms during the first 10 years of each
SO4 Agreement than are applicable during the remaining term of each
agreement. During the first 10 years following the commencement of
firm power delivery, the energy price per kWh varies between so-
called on-peak and non-peak periods, but the time weighted average
of these prices equals a fixed price per kWh specified in the SO4
Agreements. The stated fixed price in the SO4 Agreements escalates
at an average annual rate of approximately 7.7% per year for the
remainder of the initial 10-year period under the SO4 Agreement for
the Navy I Project, 6.4% per year for the BLM Project and the Navy
II Project. This period ends in August 1997 for the Navy I Joint
Venture, March 1999 for the BLM Joint Venture and January 2000 for
the Navy II Joint Venture. The fixed average energy prices per kWh
which will remain in effect through the year 1998 and which
management of the Coso Joint Ventures believes will be the minimum
amounts payable in 1999 and 2000 are as follows:
Annual %
Year Price/kWh Increase
1993 10.1 cents
1994 10.9 cents 7.9%
1995 11.8 cents 8.3%
1996 12.6 cents 6.8%
1997 13.6 cents 7.9%
1998 14.6 cents 7.4%
1999 14.6 cents 0.0%
2000 14.6 cents 0.0%
After the initial 10-year period under each SO4 Agreement
expires, the energy price paid for electricity delivered under the
agreement will be based upon SCE's short-run avoided cost (as
determined and published from time to time by the CPUC) which at
present is substantially lower than the current energy payments
under the SO4 Agreement. The short-run avoided cost is the product
of its Incremental Energy Rate ("IER") (system efficiency) and its
avoided fuel rate, plus various additions that have been adopted by
the CPUC. The IER and the additions are determined yearly in the
purchasing utility's Energy Cost Adjustment Clause proceeding
before the CPUC. The purchasing utility's avoided fuel and the
corresponding fuel rate are determined monthly by the CPUC. For
the majority of months, the utility's avoided fuel has historically
been gas, although in some winter months the avoided fuel has been
oil. When the avoided fuel is gas, the electric utility's fuel
rate is based on the utility's forecast of its average cost of gas.
When the avoided fuel is oil, the utility's fuel rate is based on
the utility's actual average cost of the most recent period's oil
purchase. Consequently, after the initial 10-year period, energy
payments under the SO4 Agreements will fluctuate based on average
fuel costs in the California energy market.
The Company cannot predict the likely level of avoided cost
energy prices at the expiration of the fixed price period.
Although from time to time, various third parties attempt to
forecast SCE's future avoided costs, the Company believes that all
forecasts of avoided costs are inherently speculative in nature
because SCE's actual avoided costs will be dependent upon, among
other factors, SCE's future fuel costs, system operation
characteristics and regulatory action.
Non-Recourse Coso Project Financing
In December 1992, the Coso Joint Ventures refinanced the
existing bank debt on the Coso Projects with the proceeds of the
sale of approximately $560 million in non-recourse senior secured
notes (the "Notes") in a private placement pursuant to Rule 144A
under the Securities Act of 1933. The Notes were issued by Coso
Funding Corp. ("Coso Funding"), a corporation owned by the Coso
Joint Ventures and formed exclusively for the purpose of issuing
the Notes. Coso Funding has lent the Coso Joint Ventures
substantially all of the net proceeds of the sale of the Notes in
loans known as the "Project Loans".
The Notes were issued in the following amounts, fixed interest
rates and maturities:
Amount Rate Maturity
$ 12,904,000 4.94% December 31, 1992
$ 17,506,000 5.35% June 30, 1993
$ 17,506,000 5.72% December 31, 1993
$ 28,823,000 6.50% June 30, 1994
$ 28,823,000 6.87% December 31, 1994
$ 33,552,000 7.22% June 30, 1995
$ 33,552,000 7.41% December 31, 1995
$167,992,000 7.99% December 31, 1997
$144,504,000 8.53% December 31, 1999
$ 75,083,000 8.87% December 31, 2001
Mandatory semi-annual principal repayments are required with
respect to Notes due 1997, 1999 and 2001 beginning on June 30,
1996, 1998 and 2000, respectively. At the time of their issuance,
the Notes were rated "BBB-" by Standard & Poor's Corporation,
"Baa3" by Moodys Investor's Service Inc., and "BBB" by Duff &
Phelps Credit Rating Co., all investment grade ratings.
The obligations of each Coso Joint Venture under the Project
Loans are non-recourse obligations. Coso Funding may look solely
to each Coso Joint Venture's pledged assets for satisfaction of
such Coso Joint Venture's Project Loan. In addition, the Project
Loans are cross-collateralized by certain support loans ("Support
Loans") only to the extent of the other Coso Joint Ventures'
available cash flow and, under certain circumstances, the debt
service reserve funds, and not as to other assets. The Company is
not liable for the repayment of the Notes or the Project Loans.
Reference is made to the indenture relating to the Notes (the
"Notes Indenture") for a detailed description of the refinancing
terms, including the definition of certain terms used herein.
Security. The Notes are secured by an assignment of Coso Funding's
interest in the Project Loans of the Coso Joint Ventures and a
security interest in all collateral thereunder, as well as by each
Coso Joint Venture's agreement to make payments under certain
circumstances in respect of the other Coso Joint Ventures' Project
Loans, and each Coso Joint Venture's commitment to advance Support
Loans to the other Coso Joint Ventures, as described below.
Security for payment of each Coso Joint Venture's Project Loan
includes: (1) an assignment of all such Coso Joint Venture's
revenues which will be applied against the payment of obligations
of each Coso Joint Venture, including its Project Loan, in
accordance with priorities of payment described below; (2) a
mortgage on the geothermal property interests of each Coso Joint
Venture and the respective Coso Project; (3) a collateral
assignment of certain material contracts; (4) a pledge of the
partnership interests in the Coso Joint Ventures; (5) a pledge of
the stock of all Corporate general partner entities for each Coso
Joint Venture; (6) a debt service reserve fund; (7) a contingency
fund; (8) a pledge of such Coso Joint Venture's capital stock of
Coso Funding; (9) a pledge of such Coso Joint Venture's partnership
interest in CTLP, if any; and (10) any other funds of such Coso
Joint Venture on deposit under the Notes Indenture. The assets
described in clauses (1) through (10) and any other assets securing
a Coso Joint Venture's Project Loan at any time are collectively
referred to herein as the "Collateral." Each Coso Joint Venture's
assets secures only its own Project Loan, and is not cross-
collateralized with the assets pledged under the other Coso Joint
Ventures' Project Loans. However, each Coso Joint Venture is
obligated, to the extent of available cash flow, and under certain
conditions, its debt service reserve fund balance, to make Support
Loans to the other Coso Joint Ventures.
Priority of Payments. Each Coso Joint Venture's revenues are
applied in the following order of priority: (a) royalties due to
the Navy or the BLM; (b) operating and maintenance expenses; (c)
capital expenditures; (d) repayment of working capital lines of
credit of up to $10.0 million; (e) principal and interest payments
on such Coso Joint Venture's Project Loan; (f) Support Loans to the
other Coso Joint Ventures or payments under Project Loan pledge
agreements to maintain an operating capital balance of $1.0 million
and in respect of principal and interest due under the other Coso
Joint Ventures' Project Loans (to the extent described below under
"--Support Loans and Project Loan Pledge Agreements"); (g)
replenishment of any shortfall in such Coso Joint Venture's own
debt service reserve fund; (h) Support Loans to replenish
shortfalls in the other Coso Joint Ventures' debt service reserve
funds; (i) payments in connection with permitted interest rate swap
arrangements; (j) repayment of any outstanding Support Loans; (k)
subordinated royalty payments due to affiliates; (l) other
subordinated obligations, including existing subordinated debt due
to affiliates; and (m) distributions to partners.
Conditions to Cash Distributions From the Coso Joint Ventures. The
terms of the financing restrict the ability of the Coso Joint
Ventures to distribute cash to their partners. In order to
distribute cash, (i) no event of default may exist under the
Project Loans or the Notes, and no notice of such an impending
event of default may have been received from the trustee under the
Notes Indenture, (ii) certain financial ratios must be met, and
(iii) certain thresholds must be met regarding the availability of
an adequate geothermal resource for each of the Coso Projects and
for the Coso Project as a whole, as described in the Notes
Indenture. In addition, the consent of the Management Committee of
each of the Coso Joint Ventures is required for cash distributions.
See "The Coso Project -- Management of the Coso Joint Ventures".
Required Geothermal Percentage. The terms of the financing require
that an independent geothermal engineer prepare a report annually
on the geothermal resource available at the Coso Project as of May
1 of each year. The resource is measured by comparing the
geothermal resource available at the wellhead, or otherwise
available pursuant to contract, with the resource that would be
required to fuel the Coso Projects at their specified capacity
levels of 80 NMW for the Navy I and Navy II Projects and 70 NMW for
the BLM Project. If the geothermal resource for the Coso Project
falls below a set threshold, initially 125% of the resource
required to operate at full capacity, as measured on May 1 of each
year, then the relevant Coso Joint Venture(s) are required to
develop additional steam reserves under a plan of corrective action
approved by the independent geothermal engineer. Depending upon
the results of such efforts, the relevant Coso Joint Venture(s) may
reduce the geothermal resource threshold for permitting cash
distributions by increasing cash reserves available for debt
service. Cash distributions otherwise permitted will be suspended
during any period when the geothermal resources threshold is not
met. On May 1, 1993, the Coso Project met the required steam
reserve covenants.
Debt Service Reserve and Contingency Funds. The debt service
reserve funds for the Coso Joint Ventures are currently fully
funded. With respect to the Navy I Joint Venture, the debt service
reserve requirement requires that the Navy I debt service reserve
fund be equal to at least the next semi-annual principal and
interest payment on the Navy I Joint Venture's Project Loan. With
respect to the BLM Joint Venture and the Navy II Joint Venture, the
debt service reserve requirements will require that the debt
service reserve funds of the BLM Joint Venture and the Navy II
Joint Venture together be equal to at least the aggregate of the
next semi-annual principal and interest payments on the Project
Loans of such Coso Joint Ventures.
In connection with the financing, contingency funds were
funded from the Project Loan to the Navy I Joint Venture to the
extent of approximately $14.0 million, from the Project Loan to the
BLM Joint Venture to the extent of approximately $20.3 million, and
from the Project Loan to the Navy II Joint Venture to the extent of
approximately $34.1 million. The amount of the contingency fund
for each Coso Joint Venture represented the approximate maximum
amount, if any, which could theoretically be payable by such Coso
Joint Venture to third parties to satisfy and discharge all liens
of record and other contract claims encumbering the respective Coso
Projects at the time of the sale of the Notes, including liens and
contract claims which were the subject of litigation between the
Coso Joint Ventures, on the one hand, and Mission Power Engineering
Company ("MPE"), on the other hand, and to establish a reserve for
any other contingencies. The contingency funds were established in
order to obtain ratings to facilitate the offer and sale of the
Notes. The litigation with MPE was settled in June 1993. As a
result of the various payments and releases involved in such
settlement, the Coso Joint Ventures agreed to make a net payment of
$20,000,000 to MPE from the contingency fund and MPE released its
mechanics' liens on the Coso Projects. After paying the settlement
amount to MPE, the remaining balance of the contingency fund
(approximately $49 million) was used to fully fund the Coso
Projects' debt service reserve funds to the maximum of $68 million,
and the remaining $24 million was retained in the contingency fund
for future capital expenditures and debt service according to the
Project Loans.
Support Loans and Project Loan Pledge Agreements. The Support
Loans and the Project Loan pledge agreements have the effect of
cross-collateralizing the Project Loans, but only to a limited
extent. There is no cross-collateralization of the Coso Joint
Ventures' assets.
Subject to certain limitations and conditions, each Coso Joint
Venture has agreed to advance Support Loans to each other Coso
Joint Venture, in the event that the borrowing Joint Venture's
revenues are insufficient to meet scheduled semi-annual principal
and interest payments. The Navy I Joint Venture's obligation to
advance Support Loans is subordinate to the BLM and Navy II Joint
Ventures' obligations to advance Support Loans. In addition, the
debt service reserve fund of the Navy I Joint Venture will be
utilized to fund a Support Loan only to the extent that the amount
in the Navy I Joint Venture debt service reserve fund exceeds the
amount required to defease in full the Navy I Joint Venture's share
of the then outstanding Notes. If a Coso Joint Venture elects to
terminate its Support Loan obligations as permitted under certain
circumstances, it will remain obligated under a Project Loan pledge
agreement to fund principal and interest on the Project Loans of
the other Coso Joint Ventures to the extent of its available cash
flow and, to a limited extent, its debt service reserve fund.
Interest in Caithness Partnerships
In connection with the refinancing of the Coso Projects, the
Company contributed approximately $9.8 million to CEGC-Mojave
Partnership ("CEGC-Mojave"), a recently formed partnership which
used the proceeds to acquire a limited partnership interest in
Caithness CEA Geothermal L.P. ("CCG"), a partnership which is, in
turn, a limited partner in Caithness Coso Holdings, L.P., the
Caithness Partnership which is a partner in the BLM Project. In
addition, certain cash flows of four Caithness affiliates have been
pledged to CEGC-Mojave which relate in part to cash received as a
result of distributions from the Navy I, BLM and Navy II Projects.
Under the terms of the CEGC-Mojave partnership agreement, with
certain exceptions, up to 25% of the cash flows related to the
Caithness affiliates will be distributed to such affiliates, and
the remainder, including all of the cash flows related to the
interest in CCG, will be distributed to the Company until the
Company receives a return of its initial investment plus a 17%
annual rate of return, at which time all distributions revert to
the Caithness affiliates.
Coso Joint Venture Notes due to the Company
In connection with the refinancing of the Coso Project, the
Coso Joint Ventures prepaid a portion of certain notes to the
Company in respect of prior advances made by the Company to the
Coso Project, and amended certain outstanding notes owing to the
Company. As a result the BLM Joint Venture and Navy II Joint
Venture have notes due to the Company in the aggregate amount of
principal and accrued interest of $21,557,996 due March 19, 2002
which bear interest at 12 1/2% annually. The notes are
subordinated to the senior Project Loans on the Coso projects and
interest is not paid currently, but accrues on a pay in kind basis
until final maturity.
OTHER DOMESTIC PROJECTS AND DEVELOPMENT OPPORTUNITIES
Desert Peak
The Company is the owner and operator of a 10 MW geothermal
plant at Desert Peak, Nevada that is currently selling electricity
to Sierra Pacific Power Company under a power sales contract that
expires December 31, 1995 and that may be extended on a year-to-
year basis as agreed by the parties. The price for electricity
under this contract is 6.3 cents per kWh, comprising an energy
payment of 1.8 cents per kWh (which is adjustable pursuant to an
inflation-based index) and a capacity payment of 4.5 cents per kWh.
The Company is currently negotiating the terms of an extension to
this contract.
Roosevelt Hot Springs
The Company operates and owns an approximately 70% interest in
a 25 MW geothermal steam field which supplies geothermal steam to
a power plant owned by Utah Power & Light Company ("UP&L") located
on the Roosevelt Hot Springs property under a 30-year steam sales
contract. The Company obtained approximately $20.3 million of the
cash portion of the purchase price for the properties under a pre-
sale agreement with UP&L whereby UP&L paid in advance the entire
purchase price for the Company's proportionate share of the steam
produced by the steam field. The Company must make certain penalty
payments to UP&L if the steam produced does not meet quantity and
quality requirements.
Yuma
During 1992 the Company acquired a development stage 50 MW
natural gas fired cogeneration project in Yuma, Arizona. The Yuma
Project is designed to be a qualified facility under PURPA and to
provide 50 NMW of electricity to SDG&E over an existing 30 year
power purchase contract. The electricity is to be sold at SDG&E's
avoided cost. The power will be wheeled to SDG&E over transmission
lines constructed and owned by Arizona Public Service Company
("APS"). An Agreement for Interconnection and a Firm Transmission
Service Agreement have been executed between APS and the Yuma
Project entity and have been accepted for filing by the Federal
Energy Regulatory Commission ("FERC").
The Power Sales Agreement with SDG&E requires the Yuma Project
to commence reliable operations by December 31, 1994. The Company
currently anticipates that construction will be completed and
reliable operations will commence by mid-1994. The project entity
has executed steam sales contracts with an adjacent industrial
entity to act as its thermal host in order to maintain its status
as a qualified facility, which is a requirement of its SDG&E
contract. Since the industrial entity has the right under its
contract to terminate the agreement upon one year's notice if a
change in its technology eliminates its need for steam, and in any
case to terminate the agreement at any time upon three years
notice, there can be no assurance that the Yuma Project will
maintain its status as a qualified facility. However, if the
industrial entity terminates the agreement, the Company anticipates
that it will be able to locate an alternative thermal host in order
to maintain its status as a qualified facility or build a
greenhouse at the site for which the Company believes it would
obtain qualified facility status. A natural gas supply and
transportation agreement has been executed with Southwest Gas
Corporation.
The Yuma Project is being constructed pursuant to a fixed
price turnkey contract with Raytheon Engineers & Constructors for
approximately $43 million, of which the Company has to date funded
approximately $39 million from internal sources. The Company
currently intends to fund the balance from internal sources as
construction expenditures are incurred.
Newberry
Under a Bonneville Power Administration ("BPA") geothermal
pilot program, the Company is developing a 30 NMW geothermal
project at Newberry, Oregon (the "Newberry Project"). Pursuant to
a Memorandum of Understanding executed in January 1993, the Company
has agreed to sell 20 NMW of Power to BPA and 10 NMW to Eugene
Water and Electric Board ("EWEB") from the Newberry Project. In
addition, BPA has an option to purchase up to an additional 100 MW
of production from the project under certain circumstances. In a
public-private development effort, the Company is responsible for
development, permitting, financing, construction and operation of
the project (which will be 100% owned by the Company), while EWEB
will cooperate in the development efforts by providing assistance
with government and community affairs and sharing in the
development costs (up to 30%). The Newberry Project is currently
expected to commence commercial operation in 1997. The memorandum
of understanding provides that under certain circumstances the
contracts may be utilized at an alternative location.
A draft environmental impact study with respect to the
Newberry Project was completed in January 1994 and is expected to
be finalized in mid-year 1994, at which time the Company expects to
commence drilling of the geothermal wells and to execute the power
sales contracts, subject to obtaining all governmental permits and
approvals.
Glass Mountain
In March 1993, the Company completed the acquisition of an
approximate 65% interest in 26,000 acres of geothermal leaseholds
at Glass Mountain in Northern California, which include three
successful production wells with an existing capacity of between 15
to 30 MW. The Company believes that this acreage represents one of
the finest undeveloped geothermal reservoirs in the country. The
Company has attempted to negotiate the terms of a power sales
contract to exploit this geothermal resource; however, no agreement
exists to date.
INTERNATIONAL GEOTHERMAL AND
OTHER DEVELOPMENT OPPORTUNITIES
The Company presently believes that the international
independent power market holds the majority of new opportunities
for financially attractive private power development in the next
several years, because the demand for new generating capacity is
growing more rapidly in foreign markets, especially emerging
nations, than in the United States. The World Bank estimates that
developing countries will need approximately 380,000 MW of new
generating capacity over the next decade. The need for such rapid
expansion has forced many countries to select private power
development as their only practical alternative and to restructure
their legislative and regulatory schemes to facilitate such
development. The Company believes that this significant need for
power has created strong local support for private power projects
in many foreign countries and increased the availability of long-
term multilateral lending agency and foreign source financing and
political risk insurance for certain international private power
projects, particularly those utilizing indigenous fuel sources and
renewable or otherwise environmentally responsible generating
facilities. The Company intends to focus its international efforts
on the development, construction, ownership and operation of such
projects.
In developing its international strategy, the Company intends
to pursue development opportunities in countries which it believes
have an acceptable risk profile and where the Company's geothermal
resource development and operating experience, project development
expertise or strategic relationship with Kiewit or local partners
are expected to provide it with a competitive advantage. The
Company is currently pursuing a number of electric power project
opportunities in countries such as the Philippines and Indonesia,
which have initiated private power programs and have extensive
geothermal resources. The Company's development efforts include
both so-called "green field" development, in which the Company
attempts to negotiate unsolicited power sales contracts for new
generation capacity or engages in competitive bids in response to
government agency or utility requests for proposals for new
capacity, as well as the acquisition of or participation in the
joint development of projects which are under development or
already operating. To better position itself to pursue
international project development opportunities in the Asian
market, the Company recently established an office in Singapore to
oversee its activities in that region, including the Philippines
and Indonesia. In pursuing international projects, the Company
intends to maintain a significant equity interest in, and to
operate, the projects that it develops or acquires.
In order to compete more effectively internationally, the
Company's strategy is to diversify its project portfolio, reduce
its future equity commitments and leverage its capabilities in
international projects by developing most international projects on
a joint venture basis. To that end, the Company has recently
entered into international joint venture agreements with Kiewit and
Distral (firms with extensive power plant construction experience)
in a effort to augment and accelerate the Company's capabilities in
foreign energy markets. Joint venture activities with Distral are
expected to be conducted in South America, Central America and the
Caribbean and joint venture activities with Kiewit are expected to
be conducted in Asia (in particular the Philippines and Indonesia)
and in other regions not covered by the Distral joint venture
agreement. See "- International Joint Venture Agreements."
International Joint Venture Agreements
As part of the Company's international development strategy,
the Company recently signed separate joint venture agreements with
Kiewit and Distral. These joint ventures provide the Company with
strategic alliances with firms possessing unique private power and
construction expertise. The Company believes these strategic joint
venture relationships will augment and accelerate its development
capabilities in foreign energy markets and provide it with a
relative competitive advantage. In addition, the Company believes
that participation in these joint ventures will help the Company
diversify its project risk profile, leverage its development
capabilities and reduce future requirements to raise additional
equity for projects. The Company also believes that it is
important in foreign transactions to establish strong relationships
with local partners (such as Distral in Central and South America
and P.T. Himpurna and P.T. ESA (each as defined below) in
Indonesia) who are knowledgeable of local cultural, political and
commercial practices and who provide a visible local presence and
local project representation.
Kiewit Joint Venture. On December 14, 1993, the Company signed a
joint venture agreement with Kiewit affiliates (Kiewit Diversified
Group Inc. and Kiewit Construction Group Inc.). Kiewit is one of
the largest construction companies in North America and has been in
the construction business since 1884. Kiewit is a diversified
industrial company with approximately $2.0 billion in revenues in
1993 from operations in construction, mining and
telecommunications. Kiewit has built a number of power plants in
the United States and large infrastructure projects and industrial
facilities worldwide, and owns approximately 37% beneficial
interest in the Company.
The Kiewit joint venture agreement, which has an initial term
of three years, provides each party a right of first refusal to
pursue jointly all "build, own and operate" or "build, own, operate
and transfer" power projects identified by the other party or its
affiliates outside of the United States, except in locations
covered by the Distral joint venture agreement described below.
The Kiewit joint venture agreement provides that, if both parties
agree to participate in a project, they will share all development
costs equally, each of the Company and Kiewit will provide 50% of
the equity required for financing a project developed by the joint
venture and the Company will operate and manage any such project.
The agreement contemplates a joint development structure under
which, on a project by project basis, the Company will be the
development manager, managing partner and/or project operator, an
equal equity participant with Kiewit and a preferred participant in
the construction consortium, and Kiewit will be an equal equity
participant and the preferred turnkey construction contractor, with
the construction consortium providing customary security to project
lenders (including the Company) for liquidated damages and
completion guarantees. The joint venture agreement may be
terminated by either party on 15 days written notice, provided that
such termination cannot affect the pre-existing contractual
obligations of either party.
Distral Joint Venture. On December 14, 1993, the Company entered
into a joint venture agreement with Distral of the Lancaster
Distral Group. Distral is a South American turnkey construction
contractor and manufacturer of boilers, generators and heavy
equipment, and has constructed, engineered or supplied equipment to
numerous coal, gas and hydroelectric power plants located in
Central and South America. The Company believes that, in addition
to its extensive experience in energy-related business, Distral
brings substantial knowledge of the customs and commercial
practices in Central and South America, as well as knowledge of the
general power markets and specific power project opportunities in
such regions.
The joint venture agreement, which has an initial term of
three years, provides that the joint venture will have the right of
first refusal to jointly pursue all power projects identified by
the joint venture, the Company, Distral or their affiliates (other
than Kiewit) in the Caribbean, South America and that part of
Central America south of Mexico. The agreement provides that the
Company and Distral will share all development costs equally, if
both parties agree to participate in a project. The Company is
required to provide at least 50% of the equity required to finance
any project developed by the joint venture; provided, however, that
the Company may assign up to 50% of its equity interest in any such
project to Kiewit and its affiliates. The agreement contemplates
a joint development structure under which the Company and Distral
will jointly operate and maintain each joint venture project, with
the Company responsible for overall supervision and management.
The Distral agreement may be terminated at any time by the Company
or Distral, provided that such termination cannot affect the pre-
existing contractual obligations of either party.
The Philippines
The Company believes that increasing industrialization, a
rising standard of living and an expanding power distribution
network has significantly increased demand for electrical power in
the Philippines. Currently, according to the 1993 Power
Development Program of the National Power Corporation of the
Philippines ("NAPOCOR"), demand for electricity exceeds supply.
NAPOCOR has also reported that its ability to sustain current
levels of electric production from existing facilities has been
limited due to frequent breakdowns in many of its older electric
generating plants and an extended drought, which has limited
hydroelectric generation. As a result, the Philippines has
experienced severe power outages, with Manila suffering significant
daily brownouts during much of 1993. Although the occurrence of
brownouts has been recently reduced, NAPOCOR has said that it still
anticipates significant energy shortages in the future.
In 1993, the Philippine Congress, pursuant to Republic Act
7648, granted President Ramos emergency powers to remedy the
Philippines' energy crisis, including authority to (i) exempt power
projects from public bidding requirements, (ii) increase power
rates and (iii) reorganize NAPOCOR. Until 1987, NAPOCOR had a
monopoly on power generation and transmission in the Philippines.
In 1987, then President Aquino issued Executive Order No. 215,
which grants private companies the right to develop certain power
generation projects, such as those using indigenous energy sources
on a "build-operate-transfer" or "build-transfer" basis. In 1990,
the Philippine Congress enacted Republic Act No. 6957, which
authorizes private development of priority infra-structure projects
on a "build-operate-transfer" and a "build-transfer" basis. In
addition, under that Act, such power projects are eligible for
certain tax benefits, including exemption from Philippine national
income taxes for at least six years and exemption from, or
reimbursement for, customs duties and value added taxes on capital
equipment to be incorporated into such projects.
In a effort to remedy the shortfall of electricity, the
Republic of the Philippines, NAPOCOR and the Philippine National
Oil Company-Energy Development Company ("PNOC-EDC") are jointly
soliciting bids for private power projects. The potential
Philippine indigenous resources include geothermal, hydro and coal,
of which geothermal power has been identified as a preferred
alternative. The Philippine Government has elected to promote
geothermal power development due to the domestic availability and
the minimal environmental effects of geothermal power in comparison
to other forms of power production. PNOC-EDC, which is responsible
for developing the Philippines' domestic energy sources, has been
successful in the exploration and development of geothermal
resources.
The Company has been awarded and signed power contracts with
PNOC-EDC for two geothermal projects, Upper Mahiao and Mahanagdong,
aggregating 300 MW. The following is a summary description of
certain information concerning these and other projects as it is
currently known to the Company. Since these projects are still in
development, however, there can be no assurance that this
information will not change over time. In addition, there can be
no assurance that development efforts on any particular project, or
the Company's efforts generally, will be successful.
Upper Mahiao. The Company is negotiating the final terms of the
construction and term project financing for a 120 MW geothermal
project to be located in the Greater Tongonan area of the island of
Leyte, Republic of the Philippines (the "Upper Mahiao Project").
The Upper Mahiao Project will be built, owned and operated by CE
Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine
corporation that will be more than 95% indirectly owned by the
Company. It will sell 100% of its capacity on a "take-or-pay"
basis (described below) to PNOC-EDC, which will in turn sell the
power to NAPOCOR for distribution to the island of Cebu, located
about 40 miles west of Leyte.
The Company estimates that Upper Mahiao will have a total
project cost of approximately $226 million, including interest
during construction, project contingency costs and a debt service
reserve fund. A consortium of international banks is expected to
provide an approximately $170 million project-financed construction
loan, supported by political risk insurance from the Export-Import
Bank of the United States ("ExIm Bank"). The Company expects that
the term loan for the project will also be provided by the ExIm
Bank, and that both the construction and the term loan agreements
will be executed in April 1994. Shortly thereafter, the Company
expects to issue a notice to proceed to the Contractor under the
Mahiao EPC Contract (as defined below), with commercial operations
scheduled for mid-year 1996. The Company expects that its equity
commitment to the Upper Mahiao Project will be about $56 million.
The Company intends to arrange for political risk insurance on this
equity investment through OPIC or from governmental agencies or
commercial sources.
The Upper Mahiao Project will be constructed by Ormat, Inc.
("Ormat") and its affiliates pursuant to supply and construction
contracts (collectively the "Mahiao EPC Contract"), which, taken
together, provide for the construction of the plant on a fixed-
price, date-certain, turnkey basis. Ormat is an international
manufacturer and construction contractor that builds binary
geothermal turbines; it has provided its equipment to several
geothermal power projects throughout the United States and
internationally. The Mahiao EPC Contract provides liquidated
damage protection of 30% of the Mahiao EPC Contract price. Ormat's
performance under the Mahiao EPC Contract will be backed by a
completion guaranty of Ormat, by letters of credit, and by a
guaranty of Ormat Industries, Ltd., an Israeli corporation and the
parent of Ormat, in each case for the benefit of, and satisfactory
to, the project lenders.
Under the terms of the Energy Conversion Agreement, executed
on September 6, 1993 (the "Upper Mahiao ECA"), CE Cebu will build,
own and operate the Project during the two-year construction period
and the ten year cooperation period, after which ownership will be
transferred to PNOC-EDC at no cost. The effectiveness of the Upper
Mahiao ECA is subject to the satisfaction or waiver of certain
conditions prior to April 8, 1994 (subject to extension by
agreement of the parties) including finalization of the principal
project documents (including a power purchase agreement between
PNOC-EDC and NAPOCOR), posting by Ormat of a construction
performance bond in favor of PNOC-EDC in the amount of
approximately $11.8 million, obtaining permits and approvals from
various Philippine governmental authorities and arranging financing
commitments. In the event the parties are unable to satisfy such
conditions before the agreed upon effectivity date, either party
may terminate the Upper Mahiao ECA and such party shall reimburse
the other party for its costs and expenses incurred in connection
with such agreement.
The Upper Mahiao Project will be located on land to be
provided by PNOC-EDC at no cost; it will take geothermal steam and
fluid, also provided by PNOC-EDC at no cost, and convert its
thermal energy into electrical energy to be sold to PNOC-EDC on a
"take-or-pay" basis. Specifically, PNOC-EDC will be obligated to
pay for the electric capacity that is nominated each year by CE
Cebu, irrespective of whether PNOC-EDC is willing or able to accept
delivery of such capacity. PNOC-EDC will pay to CE Cebu a fee (the
"Capacity Fee") based on the plant capacity nominated to PNOC-EDC
in any year (which, at the plant's design capacity is approximately
95% of total contract revenues) and a fee ( the "Energy Fee") based
on the electricity actually delivered to PNOC-EDC (approximately 5%
of total contract revenues). The Capacity Fee consists of three
separate components: a fee to recover the capital costs of the
project, a fee to recover fixed operating costs and a fee to cover
return on investment. The Energy Fee is designed to cover all
variable operating and maintenance costs of the power plant.
Payments under the Upper Mahiao ECA will be denominated in U.S.
dollars, or computed in dollars and paid in Philippine pesos at the
then-current exchange rate, except for the Energy Fee, which will
be used to pay peso-denominated expenses. The ECA provides a
mechanism to convert Philippine pesos to dollars. Significant
portions of the Capacity Fee and Energy Fee will be indexed to U.S.
and Philippine inflation rates, respectively. PNOC-EDC's "take-or-
pay" performance requirement, and its other obligations under the
Upper Mahiao ECA, are guaranteed by the Republic of the Philippines
through a performance undertaking.
The payment of Capacity Fees is not excused if PNOC-EDC fails
to deliver or remove the steam or fluids or fails to provide the
transmission facilities, even if its failure was caused by a force
majeure event. In addition, PNOC-EDC must continue to make
Capacity Fee Payments if there is a force majeure event (e.g. war,
nationalization, etc.) that affects the operation of the Upper
Mahiao Project and that is within the reasonable control of PNOC-
EDC or the government of the Republic of the Philippines or any
agency or authority thereof. If CE Cebu fails to meet certain
construction milestones or the power plant fails to achieve 70% of
its design capacity by the date that is 120 days after the
scheduled completion date (as that date may be extended for force
majeure and other reasons under the Upper Mahiao ECA), the Upper
Mahiao Project may, under certain circumstances, be deemed
"abandoned," in which case the Upper Mahiao Project must be
transferred to PNOC-EDC at no cost, subject to any liens existing
thereon.
PNOC-EDC is obligated to purchase CE Cebu's interest in the
facility under certain circumstances, including (i) extended
outages resulting from the failure of PNOC-EDC to provide the
required geothermal fluid, (ii) changes in tax, environmental or
other laws which would materially adversely affect CE Cebu's
interest in the project, (iii) transmission failure, (iv) failure
of PNOC-EDC to make timely payments of amounts due under the Upper
Mahiao ECA, (v) privatization of PNOC-EDC or NAPOCOR, and (vi)
certain other events. Prior to completion of the Upper Mahiao
Project, the buy-out price will be equal to all costs incurred
through the date of the buy-out, including all Upper Mahiao Project
debt, plus an additional rate of return on equity of ten percent
per annum. In a post-completion buy-out, the price will be the net
present value at a ten percent discount rate of the total remaining
amount of Capacity Fees over the remaining term of the Upper Mahiao
ECA.
Mahanagdong. The Mahanagdong Project is expected to be a 180 MW
geothermal project, which will also be located on the island of
Leyte. The Mahanagdong Project will be built, owned and operated
by CE Luzon Geothermal Power Company, Inc. ("CE Luzon"), a
Philippine corporation that is currently expected to be indirectly
owned as follows: 45% by the Company, 45% by Kiewit and up to 10%
by another industrial company. It will sell 100% of its capacity
on a take-or-pay basis (as described above for the Upper Mahiao
Project) to PNOC-EDC, which will in turn sell the power to NAPOCOR
for distribution to the island of Luzon.
The Company estimates that Mahanagdong will have a total
project cost of approximately $310 million, including interest
during construction, project contingency costs and a debt service
reserve fund. The proposed capital structure is 75% debt, with a
construction and term loan of approximately $225 million and 25%
equity, or approximately $85 million in equity contributions. The
Company believes that political risk insurance from ExIm Bank for
financing of the procurement of U.S. goods and services is
available and, if appropriate, will request similar coverage from
the Export-Import Bank of Japan for Japanese goods and services.
The Company is in the process of arranging construction financing
for the Mahanagdong Project from a consortium of international
banks. Construction of the Mahanagdong Project is expected to
commence in mid-year 1994, with commercial operation presently
scheduled for mid-year 1997. The Company's equity investment for
the Mahanagdong Project is expected to be about $40 million, and
the Company expects to arrange for political risk insurance on this
equity investment through OPIC or from governmental agencies or
commercial sources.
The Mahanagdong Project will be constructed by a consortium of
Kiewit Construction Group, Inc. ("KCG") and The Ben Holt Co.
("BHCO") (the "EPC Consortium"), pursuant to fixed-price, date-
certain, turnkey supply and construction contracts (collectively
the "Mahanagdong EPC Contract"). The obligations of the EPC
Consortium under the Mahanagdong EPC Contract will be supported by
letters of credit, bonds, guarantees or other acceptable security
in an aggregate amount equal to approximately 30% of the
Mahanagdong EPC Contract's price, plus a joint and several guaranty
of each of the EPC Consortium members. KCG, a wholly-owned
subsidiary of Kiewit, will be the lead member of the EPC
Consortium, with an 80% interest. KCG performs construction
services for a wide range of public and private customers in the
U.S. and internationally. Construction projects undertaken by KCG
during 1992 included: transportation projects, including highways,
bridges, airports and railroads; power facilities; buildings and
sewer and waste disposal systems; with the balance consisting of
water supply systems, utility facilities, dams and reservoirs. KCG
accounted for 80% of Kiewit's revenues, contributing $1.7 billion
in revenues in 1993. KCG has an extensive background in power
plant construction.
BHCO will provide design and engineering services for the EPC
Consortium, holding a 20% interest. BHCO, wholly-owned by the
Company, is a California based engineering firm with over 25 years
of geothermal experience, specializing in feasibility studies,
process design, detailed engineering, procurement, construction and
operation of geothermal power plants, gathering systems and related
facilities. The Company will provide a guaranty of BHCO's
obligations under the Mahanagdong EPC Contract.
The terms of the Energy Conversion Agreement (the "Mahanagdong
ECA"), executed on September 18, 1993, are substantially similar to
those in the Upper Mahiao ECA. The Mahanagdong ECA provides for a
three-year construction period, and its effectivity deadline date
is in July 1994. All of PNOC-EDC's obligations under the
Mahanagdong ECA will be guaranteed by the Republic of the
Philippines through a performance undertaking. The Capacity Fees
are expected to be approximately 97% of total revenues at the
expected capacity levels and the Energy Fees are expected to be
approximately 3% of such total revenues.
Casecnan. The Company has been granted exclusive rights to
negotiate an energy sales contract with NAPOCOR and a water sales
contract with the National Philippine Irrigation Administration in
connection with a proposed 60 MW hydro-electric generating facility
to be located in the Casecnan area on the island of Luzon. These
contracts will be structured as take-or-pay capacity and energy
agreements, with capacity payments representing the bulk of the
revenues. Negotiations have only recently commenced on this
potential project, and there can be no assurance at this time that
any agreement will be reached by the parties.
Indonesia
The Republic of Indonesia is experiencing demand for
electrical power that exceeds current supply, and has a number of
promising geothermal reservoirs. Recent Indonesian legislation has
facilitated foreign ownership and operation of private electrical
power generation and transmission facilities. The Company's
subsidiaries are currently negotiating several potential project
agreements for geothermal power facilities in Indonesia.
The following is a summary description of certain information
concerning these projects as it is currently known to the Company.
Since those projects are still in development, however, there can
be no assurance that this information will not change materially
over time. In addition, there can be no assurance that development
efforts on any particular project, or the Company's efforts
generally, will be successful.
Dieng. Through memoranda of understanding executed by Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara ("Pertamina"), the
Indonesian national oil company, and assigned to the Company, the
Company has been awarded the exclusive right to develop geothermal
resources in the Dieng region of central Java, Indonesia (the
"Dieng Project"). A subsidiary of the Company has entered into a
Joint Development Agreement with P.T. Himpurna Enersindo Abadi
("P.T. HEA"), its Indonesian partner, which is a subsidiary of
Himpurna, an association of Indonesian military veterans, whereby
the Company and P.T. HEA have agreed to work together on an
exclusive basis to develop the Dieng Project (the "Dieng JV"). The
Dieng JV is expected to be structured such that subsidiaries of the
Company will have a 45% interest, subsidiaries of Kiewit will have
the option to take a 45% interest and P.T. HEA will have a 10%
interest in the Dieng Project. The Dieng JV expects to conduct
geothermal exploration and development in the Dieng field, to
build, own and operate power generating facilities and to sell the
power generated to Perusahaan Umum Listrik Negara ("PLN"), the
Indonesian national electric utility.
The Dieng JV and Pertamina are currently negotiating a
proposed Joint Operation Contract (the "Dieng JOC") pursuant to
which Pertamina would contribute the geothermal field and the wells
and other facilities presently located thereon and the Dieng JV
initially would build, own and operate four power production units
comprising an aggregate of 220 MW. The Dieng JV will accept the
field operation responsibility for developing and supplying the
geothermal steam and fluids required to operate the plants. The
current proposed Dieng JOC would expire (subject to extension by
mutual agreement) on the date which is the later of (i) 42 years
following completion of well testing and (ii) 30 years following
the date of commencement of commercial operation of the final unit
completed. Upon the expiration of the proposed Dieng JOC, all
facilities would be transferred to Pertamina at no cost. Under the
proposed Dieng JOC, the Dieng JV would be required to pay Pertamina
a production allowance equal to three percent of the Dieng JV's net
operating income from the Dieng Project, plus a further percentage
based upon the negotiated value of existing Pertamina geothermal
production facilities that the Company expects will be contributed
by Pertamina.
The Dieng JV and Pertamina are currently negotiating a
proposed "take-or-pay" Energy Sales Contract (the "Dieng ESC") with
PLN whereby PLN would agree to purchase and pay for all electricity
delivered or capacity made available from the Dieng Project for a
term equal to that of the Dieng JOC. Under the current draft, the
price paid for electricity would equal a base energy price per kWh
multiplied by the number of kWh the plants deliver or are "capable
of delivering," whichever is greater. Electricity revenue payments
would also be adjusted for inflation and fluctuations in exchange
rates.
Assuming execution of the Dieng JOC and the Dieng ESC, the
Company presently intends to begin well testing by the second
quarter of 1994 and to commence construction of an initial 55 MW
unit in the fourth quarter of 1994, and then to proceed on a
modular basis with construction of three additional units to follow
shortly thereafter, resulting in an aggregate first phase at this
site of 220 MW. The Company estimates that the total project cost
of these units will be approximately $450 million. The Company
anticipates that the Dieng Project will be designed and constructed
by a consortium consisting of KCG and BHCO, and that the Company
(through a subsidiary) will be responsible for operating and
managing the Dieng Project.
The Dieng field has been explored domestically for over 20
years and BHCO has been active in the area for more than five
years. The Company has a significant amount of data, which it
believes to be reliable as to the production capacity of the field.
However, a number of significant steps, both financial and
operational, must be completed before the Dieng Project can
proceed. These steps, none of which can be assured, include
obtaining required regulatory permits and approvals, entering into
the Dieng JOC, undertaking and completing the well testing
contemplated by the Dieng JOC, entering into the Dieng ESC, the
construction agreement and other project contracts, and arranging
financing.
Patuha. The Company has also negotiated a memorandum of
understanding and expects to execute a definitive agreement with
Pertamina for the exclusive geothermal development rights with
respect to the Patuha geothermal field in Java, Indonesia (the
"Patuha Project"). The Company has entered into an agreement to
establish a joint venture for Patuha with P.T. Enerindo Supra
Abadi, an Indonesian company ("P.T. ESA") (the "Patuha JV"). P.T.
ESA is an affiliate of the Bukaka Group, which has extensive
experience in general construction, fabrication and electrical
transmission construction in Indonesia. In exchange for project
development services, P.T. ESA is expected to receive a 10% equity
interest in the Patuha Project with an option to acquire an
additional 20% interest for cash upon the satisfaction of certain
conditions. Subject to the exercise of that option, subsidiaries
of the Company will have a 45% interest and subsidiaries of Kiewit
will have the option to take a 45% interest in the Patuha Project.
The Patuha JV is currently negotiating both a Joint Operation
Contract ("JOC") and an Energy Sales Contract ("ESC"), each of
which currently contains terms substantially similar to those
described above for the Dieng Project. The Patuha JV presently
intends to proceed on a modular basis like the Dieng Project, with
an initial 55 MW unit to be built followed by three additional
units, in total aggregating 220 MW. The Company estimates that the
total cost of these four units will be approximately $450 million.
Assuming execution of both a JOC and an ESC, field development is
expected to commence in the first quarter of 1995 with construction
of the first unit expected to begin by mid-year 1996.
The Patuha Project remains subject to a number of significant
uncertainties, as described above in connection with the Dieng
Project, and there can be no assurance that the Patuha Project will
proceed or reach commercial operation.
Lampung/South Sumatra. The Company and P.T. ESA have also formed
a joint venture (the "Lampung JV") to pursue development of
geothermal resources in the Lampung/South Sumatra regions (the
"Lampung Project"). The Lampung JV is presently exploring several
geothermal fields in this region and is negotiating a memorandum of
understanding for a JOC and ESC for these prospects containing
terms substantially similar to those described above for the Dieng
Project.
The Company presently intends to develop the Lampung Project
and other possible Indonesia projects using a structure similar to
that contemplated for the Dieng Project, with the same construction
consortium, similar equipment and similar financing arrangements.
The Lampung Project remains subject to a number of significant
uncertainties, as described above for the Dieng Project, and there
can be no assurance that the Company will pursue the Lampung
Project or that it will proceed or reach commercial operation.
REGULATORY AND ENVIRONMENTAL MATTERS
Environmental Regulation
The Company's projects are subject to environmental laws and
regulations at the federal, state and local levels in connection
with the development, ownership and operation of the projects.
These environmental laws and regulations generally require that a
wide variety of permits and other approvals be obtained for the
construction and operation of an energy-producing facility and that
the facility then operate in compliance with such permits and
approvals. Failure to operate the facility in compliance with
applicable laws, permits and approvals can result in the levy of
fines or curtailment of operations by regulatory agencies.
Management of the Coso Joint Ventures believe that the Coso
Joint Ventures are in compliance in all material respects with all
applicable environmental regulatory requirements and that
maintaining compliance with current governmental requirements will
not require a material increase in capital expenditures or
materially affect its financial condition or results of operations.
Likewise, management of the Company believes that the Company's
other projects are in compliance with all applicable environmental
regulatory requirements. It is possible, however, that future
developments, such as more stringent requirements of environmental
laws and enforcement policies thereunder, could affect the costs of
and the manner in which the Coso Joint Ventures or the Company's
other projects conduct their businesses.
Federal Energy Regulations
The principal federal regulatory legislation relating to the
Company's geothermal energy activities is PURPA. PURPA and
associated state legislation have conferred certain benefits on the
independent power production industry. In particular, PURPA
exempts certain electricity producers ("Qualifying Facilities")
from federal and state regulation as a public utility. PURPA also
requires utilities, such as SCE, to purchase electricity from
qualifying facilities at the particular utility's avoided cost.
Each of the Coso Projects meets the requirements promulgated
under PURPA to be Qualifying Facilities. Qualifying Facility
status under PURPA provides two primary benefits. First,
regulations under PURPA exempt qualifying facilities from the
Public Utility Holding Company Act of 1935 ("PUHCA"), most
provisions of the Federal Power Act (the "FPA") and state laws
concerning rates of electric utilities, and financial and
organizational regulations of electric utilities. Second, FERC's
regulations promulgated under PURPA require that (1) electric
utilities purchase electricity generated by Qualifying Facilities,
the construction of which commenced on or after November 9, 1978,
at a price based on the purchasing utility's full avoided cost; (2)
the electric utility sell back-up, interruptable, maintenance and
supplemental power to the Qualifying Facility on a non-
discriminatory basis; and (3) the electric utility interconnect
with the Qualifying Facility in its service territory.
The Projects remain subject, among other things, to FERC
approvals and permits for power development, and to federal, state
and local laws and regulations regarding environmental compliance,
leasing, siting, licensing, construction, and operational and other
matters relating to the exploration, development and operation of
its geothermal properties.
In 1992, Congress enacted comprehensive new energy policy
legislation in its passage of the Energy Policy Act. This new law
is designed to, among other things, foster competition in energy
production and provide independent power producers with competitive
access to the transmission grid. To achieve these goals, the
Energy Policy Act amended PUHCA to create a new class of generating
facility called Exempt Wholesale Generators ("EWGs"). EWGs are
generally exempt from public utility regulation under PUHCA. The
Energy Policy Act also provides new authority to FERC to mandate
that owners of transmission lines provide wheeling access at just
and reasonable rates. Previously limited, wheeling rights enhance
the ability of independent power producers to negotiate
transmission access and encourages development of facilities whose
most feasible siting lies outside the purchasing utility's service
area or which, like many geothermal sites, are remotely located.
Permits and Approvals
The Company has obtained certain permits, approvals and
certificates necessary for the current exploration, development and
operation of its Projects. Similar permits, approvals and
certificates will be required for any future expansion of the Coso
Project and for any development of the Company's other geothermal
properties or for other power project development by the Company.
Such compliance is costly and time consuming, and may in certain
instances be dependent upon factors beyond the Company's control.
The Company believes that its operating power facilities are
currently in material compliance with all applicable federal, state
and local laws and regulations. No assurance can be given,
however, that in the future all necessary permits, approvals,
variances and certificates will be obtained and all applicable
statutes and regulations will be complied with, nor can assurance
be given that additional and more stringent laws, taxes or
regulations will not be established in the future which may
restrict the Company's current operations or delay the development
of new geothermal properties, or which may otherwise have an
adverse impact on the Company.
INSURANCE
The Coso Projects are insured for $600.0 million per
occurrence for general property damage and $600.0 million per
occurrence for business interruption, subject to a $25,000
deductible for property damage ($500,000 for turbine generator and
machinery) and a 15-day deductible for business interruption.
Catastrophic insurance (earthquake and flood) for the Coso Project
is capped at $200.0 million per occurrence for property damage and
$200.0 million per occurrence for business interruption. Liability
insurance coverage is $51.0 million (occurrence based) with a
$10,000 deductible. Operators' extra expense (control of well)
insurance for the Coso Project is $10.0 million per occurrence with
a $25,000 deductible which is non-auditable. The policies are
issued by international and domestic syndicates with each company
rated A- or better by A.M. Best Co., Inc. There can be no
assurance, however, that earthquake, property damage, business
interruption or other insurance will be adequate to cover all
potential losses sustained by the Company or that such insurance
will continue to be available on commercially reasonable terms.
EMPLOYEES
As of December 31, 1993, the Company employed approximately
249 people, of which approximately 160 people were employed at the
Navy I, Navy II and BLM Projects, collectively. The Coso Joint
Ventures do not hire or retain any employees. All employees
necessary to the operation of the Coso Project are provided by the
Company under certain plant and field operations and maintenance
agreements.
Item 2. Properties
As described under "Business", the Company's most significant
physical properties are its four operating power facilities and its
related real property interests. The Company also maintains an
inventory of more than 400,000 acres of geothermal property leases
and owns a 70% interest in a geothermal steam field. An affiliate
of the Company owns the approximately 42 acre site in Yuma, Arizona
where the 50 MW gas fired cogeneration facility is being
constructed.
The Company owns a one-story office building in Omaha,
Nebraska, which houses its principal executive offices. The
Company also leases office space in Ridgecrest, California, which
houses the operating offices for the Coso Project and in Singapore
and Manila, which house offices for the Company's international
activities in the region.
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder's Matters
The Company's Common Stock is listed on the New York
Stock Exchange, the Pacific Stock Exchange and the London Stock
Exchange using the symbol CE. Prior to listing on the New York
Stock Exchange on August 12, 1993, the Company's Common Stock was
listed on the American Stock Exchange.
The following table sets forth, for the calendar periods
indicated, the high and low closing sales prices of the Company's
Common Stock as reported by the American Stock Exchange for the
periods through August 11, 1993 and the New York Stock Exchange
thereafter. All prices have been adjusted to reflect the Company's
stock dividends during those calendar periods.
1992
Period High Low
First Quarter $16.25 $11.63
Second Quarter 13.25 11.50
Third Quarter 13.00 11.38
Fourth Quarter 17.38 11.88
1993
Period High Low
First Quarter 21.50 16.50
Second Quarter 20.00 17.25
Third Quarter 18.38 16.00
Fourth Quarter 20.13 18.13
As of March 21, 1994, there were 1,408 stockholders of record
of the Company's Common Stock.
The present policy of the Board is to retain earnings to
provide sufficient funds for the operation and expansion of the
Company's business. Accordingly, the Company has not paid, and
does not have any present plan to pay, cash dividends on its Common
Stock. In January of 1990 and January of 1991, the Company paid a
4% stock dividend to the holders of its Common Stock. The Company
did not pay such a dividend in 1992 or 1993, and has no plans to
pay any such dividend in the future.
Prior to March 24, 1994, the agreements relating to the Senior
Notes issued by the Company prohibit the payment of dividends
unless the Company has a net worth of at least $50 million, after
giving effect to the payment of such dividends, and dividends do
not exceed 50% of the Company's net income accumulated after
December 31, 1987. Pursuant to a Defeasance Agreement dated March
23, 1994 such restrictions were released by the holder of the
Senior Notes. The Certificate of Designation with respect to the
Company's Series C Redeemable Convertible Exchangeable Preferred
Stock (the "Series C Preferred Stock") prohibits cash dividend
payments with respect to the Common Stock unless all accumulated
dividends on the Series C Preferred Stock have been paid.
The Indenture for the Senior Discount Notes issued by the
Company on March 24, 1994 prohibit the payment of dividends unless
certain financial covenants are satisfied. Reference is made to
the indenture relating to the Senior Discount Notes for a detailed
description of these restrictions.
In June of 1993, the Company issued $100,000,000 of 5%
convertible subordinated debentures ("Debentures") due July 31,
2000. The Debentures are convertible into shares of the Company's
Common Stock at any time prior to redemption or maturity at a
conversion price of $22.50 per share, subject to adjustment in
certain circumstances. Interest on the Debentures is payable semi-
annually in arrears on July 31 and January 31 of each year,
commencing on July 31, 1993. The debentures are redeemable for
cash at any time on or after July 31, 1996 at the option of the
Company. The redemption prices (expressed in percentages of the
principal amount) based on twelve month periods beginning July 31,
1996 are 102%, 101%, 100% and 100% for 1996, 1997, 1998 and 1999,
respectively. The Debentures are unsecured general obligations of
the Company and subordinated to all existing and future senior
indebtedness of the Company. In December of 1993, the Company
registered 4,444,444 shares of the Company's Common Stock in the
event a holder elected to exercise the conversion rights under the
Debentures.
Item 6. Selected Financial Data
There is hereby incorporated by reference the information
which appears under the caption "Selected Financial Data" in the
Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
There is hereby incorporated by reference the information
which appears under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in the
Annual Report.
Item 8. Financial Statements and Supplementary Data
There is hereby incorporated by reference the information
which appears in the Consolidated Financial Statements and notes
thereto in the Annual Report. Since the preparation of the
Consolidated Financial Statements, the Company closed on the Senior
Discount Notes described in the Consolidated Financial Statements
at footnote 16, "Subsequent Event." On March 24, 1994 the Company
received the proceeds of about $390 million from the closing on its
Senior Discount Note offering. The Senior Discount Notes bear
interest at the rate of 10.25% per annum, with cash interest
payment commencing in 1997 and accrete to an aggregate principal
amount of $529 million at maturity. The notes are unsecured
obligations of the Company. The Company intends to use the
proceeds from the offering to: (i) fund equity commitments in, and
the construction costs of, geothermal power project presently
planned in the Philippines and Indonesia, (ii) to fund equity
investments in, and loan to, other potential international and
domestic private power projects and related facilities, (iii) for
corporate or project acquisitions permitted under the indenture,
and (iv) for general corporate purposes.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
There is hereby incorporated by reference the information
which appears under the caption "Information Regarding Nominees for
Election as Directors and Directors Continuing in Office" in the
Proxy Statement.
Set forth below are the current executive officers of the
Company and their positions with the Company:
Executive Officer Position
Richard R. Jaros Chairman of the Board of Directors
David L. Sokol President and Chief Executive Officer
Gregory E. Abel Assistant Vice President and Controller
Edward F. Bazemore Vice President, Human Resources
David W. Cox Vice President, Legislative and Regulatory
Affairs
Philip H. Essner Vice President, Land Management and Insurance
Vincent R. Fesmire Vice President, Development and
Implementation
Thomas R. Mason Senior Vice President, Engineering,
Construction and Operations
Steven A. McArthur Senior Vice President, General Counsel and
Secretary
Donald M. O'Shei, Sr. Vice President, Marketing;
President, CE International, Ltd.
John G. Sylvia Vice President, Chief Financial Officer and
Treasurer
Set forth below is certain information with respect to each
executive officer of the Company other than Messrs. Jaros and Sokol
(for whom information is incorporated by reference from the Proxy
Statement):
GREGORY E. ABEL, 31, Assistant Vice President and Controller.
Mr. Abel joined the Company in 1992. Mr. Abel is a Chartered
Accountant and from 1984 to 1992 he was employed by Price
Waterhouse. As a Manager in the San Francisco office of Price
Waterhouse, he was responsible for clients in the energy industry.
EDWARD F. BAZEMORE, 57, Vice President, Human Resources. Mr.
Bazemore joined the Company in July 1991. From 1989 to 1991, he
was Vice President, Human Resources, at Ogden Projects, Inc. in New
Jersey. Prior to that, Mr. Bazemore was Director of Human
Resources for Ricoh Corporation, also in New Jersey. Previously,
he was Director of Industrial Relations for Scripto, Inc. in
Atlanta, Georgia.
DAVID W. COX, 38, Vice President, Legislative and Regulatory
Affairs. Mr. Cox joined the Company in 1990. From 1987 to 1990,
Mr. Cox was Vice President with Bank of America N.T. & S.A. in the
Consumer Technology and Finance Group. From 1984 to 1987, Mr. Cox
held a variety of management positions at First Interstate Bank.
PHILIP H. ESSNER, 51, Vice President, Land Management and
Insurance. Mr. Essner administers the Company's geothermal lease
acquisition and land position programs, and obtains permits from
regulatory agencies. Mr. Essner also manages the Company's
insurance programs. He has been a Vice President of the Company
since 1983.
VINCENT R. FESMIRE, 53, Vice President, Development and
Implementation. Mr. Fesmire joined the Company in October 1993.
Prior to joining the Company, Mr. Fesmire was employed for 19 years
with Stone & Webster, an engineering firm, serving in various
management level capacities with an expertise in geothermal design
engineering.
THOMAS R. MASON, 50, Senior Vice President, Engineering,
Construction and Operations. Mr. Mason joined the Company in March
1991. From October 1989 to March 1991, Mr. Mason was Vice
President and General Manager of Kiewit Energy Company. Mr. Mason
acted as a consultant in the energy field from June 1988 to October
1989. Prior to that, Mr. Mason was Director of Marketing for
Energy Factors, Inc., a non-utility developer of power facilities.
STEVEN A. McARTHUR, 36, Senior Vice President, General Counsel
and Secretary. Mr. McArthur joined the Company in February 1991.
From 1988 to 1991 he was an attorney in the Corporate Finance Group
at Shearman & Sterling in San Francisco. From 1984 to 1988 he was
an attorney in the Corporate Finance Group at Winthrop, Stimson,
Putnam & Roberts in New York.
DONALD M. O'SHEI, SR., 60, Vice President; President, CE
International, Ltd. General O'Shei was in charge of engineering
and operations for the Company from October 1988 until October
1991. He rejoined the Company as a Vice President in August, 1992.
Previously he was President and Chief Executive Officer of AWD
Technologies, Inc., a hazardous waste remediation firm, and
President and General Manager of its predecessor company, Atkinson-
Woodward Clyde. He was a brigadier general in the U.S. Army prior
to joining the Guy F. Atkinson Co. in 1982 as Director of Corporate
Planning and Development.
JOHN G. SYLVIA, 35, Vice President, Chief Financial Officer
and Treasurer. Mr. Sylvia joined the Company in 1988. From 1985
to 1988, Mr. Sylvia was a Vice President in the San Francisco
office of the Royal Bank of Canada, with responsibility for
corporate and capital markets banking. From 1986 to 1990, Mr.
Sylvia served as an Adjunct Professor of Applied Economics at the
University of San Francisco. From 1982 to 1985, Mr. Sylvia was a
Vice President with Bank of America.
Item 11. Executive Compensation
There is hereby incorporated by reference the information
which appears under the caption "Executive Officer and Director
Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
There is hereby incorporated by reference the information
which appears under the caption "Security Ownership of Significant
Stockholders and Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
There is hereby incorporated by reference the information
which appears under the caption "Certain Transactions and
Relationships" in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) Financial Statements and Schedules
(i) Financial Statements
Filed herewith are the consolidated balance
sheet of California Energy Company, Inc. and subsidiaries as of
December 31, 1993, and December 31, 1992, and the consolidated
statements of operations, cash flows and stockholder's equity for
the years ended December 31, 1993, 1992 and 1991, and the related
reports of independent auditors.
(ii) Financial Statement Schedules
Schedule No. Name of Schedule
II Amounts Receivable from Related Parties
and Underwriters, Promoters, and
Employees other than Related Parties
III Financial Statements of the Company
(Parent Company only)
V Consolidated Property, Plant and
Equipment
VI Consolidated Accumulated Depreciation and
Amortization of Property, Plant and
Equipment
IX Short-Term Borrowings
X Consolidated Supplementary Income
Statement Information
The other financial statement schedules are
either not required for the Company or are included at the notes to
the financial statements.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on October 1,
1993 reporting the signing of Energy Conversion Agreement with the
Philippine National Oil Company - Energy Development Corporation
for two separate Philippines geothermal power projects totaling 300
MW under Item 5. thereof, "Other Events".
The Company filed a Report on Form 8-K on November
2, 1993 reporting the Company agreed to acquire 100% of the stock
of Westmoreland Energy, Inc. from Westmoreland Coal Company.
The Company filed a Report on Form 8-K on December
1, 1993 reporting that it terminated the proposed acquisition of
Westmoreland Energy, Inc. stock.
(c) Exhibits
The exhibits listed on the accompanying Exhibit
Index (except in the case of Exhibit 13.0, in which case only the
portion of the Annual Report which constitutes the Company's
Consolidated Financial Statements and notes thereto) are filed as
part of this Annual Report.
For the purposes of complying with the amendments to
the rules governing Form S-8 effective July 13, 1990 under the
Securities Act of 1933, the undersigned Registrant hereby
undertakes as follows, which undertaking shall be incorporated by
reference into the Company's currently effective Registration
Statements on Form S-8:
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Omaha, State of Nebraska, on this
30th day of March, 1994.
CALIFORNIA ENERGY COMPANY, INC.
By David L. Sokol
President and Chief Executive Officer
By: /s/ Steven A. McArthur
Steven A. McArthur
Attorney-in-Fact
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Date
/s/ David L. Sokol* March 30, 1994
David L. Sokol
President and Chief Executive
Officer, Director
/s/ John G. Sylvia March 30, 1994
John G. Sylvia
Vice President, Chief Financial
Officer, Chief Accounting Officer
and Treasurer
*By: /s/ Steven A. McArthur March 30, 1994
Steven A. McArthur
Attorney-in-Fact
/s/ Edgar D. Aronson * March 30, 1994
Edgar D. Aronson
Director
/s/ Judith E. Ayres * March 30, 1994
Judith E. Ayres
Director
/s/ Harvey F. Brush* March 30, 1994
Harvey F. Brush
Director
/s/ James Q. Crowe* March 30, 1994
James Q. Crowe
Director
/s/ Richard K. Davidson* March 30, 1994
Richard K. Davidson
Director
/s/ Richard R. Jaros* March 30, 1994
Richard R. Jaros
Chairman of the Board of Directors
/s/ Ben Holt* March 30, 1994
Ben Holt
Director
/s/ Everett B. Laybourne* March 30, 1994
Everett B. Laybourne
Director
/s/ Daniel J. Murphy* March 30, 1994
Daniel J. Murphy
Director
/s/ Herbert L. Oakes, Jr.* March 30, 1994
Herbert L. Oakes, Jr.
Director
/s/ Walter Scott, Jr.* March 30, 1994
Walter Scott, Jr.
Director
/s/ Barton W. Shackelford* March 30, 1994
Barton W. Shackelford
Director
/s/ David E. Wit* March 30, 1994
David E. Wit
Director
*By: /s/ Steven A. McArthur March 30, 1994
Steven A. McArthur
Attorney-in-Fact
California Energy Company, Inc. Schedule II
Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties
as of December 31, 1993, 1992, 1991
(dollars in thousands)
Balance at
Beginning
of Period Additions Collected Current Noncurrent
Year ended December 31, 1993 $--- $--- $--- $--- $---
Year ended December 31, 1992 --- --- --- --- ---
Year ended December 31, 1991 100 --- 100 --- ---
Robert D. Tibbs*
*Relocation Loan, repaid January 2, 1991
California Energy Company, Inc. Schedule III
Parent Company Only
Balance Sheets
as of December 31, 1993 and 1992
(dollars and shares in thousands, except per share amounts)
ASSETS 1993 1992
Cash and investments $126,824 $ 53,321
Restricted cash 13,535 634
Development projects in progress 44,272 21,428
Investment in and advances to subsidiaries
and joint ventures 215,660 168,949
Equipment, net of accumulated depreciation 2,587 1,575
Notes receivable - joint ventures 21,558 19,098
Deferred charges and other assets 16,458 17,214
Total assets $440,894 $282,219
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 86 $ 937
Other accrued liabilities 10,550 5,061
Income taxes payable 4,000 ---
Senior notes 35,730 35,730
Convertible subordinated debenture 100,000 ---
Deferred income taxes 18,310 15,212
Total liabilities 168,676 56,940
Deferred income relating to joint ventures 1,915 2,165
Redeemable preferred stock 58,800 54,350
Stockholders' equity:
Preferred stock - authorized 2,000
shares no par value --- ---
Common stock - authorized 60,000
shares par value $0.0675 per share;
issued and outstanding 35,446 and
35,258 shares 2,404 2,380
Additional paid-in capital 100,965 97,977
Retained earnings 111,031 68,407
Treasury stock, 157 common shares at cost (2,897) ---
Total stockholders' equity 211,503 168,764
Total liabilities and stockholders' equity $440,894 $282,219
The accompanying notes are an integral part of these financial statements.
California Energy Company, Inc. Schedule III
Parent Company Only (continued)
Statement of Operations
for the three years ended December 31, 1993
(dollars in thousands)
Revenues: 1993 1992 1991
Equity in earnings of subsidiary
companies and joint ventures before
extraordinary items $61,412 $53,685 $38,364
Interest and other income 8,756 4,557 4,923
Total revenues 70,168 58,242 43,287
Expenses:
General and administration 6,564 6,796 5,585
Interest, net of capitalized interest 2,346 714 2,836
Total expenses 8,910 7,510 8,421
Income before provision for income
taxes 61,258 50,732 34,866
Provision for income taxes 18,184 11,922 8,284
Income before change in accounting
principle and extraordinary item 43,074 38,810 26,582
Cumulative effect of change in
account principle 4,100 --- ---
Equity in extraordinary item of joint
ventures (Less applicable income taxes
of $1,533) --- (4,991) ---
Net income 47,174 33,819 26,582
Preferred dividends 4,630 4,275 ---
Net income available
to common stockholders $42,544 $29,544 $26,582
The accompanying notes are an integral part of these financial statement.
California Energy Company, Inc. Schedule III
Parent Company Only (continued)
Condensed Statement of Cash Flows
for the three years ended December 31, 1993
(dollars in thousands)
1993 1992 1991
Cash flows from operating activities $45,671 $22,597 $ 631
Cash flows from investing activities:
Increase in development projects
in progress (22,844) (4,218) (3,458)
Decrease (increase) in advances
to and investments in subsidiaries
and joint ventures (36,812) 12,155 (41,162)
Other (9,945) (15,711) 251
Cash flows from investing activities (69,601) (7,774) (44,369)
Cash flows from financing activities:
Proceeds from sale of common,
treasury and preferred stocks,
and exercise of warrants and
stock options 2,912 8,065 111,458
Payment in senior notes --- --- (6,000)
Purchase of treasury stock (2,897) (4,887) ---
Net change in short-term bank loan --- --- (15,000)
Proceeds from issue of convertible
subordinated debentures 100,000 --- ---
Purchase of warrants --- (11,716) ---
Deferred charges relating to debt
financing (2,582) --- ---
Cash flows from financing activities 97,433 (8,538) 90,458
Net increase in cash
and investments 73,503 6,285 46,720
Cash and investments at beginning
of period 53,321 47,036 316
Cash and investment at end of period $126,824 $53,321 $47,036
Interest paid (net of amount
capitalized) $ (897) $ 464 $ 3,342
Income taxes paid $ 6,819 $ 4,129 $ 1,682
The accompanying notes are an integral part of these financial statement.
California Energy Company, Inc. Schedule III
Parent Company Only (continued)
Supplemental Notes to Financial Statement
(dollars in thousands)
Related Party Transactions
The Company bills the Coso Project partnerships and joint ventures for
management, professional and operational services. Billings for the
years ended December 31, 1993, 1992 and 1991 were $18,285, $19,629 and
$18,316, respectively. Dividends received from subsidiaries for the
years ended December 31, 1993, 1992 and 1991 were $49,053, $33,524 and
18,935, respectively.
Reclassification
Certain amounts in the fiscal 1992 and 1991 financial statements have been
reclassified to conform to the fiscal 1993 presentation. Such
reclassifications do not impact previously reported net income or retained
earnings.
California Energy Company, Inc. Schedule V
Consolidated Property, Plant and Equipment
as of December 31, 1993, 1992, and 1991
(dollars in thousands)
Balance at Balance
Beginning Additions Other at end
Asset Description of Period at Cost Retirement Changes of Period
Year ended December 31, 1993
Power plant and gathering system $235,924 $ 10,295 $ --- $ --- $ 246,219
Wells and resources development costs 144,595 16,542 --- --- 161,137
Total operating facilities 380,519 26,837 --- --- 407,356
Wells and resource construction in
progress 916 23 --- --- 939
Total project costs 381,435 26,860 408,295
Pacific Northwest Properties costs 25,882 15,657 --- --- 41,539
Nevada and Utah properties costs 32,089 3,403 --- --- 35,492
Yuma - construction in progress 1,294 40,167 --- --- 41,461
Equipment 8,308 1,104 --- (99)(1) 9,313
$449,008 $ 87,191 $ --- $ (99)(1) $ 536,100
Year ended December 31, 1992
Power plant and gathering system $229,213 $ 6,711 $ --- $ --- $ 235,924
Wells and resource development costs 124,416 19,029 --- 1,150(1) 144,595
Total operating facilities 353,629 25,740 --- 1,150(1) 380,519
Wells and resource construction in
progress 1,892 174 --- (1,150)(1) 916
Total project costs 355,521 25,914 --- --- 381,435
Pacific Northwest properties costs 22,627 3,255 --- --- 25,882
Nevada and Utah properties costs 31,199 890 --- --- 32,089
Yuma - construction in progress --- 1,294 --- --- 1,294
Equipment 7,215 1,093 --- --- 8,308
$416,562 $ 32,446 $ --- $ --- $ 449,008
Year ended December 31, 1991
Power plant and gathering system $221,991 $ 7,784 --- (562)(1) $ 229,213
Wells and resource development costs 92,280 31,574 --- 562 (1) 124,416
Total operating facilities 314,271 39,358 --- --- 353,629
Wells and resource development costs 1,812 80 --- --- 1,892
Total project costs 316,083 39,438 --- --- 355,521
Pacific Northwest properties costs 18,761 3,866 --- --- 22,627
Nevada and Utah properties costs 8,028 23,171 --- --- 31,199
Equipment 6,898 1,027 (710) --- 7,215
$349,770 $ 67,502 $ (710) --- $ 416,562
<FN>
(1) Other reclassifications
California Energy Company, Inc. SCHEDULE VI
Consolidated Accumulated Depreciation and Amortization
of Property, Plant and Equipment
as of December 31, 1993, 1992, and 1991
(dollars in thousands)
Balance at Depreciation Balance
Beginning and Other at end
of Period Amortization Retirements Changes of Period
Year ended December 31, 1993
Power Plant and gathering system $21,947 $ 6,844 $ --- $ (276)* $28,515
Wells and resource development costs 29,107 10,191 --- --- 39,298
Total operating facilities 51,054 17,035 --- (276) 67,813
Equipment 3,996 777 --- --- 4,773
$55,050 $17,812 $ --- $ (276) $72,586
Year ended December 31, 1992
Power Plant and gathering system $15,812 $ 6,135 $ --- $ --- $21,947
Wells and resource development costs 19,587 9,520 --- --- 29,107
Total operating facilities 35,399 15,655 --- --- 51,054
Equipment 2,897 1,099 --- --- 3,996
$38,296 $16,754 $ --- $ --- $55,050
Year ended December 31, 1991
Power Plant and gathering system $ 9,885 $ 5,927 $ --- $ --- $15,812
Wells and resource development costs 11,684 7,903 --- --- 19,587
Total operating facilities 21,569 13,830 --- --- 35,399
Equipment 2,251 922 (276) --- 2,897
$23,820 $14,752 $ (276) $ --- $38,296
<FN>
*Reclassification.
California Energy Company, Inc. SCHEDULE IX
Short-Term Borrowings
as of December 31, 1993, 1992, and 1991
(dollars in thousands)
Weighted average Maximum amount Average amount Weighted average
Category of aggregate Balance at end interest rate outstanding outstanding interest rate during
short-term borrowings of period during the period during the period the period
Year ended December 31, 1993 $ --- --- $ --- $ --- ---
Year ended December 31, 1992 $ --- --- --- --- ---
Year ended December 31, 1991 $ --- 7.21% $15,000 $ 8,125 8.5%
The short-term borrowing payable to a bank was under a $15,000 multi-year
Credit Agreement. The average amount outstanding during the period was
computed based on month-end balances. The weighted average interest rate
during the period was the effective rate incurred.
California Energy Company, Inc. Schedule X
Consolidated Supplementary Income Statement Information
for the three years ended December 31, 1993
(dollars in thousands)
1993 1992 1991
Maintenance and repairs $ 3,465 $ 3,337 $ 2,283
Amortization of deferred financing cost $ 1,031 $ 1,232 $ 964
Taxes, other than payroll and income taxes $ 3,902 $ 3,572 $ 3,603
Royalties $ 8,274 $ 7,710 $ 5,505
Advertising costs * * *
<FN>
*Less than amounts required to be reported pursuant to Securities and Exchange Commission
Exhibit Index
3.1 The Company's Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 of the Company's
Form 10-K for the year ended December 31, 1992, File No. 1-
9874 (the "1992 Form 10-K"))
3.2 Certificate of Amendment of the Company's Restated Certificate
of Incorporation, dated June 23, 1993 (incorporated by
reference to the Company's Form 8-A, dated July 28, 1993, File
No. 1-9874 (the "Form 8-A"))
3.3 The Company's Certificate of Designation with respect to the
Company's Series C Redeemable Convertible Exchangeable
Preferred Stock, dated November 20, 1991 (incorporated by
reference to Exhibit 3.1 of the Company's 1992 Form 10-K)
3.4 The Company's By-Laws as amended through September 24, 1993.
4.1 Specimen copy of form of Common Stock Certificate.
4.2 Shareholders Rights Agreement between the Company and
Manufacturers Hanover Trust Company of California dated
December 1, 1988 (incorporated by reference to Exhibit 1 to
Company's Form 8-K dated December 5, 1988, File No. 1-9874).
4.3 Amendment Number 1 to Shareholder Rights Agreement, dated
February 15, 1991 (incorporated by reference to Exhibit 4.2 to
the Company's 1992 Form 10-K).
4.4 Note Purchase Agreement between the Company and Principal
Mutual Life Insurance Company dated March 15, 1988
(incorporated by reference to Exhibit 1 to Company's Form 8-K
dated April 11, 1988).
4.5 Defeasance Agreement between Principal Mutual Life Insurance
Company and the Company dated March 3, 1994.
4.6 Consent and Agreement between Principal Mutual Life Insurance
Company and the Company dated March 24, 1994.
4.7 Escrow Deposit Agreement between Bank of America National
Trust and Savings Association and the Company dated March 3,
1994.
10.1 Joint Venture Agreement for China Lake Joint Venture between
the Company and Caithness Geothermal 1980 Ltd., restated as of
January 1, 1984 (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-1, 33-7770).
10.2 Amended Joint Venture Agreement for Coso Land Company between
the Company and Caithness Geothermal 1980 Ltd., dated as of
June 1, 1983 (incorporated by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-1, 33-7770).
10.3 Amended General Partnership Agreement for Coso Finance
Partners between China Lake Operating Company and ESCA I L.P.
dated July 13, 1988 (incorporated by reference to Exhibit 10.3
to the Company's 1992 Form 10-K).
10.4 First Supplemental Amendment to the Amended and Restated
General Partnership Agreement for Coso Finance Partners
between China Lake Operating Company and ESCA L.P. (Undated)
(incorporated by reference to Exhibit 10.4 to the Company's
1992 Form 10-K).
10.5 Second Supplemental Amendment to the Amended and Restated
General Partnership Agreement for Coso Finance Partners
between China Lake Operating Company and ESCA L.P. dated as of
July 13, 1988 (incorporated by reference to Exhibit 10.5 to
the Company's 1992 Form 10-K).
10.6 Third Supplemental Amendment to the Amended and Restated
General Partnership Agreement for Coso Finance Partners
between China Lake Operating Company and ESCA L.P. dated as of
December 16, 1992 (incorporated by reference to Exhibit 10.6
to the Company's 1992 Form 10-K).
10.7 General Partnership Agreement for Coso Finance Partners II
between China Lake Geothermal Management Company and ESCA II
L.P. dated July 7, 1987 (incorporated by reference to Exhibit
10.7 to the Company's 1992 Form 10-K).
10.8 Restated General Partnership Agreement for Coso Energy
Developers between Coso Hotsprings Intermountain Power Inc.
and Caithness Coso Holdings L.P. dated as of March 31, 1988
(incorporated by reference to Exhibit 10.8 to the Company's
1992 Form 10-K).
10.9 First Amendment to the Restated General Partnership Agreement
for Coso Energy Developers between Coso Hotsprings
Intermountain Power, Inc. and Caithness Coso Holdings L.P.
dated as of March 31, 1988 (incorporated by reference to
Exhibit 10.9 to the Company's 1992 Form 10-K).
10.10 Second Amendment to the Restated General Partnership
Agreement for Coso Energy Developers between Coso
Hotsprings Intermountain Power, Inc. and Caithness Coso
Holdings L.P. dated as of December 16, 1992 (incorporated
by reference to Exhibit 10.10 to the Company's 1992 Form
10-K).
10.11 Amended and Restated General Partnership Agreement for
Coso Power Developers between Coso Technology Corporation
and Caithness Navy II Group L.P. dated July 31, 1989
(incorporated by reference to Exhibit 10.11 to the
Company's 1992 Form 10-K).
10.12 First Amendment to the Amended and Restated General
Partnership for Coso Power Developers between Coso
Technology Corporation and Caithness Navy II Group L.P.
dated as of March 19, 1991 (incorporated by reference to
Exhibit 10.12 to the Company's 1992 Form 10-K).
10.13 Second Amendment to the Amended and Restated General
Partnership Agreement for Coso Power Developers between
Coso Technology Corporation and Caithness Navy II Group
L.P. dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.13 to the Company's 1992 Form 10-K).
10.14 Form of Amended and Restated Field Operation and
Maintenance Agreement between Coso Joint Ventures and the
Company dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.14 to the Company's 1992 Form 10-K).
10.15 Form of Amended and Restated Project Operation and
Maintenance Agreement between Coso Joint Venture and the
Company dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.15 to the Company's 1992 Form 10-K).
10.16 Trust Indenture between Coso Funding Corp. and Bank of
America National Trust and Savings Association dated as
of December 16, 1992 (incorporated by reference to
Exhibit 10.16 to the Company's 1992 Form 10-K).
10.17 Form of Amended and Restated Credit Agreement between
Coso Funding Corp. and Coso Joint Ventures dated as of
December 16, 1992 (incorporated by reference to Exhibit
10.17 to the Company's 1992 Form 10-K).
10.18 Form of Support Loan Agreement among Coso Joint Ventures
dated December 16, 1992 (incorporated by reference to
Exhibit 10.18 to the Company's 1992 Form 10-K).
10.19 Form of Project Loan Pledge Agreement between Coso Joint
Ventures and Bank of America National Trust and Savings
dated as of December 16, 1992 (incorporated by reference
to Exhibit 10.19 to the Company's 1992 Form 10-K).
10.20 Power Purchase Contracts between Southern California
Edison Company and:
(a) China Lake Joint Venture, executed June 4, 1984 with a
term of 24 years;
(b) China Lake Joint Venture, executed February 1, 1985 with
a term of 23 years; and
(c) Coso Geothermal Company, executed February 1, 1985 with
a term of 30 years (incorporated by reference to Exhibit
10.7 to the Company's Registration Statement on Form S-1,
33-7770).
10.21 Contract No. N62474-79-C-5382 between the United States
of America and China Lake Joint Venture, restated October
19, 1983 as "Modification P00004," including
modifications through "Modification P00026," dated
December 16, 1992 (incorporated by reference to Exhibit
10.21 to the Company's 1992 Form 10-K).
10.22 Lease between the BLM and Coso Land Company, effective
November 1, 1985 (with Designation of Geothermal
Operator) (incorporated by reference to Exhibit 10.8 to
the Company's Registration Statement on Form S-1, 33-
7770).
10.23 Stock Purchase Agreement between the Company and Kiewit
Energy Company dated as of February 18, 1991, as amended
as of June 19, 1991 (incorporated by reference to
Exhibit 1 to the Company's Form 8-K dated February 26,
1991).
10.24 Amendment No. 2 to Stock Purchase Agreement between
Kiewit Energy Company and the Company dated as of January
8, 1992 (incorporated by reference to Exhibit 10.24 to
the Company's 1992 Form 10-K).
10.25 Amendment No. 3 to Stock Purchase Agreement between
Kiewit Energy Company and the Company dated as of April
2, 1993.
10.26 Shareholders Agreement between the Company and Kiewit
Energy Company dated as of February 18, 1991, as amended
as of June 19, 1991 and as of November 20, 1991
(incorporated by reference to Exhibit 1 to the Company's
Form 8-K dated February 26, 1991, Exhibit 1 to the
Company's Form 8-K dated July 18, 1992, and Exhibit 3 to
the Company's Form 8-K dated November 21, 1991).
10.27 Amendment No. 3 to Shareholder's Agreement between the
Company and Kiewit Energy Company dated as of April 2,
1993 (incorporated by reference to Exhibit 14 to the
Company's Form 8-A).
10.28 Amendment No. 4 to Shareholder's Agreement between the
Company and Kiewit Energy Company dated as of July 20,
1993.
10.29 Registration Rights Agreement between the Company and
Kiewit Energy Company dated as of February 18 1991, as
amended as of June 19, 1991 (incorporated by reference to
Exhibit 1 to the Company's Form 8-K dated February 26,
1991, and Exhibit 1 to the Company's Form 8-K dated July
18, 1992).
10.30 Registration Rights Agreement between the Company and
Kiewit Energy Company dated June 19, 1991, as amended
November 20, 1991 (incorporated by reference to Exhibit
1 of the Company's Form 8-K dated June 19, 1991 and
Exhibit 4 to the Company's Form 8-K dated November 21,
1991).
10.31 Stock Option Agreement between the Company and Kiewit
Energy Company dated as of February 18, 1991, as amended
as of June 19, 1991 (incorporated by reference to Exhibit
1 to the Company's Form 8-K dated February 26, 1991, and
Exhibit 1 to the Company's Form 8-K dated July 18, 1992).
10.32 Stock Option Agreement between the Company and Kiewit
Energy Company dated as of June 19, 1991 (incorporated by
reference to Exhibit 1 to the Company's Form 8-K dated
July 18, 1991).
10.33 Securities Purchase Agreement between the Company and
Kiewit Energy Company dated as of November 20, 1991
(incorporated by reference to Exhibit 2 to the Company's
Form 8-K dated November 21, 1991).
10.34 Sublease between the Company and Kiewit Energy Company
dated March 15, 1991 (incorporated by reference to
Exhibit 10.32 to the Company's 1992 Form 10-K).
10.35 Amended and Restated 1986 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.33 to the
Company's 1992 Form 10-K).
10.36 Form of severance letter between the Company and certain
executive officers of the Company (incorporated by
reference to Exhibit 10.35 to the Company's 1992 Form 10-
K).
10.37 Indenture between the Company and The Chemical Trust
Company of California dated as of June 24, 1993
(incorporated by reference to the Company's Form 8-K
dated June 24, 1993, File No. 1-9874).
10.38 Registration Rights Agreement among the Company, Lehman
Brothers, Inc. and Alex Brown & Sons Incorporated dated
June 24, 1993 (incorporated by reference to the Company's
Form 8-K dated June 24, 1993, File No. 1-9874).
10.39 Indenture dated March 24, 1994 between the Company and
IBJ Schroder Bank and Trust Company (incorporated by
reference to Exhibit 3 to the Company's Form 8-K dated
March 28, 1994).
10.40 Employment Agreement between the Company and David L.
Sokol dated as of April 2, 1993.
10.41 Termination Agreement between the Company and Richard R.
Jaros dated as of December 9, 1993.
10.42 Standard Offer Number 2, Standard Offer for Power
Purchase with a Firm Capacity Qualifying Facility
effective June 15, 1990 ("SO2") between San Diego Gas &
Electric Company and Bonneville Pacific Corporation.
10.43 Amendment Number One to the SO2 dated September 25, 1990.
10.44 Joint Venture Agreement among the Company, Kiewit
Diversified Group Inc. and Kiewit Construction Group Inc.
dated December 14, 1993.
10.45 Joint Venture Agreement between the Company and Distral
dated December 14, 1993.
11.0 Calculation of Earnings Per Share in accordance with
Interpretive Release No. 34-9083.
13.0 The Company's 1993 Annual Report (only the portions thereof
specifically incorporated herein by reference are deemed filed
herewith).
21.0 Subsidiaries of Registrant.
23.0 Consents of Independent Accountants.
24.0 Power of Attorney.
27.0 Financial Data Schedule.