Exhibit 99.1
ACADIA POWER PARTNERS, LLC
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
.
.
.
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
INDEX
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
PAGE(S)
REPORT OF INDEPENDENT AUDITORS...............................................1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets..................................................2
Consolidated Statements of Operations........................................3
Consolidated Statements of Members' Capital..................................4
Consolidated Statements of Cash Flows........................................5
Notes to Consolidated Financial Statements..............................6 - 13
REPORT OF INDEPENDENT AUDITORS
To the Members of
Acadia Power Partners, LLC and subsidiary
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, members' capital and cash flows present
fairly, in all material respects, the financial position of Acadia Power
Partners, LLC and subsidiary (the "Company") at December 31, 2003, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Houston, TX
March 11, 2004
1
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
- --------------------------------------------------------------------------------
2003 2002
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 3,286,987 $ 1,362,059
Accounts receivable - trade -- 3,625,690
Accounts receivable - related parties 6,187,895 3,559,853
Inventory 1,773,860 1,282,608
Other current assets 2,967,907 2,881,420
------------ ------------
Total current assets 14,216,649 12,711,630
Plant and equipment, net (Note 4) 474,560,519 496,098,322
Noncurrent assets
Other noncurrent assets 4,167,438 1,606,800
Deferred transmission credits -- 861,705
------------ ------------
Total assets $492,944,606 $511,278,457
============ ============
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities
Accounts payable - trade $ 2,600,697 $ 3,985,479
Accounts payable - related parties 324,978 --
Accrued liabilities 784,810 222,291
------------ ------------
Total current liabilities 3,710,485 4,207,770
Commitments and Contingencies (Note 8)
Members' capital 489,234,121 507,070,687
------------ ------------
Total liabilities and members' equity $492,944,606 $511,278,457
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
2
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
2003 2002 2001
(Unaudited) (Unaudited)
REVENUES
Nonaffiliated $ 16,053,598 $23,784,443 $ --
Related parties 66,992,531 25,317,550 --
------------ ----------- ----------
Total revenues 83,046,129 49,101,993 --
POWER, PLANT GENERATING AND MARKETING EXPENSE
Plant operating expense 12,750,635 4,997,390 --
Depreciation expense 13,919,584 6,579,496 --
Purchased power expense - related parties 2,117,600 7,839,121 --
------------ ----------- ----------
Total power plant generating and marketing expense 28,787,819 19,416,007 --
------------ ----------- ----------
Income from operations 54,258,310 29,685,986 --
OTHER INCOME AND EXPENSES
Contract termination gain (Note 7) 105,500,000 -- --
Other income (expense) (49,898) 3,139 --
------------ ----------- ----------
Net income $159,708,412 $29,689,125 $ --
============ =========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
3
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
CALPINE ACADIA ACADIA POWER TOTAL MEMBERS'
HOLDINGS, LLC HOLDINGS, LLC CAPITAL
BALANCES AT JANUARY 1, 2001 (UNAUDITED) $ 96,177,478 $ 96,177,478 $ 192,354,956
Non-cash contributions 5,345,490 (5,345,490) --
Cash contributions 108,852,192 119,543,172 228,395,364
------------- ------------- -------------
BALANCES AT DECEMBER 31, 2001 (UNAUDITED) 210,375,160 210,375,160 420,750,320
Cash contributions 40,284,962 40,284,962 80,569,924
Distributions (11,969,341) (11,969,341) (23,938,682)
Net income 14,844,562 14,844,563 29,689,125
------------- ------------- -------------
BALANCES AT DECEMBER 31, 2002 (UNAUDITED) 253,535,343 253,535,344 507,070,687
Distributions (136,977,283) (40,567,695) (177,544,978)
Net income 79,854,206 79,854,206 159,708,412
Interest on distributions (3,822,083) 3,822,083 --
------------- ------------- -------------
BALANCES AT DECEMBER 31, 2003 $ 192,590,183 $ 296,643,938 $ 489,234,121
============= ============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
2003 2002 2001
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 159,708,412 $ 29,689,125 $ --
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation 13,919,584 6,579,496 --
Changes in operating assets and liabilities
Accounts receivable
Trade 3,625,690 (3,625,690) --
Related parties (2,628,042) 1,785,637 --
Inventory (491,252) (1,282,608) --
Other current assets (86,487) (2,881,420) --
Noncurrent assets (1,698,933) (2,468,505) --
Accounts payable and accrued liabilities
Trade (822,263) (13,386,296) --
Related parties 324,978 (5,345,490) --
------------- ------------ -------------
Net cash provided by operating
activities 171,851,687 9,064,249 --
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of plant and equipment (6,294,795) (76,011,435) (217,855,140)
Cash proceeds from sales and use tax refund 13,913,014 -- --
------------- ------------ -------------
Net cash provided by (used for)
investing activities 7,618,219 (76,011,435) (217,855,140)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions -- 80,569,924 228,395,364
Distributions (177,544,978) (23,938,682) --
------------- ------------ -------------
Net cash provided by (used for)
investing activities (177,544,978) 56,631,242 228,395,364
------------- ------------ -------------
Net increase (decrease) in cash and
cash equivalents 1,924,928 (10,315,944) 10,540,224
CASH AND CASH EQUIVALENTS
Beginning 1,362,059 11,678,003 1,137,779
------------- ------------ -------------
Ending $ 3,286,987 $ 1,362,059 $ 11,678,003
============= ============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
5
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
1. BACKGROUND AND NATURE OF BUSINESS
These financial statements consolidate the accounts of Acadia Power
Partners, LLC (the "Company"), a Delaware limited liability company, and
its wholly owned subsidiary, Acadia Partners Pipeline, LLC (the
"Subsidiary"). All intercompany balances have been eliminated. All
information as of December 31, 2002 and for the two years then ended
included in these financial statements is unaudited.
The Company, an electric generation company, was formed on October 8, 1999,
for the purpose of designing, developing, constructing, owning, and
operating a power generation project located in Louisiana. At formation,
Cleco Midstream Resources, LLC ("Cleco"), a Louisiana limited liability
company, and IEP USA Holdings, LLC ("IEP"), a Delaware limited liability
company, owned 70 percent and 30 percent interests in the Company,
respectively. The Subsidiary was formed on June 26, 2000, with the Company
as the sole member.
In February 2000 Cleco and IEP transferred their respective ownership
interests in the Company to Acadia Power Holdings, LLC ("Acadia Holdings"),
a Louisiana limited liability company, and Calpine Acadia Holdings, LLC
("CAH"), a Delaware limited liability company and subsidiary of Calpine
Corporation ("Calpine"). CAH and Acadia Holdings (collectively, the
"Members") entered into the Amended and Restated Limited Liability Company
Agreement (the "Agreement") dated February 29, 2000. Under the Agreement,
the Company constructed, owns and operates a 1,160-megawatt (MW) natural
gas-fired electric generation plant (the "Facility") located in Acadia
Parish, Louisiana. Each member holds a 50 percent interest in the Company
as of December 31, 2003 and 2002. The Members share in profits and losses
of the Company in proportion of their ownership interests. The Company is
governed by an executive committee with two representatives from each
Member.
Construction on the Facility began in mid 2000 and the dates of commercial
operations for Phase I and Phase II were July 2002, and August 2002,
respectively. The Agreement will continue 49 years after the date that
commercial operations begin. The Company was in the development stage until
July 2002, when commercial operations began.
2. BUSINESS RISKS
Several current issues in the power industry could have an effect on the
Company's financial performance. Some of the business risks which could
cause future results to differ from expectations include (1) legislative
and regulatory initiatives regarding deregulation, regulation or
restructuring of the electric utility industry; (2) the extent and timing
of the entry of additional competition in the market in which we operate;
(3) state, federal and other rate regulations in the areas in which we do
business; (4) changes in or application of environmental and other laws and
regulations to which we are subject; (5) changes in market conditions,
including developments in energy and commodity supply, volume and pricing;
(6) weather and other natural phenomena; (7) and the direct or indirect
effects on our business resulting from the financial difficulties of
competitors of the Company, including but not limited to, their effects on
liquidity in the trading and power industry, and its effects on the capital
markets views of the energy or trading industry.
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ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. The most significant estimates
with regard to these financial statements relate to the useful lives and
carrying value of our generation facility and related assets and
depreciation. Additionally, we periodically review our assets for
impairment requiring us to estimate future revenues and cash flows over the
useful lives of the assets.
OPERATIONAL DATA
Operational data including, but not limited to, megawatt ("MW") and
megawatt hours ("MWh") throughout these financial statements are unaudited.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
carrying amount of these instruments approximates fair value because of
their short maturity.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
Accounts receivable and payable represent amounts due from customers and
owed to vendors, respectively.
INVENTORIES
The Company's inventories primarily include small parts. Inventory is
valued at the lower of cost or market using the average cost method. Costs
for large replacement parts estimated to be used within one year are
determined using the specific identification method. For other replacement
parts, costs are generally determined using the weighted average cost
method.
OTHER CURRENT ASSETS
Other current assets include prepaid expenses for insurance and long-term
service agreement (LTSA) payments and deferred transmission credits (Note
6).
MAJOR MAINTENANCE
As major maintenance occurs, and as parts are replaced on the plants' steam
and combustion turbines, the costs are either expensed or transferred to
property, plant and equipment and depreciated over the parts' estimated
useful lives, generally three to six years, depending on the nature of
maintenance activity performed under the service agreement.
LONG-LIVED ASSETS
In accordance with Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards ("SFAS") No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company evaluates the
impairment of long-lived assets, based on the projection of undiscounted
pre-interest expense and pre-tax expense cash flows whenever events or
changes in circumstances indicate that the carrying amounts of such assets
may not be recoverable. In the
7
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
event such cash flows are not expected to be sufficient to recover the
recorded value of the assets, the assets are written down to their
estimated fair values. No impairment charge has been recorded to date.
CONCENTRATION OF CREDIT RISK
The financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable. The
Company's revenues are primarily from sales to Calpine Energy Services,
L.P. ("CES"), a subsidiary of Calpine.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable and accounts payable,
approximate their respective fair value because of their short maturity.
INCOME TAXES
The Company is a limited liability company and, for income tax purposes, is
treated as a partnership. The Company's taxable income or loss is therefore
passed through to its members and reported on the respective members' tax
returns. Accordingly, there is no income tax provision or current or
deferred taxes in these financial statements.
DEFERRED TRANSMISSION CREDITS
The Company defers the costs associated with transmission interconnect
upgrades and amortizes them as the Company receives transmission credits or
reimbursements from the transmission system operator (Note 6).
REVENUE RECOGNITION
The Company has entered into tolling agreements that have been accounted
for as operating leases. The Company recognizes revenue based on a rate
that is straight-lined over the term of the lease (Note 5).
RECLASSIFICATIONS
We have made certain reclassifications in the consolidated financial
statements for the prior year to conform to the current years presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This standard applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition,
construction, development and/or normal use of the asset and requires that
a liability for an asset retirement obligation be recognized when incurred,
recorded at fair value and classified as a liability in the balance sheet.
When the liability is initially recorded, the entity capitalizes the cost
and increases the carrying value of the related long-lived asset. Asset
retirement obligations represent future liabilities, and, as a result,
accretion expense will be accrued on this liability until the obligation is
satisfied. At the same time, the capitalized cost will be depreciated over
the estimated useful life of the related asset. At the settlement date, the
entity will settle the obligation for its recorded amount or recognize a
gain or loss upon settlement. The adoption of SFAS No. 143 had no material
impact on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS No. 146 requires that the liability
for costs associated with an exit or disposal activity be recognized when
8
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
the liability is incurred. Previous guidance required the liability to be
recorded at the date of commitment to an exit or disposal plan. SFAS No.
146 also establishes that the liability should initially be measured and
recorded at fair value. The Company has adopted the provisions of SFAS No.
146 for restructuring activities initiated after December 31, 2002;
however, no restructuring costs have been incurred to date.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). This Interpretation
addresses the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under guarantees. In
addition, the Interpretation clarifies the requirements related to the
recognition of a liability by a guarantor at the inception of a guarantee
for the obligations that the guarantor has undertaken in issuing the
guarantee. The Company adopted the disclosure requirements of FIN 45 for
the fiscal year ended December 31, 2002, and the recognition provisions on
January 1, 2003. Adoption of this Interpretation did not have a material
impact on the Company's consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB 51 ("FIN 46"). FIN 46
requires the consolidation of entities in which an enterprise absorbs a
majority of the entity's expected losses, receives a majority of the
entity's expected residual returns, or both, as a result of ownership,
contractual or other financial interest in the entity. Historically,
entities have generally been consolidated by an enterprise when it has a
controlling financial interest through ownership of a majority voting
interest in the entity. The objectives of FIN 46 are to provide guidance on
the identification of Variable Interest Entities ("VIE") for which control
is achieved through means other than a controlling financial interest, and
how to determine which business enterprise, as the Primary Beneficiary,
should consolidate the VIE. This new model for consolidation applies to an
entity in which either (1) the entity lacks sufficient equity to absorb
expected losses without additional subordinated financial support or (2)
its at-risk equity holders as a group are not able to make decisions that
have a significant impact on the success or failure of the entity's ongoing
activities.
In December 2003, the FASB modified FIN 46 ("FIN 46-R") to make certain
technical corrections and to address certain implementation issues. FIN 46,
as originally issued, was effective immediately to VIEs created or acquired
after January 31, 2003. FIN 46-R delayed the effective date of the
interpretation to no later than March 31, 2004 (for calendar-year
enterprises), except for Special Purpose Entities (SPEs) which the
effective date is December 31, 2003. The Company expects to adopt the
provisions of FIN 46-R for the Company's variable interests in all non-SPE
VIEs as of March 31, 2004. The Company has no interests in VIE's and,
therefore, does not anticipate that FIN 46-R will have any material impact
on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No.
150 establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
SFAS No. 150 applies specifically to a number of financial instruments that
companies have historically presented within their financial statements
either as equity or between the liabilities section and the equity section,
rather than as liabilities. SFAS No. 150 was effective for financial
instruments entered into or modified after May 31, 2003, and otherwise was
effective at the beginning of the first interim period beginning after June
15, 2003. Adoption of SFAS No. 150 on January 1, 2003 did not have any
impact on the Company's consolidated financial statements.
9
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
4. PLANT AND EQUIPMENT, NET
Plant and equipment, net is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed on a
straight-line basis over the estimated useful lives of the assets,
generally 35 years for our power plant assets, including interconnect
pipelines, with an estimated salvage value of 10 percent of the original
cost. As of December 31, 2003 and 2002, the components of property, plant
and equipment were as follows:
2003 2002
(Unaudited)
Power plant and related equipment
Buildings, Machinery & Equipment $ 492,281,981 $ 499,900,200
Land 2,777,618 2,777,618
Less: Accumulated depreciation (20,499,080) (6,579,496)
------------- --------------
Plant and equipment, net $ 474,560,519 $ 496,098,322
------------- --------------
In 2002 the Company filed for refunds of sales and use taxes paid during
construction, pursuant to Louisiana's Enterprise Zone Program. The sales
and use taxes were paid over a period from January 2001 through December
2002 and capitalized as a part of the cost for plant and equipment acquired
by the Company. Total refunds of $13,913,014 were recorded as a reduction
of plant and equipment.
5. RELATED PARTIES
The Company entered into a tolling agreement dated July 27, 2001, with CES,
which is effective for 20 years beginning July 1, 2002. Under the
agreement, the Company has granted CES the right to receive the output of
one train of the Facility consisting of approximately one-half of the full
capacity. In accordance with the terms of the contract, CES will supply all
fuel necessary to generate the energy it takes and will pay the Company a
capacity charge as well as an operation and maintenance fee. This
arrangement is being accounted for as an operating lease. The rate
established in this agreement varies in the future, and therefore the
Company recognizes revenue based on a rate that is straight-lined over the
life of the lease. The Company recognized revenues of $46,134,331,
$25,317,550 and $0 in 2003, 2002 and 2001, respectively, based on this
agreement, of which $4,167,438 and $1,606,800 are recorded as other
noncurrent asset as of December 31, 2003 and 2002, respectively.
On May 10, 2003 the Company has entered into a second tolling agreement
with CES effective through June 30, 2022. The agreement was completed
concurrently with the termination of a previous tolling agreement dated
October 9, 2000, with Aquila Energy Marketing Corporation ("Aquila"), which
was effective for 20 years beginning July 1, 2002 (Notes 6 and 7). This CES
agreement is similar in nature to the agreement described above. Under this
agreement, the Company has granted CES the right to receive the output of
the second train of the Facility consisting of approximately one-half of
the full capacity of the Facility. In accordance with the terms of the
contract, CES will supply fuel necessary to generate the energy it takes
and will pay the Company a capacity charge as well as an operation and
maintenance fee. This agreement is
10
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
being accounted for as an operating lease. The rate established in the
agreement is fixed and therefore the lease revenues are recognized on a
straight-line basis. The Company recorded revenues of $20,858,200, $0 and
$0 in 2003, 2002 and 2001, respectively, based on this agreement.
The Company's revenue from the agreements above includes $2,117,600 and
$7,260,033 in 2003 and 2002, respectively, for sale of purchased power to
CES. Cost of this power was recorded as purchase power expense - related
parties.
As a result of the two 20-year tolling agreements with CES, all of the
output from the Acadia Power Plant is currently marketed by CES.
The Company's accounts receivable related to the agreements noted above
were $6,187,895 and $3,559,853 as of December 31, 2003 and 2002,
respectively.
The minimum lease rentals to be received by the Company in connection with
the above tolling agreements are $64.0 million, $64.0 million, $64.0
million, $65.9 million and $67.8 million for the years 2004 through 2008,
respectively. Minimum lease rentals for 2009 and thereafter are $915.8
million.
The Company has contracted with Calpine Central, LP ("CCLP"), a subsidiary
of Calpine, to provide project management services, which have included the
design, construction, and operation of the Facility. The project management
agreement dated February 29, 2000, terminates at the fiftieth anniversary
of the commercial operation date (Note 1). The Company agrees to reimburse
costs incurred by CCLP included in the approved operating budget and future
operating budgets. Based on this agreement, the Company reimbursed
$2,934,888, $1,575,505 and $4,492,149 in 2003, 2002 and 2001, respectively.
The Subsidiary has a Pipeline Operating Agreement with Cleco Energy, LLC, a
subsidiary of Cleco, dated March 1, 2002. The agreement covers all
operations, repair, improvements, alterations, inspections, testing,
protection and other operations and activities that are necessary to
maintain the facility in accordance with federal safety and maintenance
standards promulgated under CFR part 192 and the regulations of the
Louisiana Office of Conservation, and to accomplish the business objectives
of the Subsidiary. Based on this agreement, the Subsidiary reimbursed
$96,061, $209,819 and $59,417 in 2003, 2002 and 2001, respectively.
The Company has an Agreement for Electric Service with Cleco Power, LLC
("Cleco Power"), the successor to Cleco Utility Group, Inc., an affiliate
of Cleco, dated December 15, 2001. The agreement covers electrical
purchases of the Facility for a five-year period pursuant to Cleco Power's
Louisiana Public Service Commission ("LPSC") Rate Schedule GS and its Rider
Schedule for Long-Term Economic Development Services, subject to approval
by the LPSC. Based on this agreement, the Company paid $2,117,600,
$7,839,121 and $410,714 for services received in 2003, 2002 and 2001,
respectively.
The Company has a Phase Shifting Transformer Funding Agreement with Cleco
Power, dated January 4, 2001. The agreement covers the purchase and
installation of a Phase Shifting Transformer. The installation of this
project concluded in 2003. Based on this agreement, the Company paid
$1,052,238, $0 and $1,400,000 for the purchase and installation of the
transformer in 2003, 2002 and 2001, respectively.
11
ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
The Company has an Interconnection and Operating Agreement with Cleco
Power, dated February 25, 2000, pursuant to which the Company's generation
facilities are interconnected to Cleco Power's adjacent transmission
facilities and the transmission system of Entergy Services, Inc. The
Company is obligated to construct, own, operate and maintain all the
interconnection facilities and equipment on its side of the point of
interconnections, and Cleco Power is obligated to construct, own, operate,
and maintain the interconnection facilities and equipment on its side of
the point of interconnection. Based on this agreement, the Company has
reimbursed Cleco Power its construction costs for these customer specific
interconnection facilities. The Company reimbursed $67,478, $68,584, and
$452,125 in 2003, 2002 and 2001, respectively.
6. OTHER SIGNIFICANT AGREEMENTS
On October 9, 2000, the Company entered into a tolling agreement with
Aquila that was effective for 20 years beginning July 1, 2002. Under the
agreement, the Company granted Aquila the right to receive the output of
one train of the facility. In accordance with the terms of the contract,
Aquila supplied all fuel necessary to generate the energy it took and paid
the Company a capacity charge as well as an operation and maintenance fee.
Revenues recognized under this agreement were $16,053,598, $23,784,443 and
$0 in 2003, 2002 and 2001, respectively. Revenue includes $0, $579,087 and
$0 in 2003, 2002 and 2001, respectively, for sale of purchased power to
Aquila. Cost of this purchased power was recorded as purchase power expense
- related parties (Note 5). On May 9, 2003, the Company terminated its
tolling agreement with Aquila (Note 7).
The Company entered into an interconnection and operating agreement with
Entergy Gulf States, Inc. ("Entergy"), as amended and restated January 4,
2001. The agreement states that Entergy will reimburse the Company for
costs incurred by the Company for transmission system upgrades, totaling
approximately $4,740,000. Entergy will reimburse the Company for these
costs through future transmission credits or cash payments, as applicable.
Additionally, these credits are transferable to the Company's marketing
agent or power purchaser for use in offsetting the cost of transmitting the
Company's power. The Company received in a combination of cash and credits
reimbursements of $1,653,554, $1,478,295 and $0 in 2003, 2002 and 2001,
respectively, based on this agreement. Total deferred transmission credit
balances as of December 31, 2003 and 2002 were $1,608,151 and $3,261,705,
of which $1,608,151 and $2,400,000 were included in Other Current Assets.
The Company entered into a Procurement and Marketing Agreement dated
October 9, 2003 with ONEOK Energy Marketing and Trading Company, L.P.
("ONEOK"), pursuant to which ONEOK shall arrange for the provision of
replacement power and test fuel, and the sale of test power and natural gas
that is not used by the Company's generation facility, as requested by the
Company from time to time. The Company shall pay ONEOK for all actual costs
incurred for this service (as defined in the agreement) plus a service fee
applicable to each MWh of replacement power and each MMBtu of test fuel
procured and/or sold during such month and a fixed fee.
7. CONTRACT TERMINATION
The Company had previously entered into a tolling agreement dated October
9, 2000, with Aquila, which was effective for 20 years beginning July 1,
2002. Under the agreement, the Company had granted Aquila the right to
receive the output of one train of the Facility, consisting of
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ACADIA POWER PARTNERS, LLC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003, 2002 AND 2001
- --------------------------------------------------------------------------------
approximately one-half of the full capacity of the 1,160-MW Facility. On
May 9, 2003, the Company terminated its 580-MW, 20-year tolling agreement
with Aquila in return for a cash settlement of $105.5 million, which was
recognized as a gain in other income and expenses. CAH and Acadia Holdings
agreed to allocate the distributions as follows: (i) CAH received $105.5
million cash distribution in 2003; (ii) Acadia Holdings is entitled to
receive an annual priority cash distribution of $14.0 million starting from
July 2003 through June 30, 2022; (iii) all distributions in excess of the
first $14.0 million are allocated between members in accordance with their
respective interest; (iv) the priority distributions include imputed
interest based on the rate of approximately 11.6%. Imputed interest for
2003 of $3.8 million was recorded as an adjustment to the Members' capital
balances.
8. COMMITMENTS AND CONTINGENCIES
The Company entered into a long-term service agreement for spare parts,
maintenance and related technical services on May 3, 2002. The term of the
agreement, with respect to each of the Company's four combustion turbines
began upon the commercial operation date, and terminates on an individual
combustion turbine basis, at the end of the scheduled maintenance following
the second major inspection of each respective combustion turbine or
sixteen years, whichever comes first. The maintenance and payment schedules
are based on estimates of when maintenance will occur on the turbines based
on the number of run hours. The actual timing of maintenance may vary based
on actual hours run versus estimated hours run due to operational and
performance considerations. The agreement is cancelable by the Company in
whole or part at any time by providing written notice to the counterparty.
Upon notice to cancel by the Company, the Company is subject to a declining
cancellation fee. At December 31, 2003, the contingent cancellation fee was
$2,000,000.
Air and water permits issued on or about July 13, 2000, by the Louisiana
Department of Environmental Quality ("LDEQ") to the Company were judicially
appealed by various citizens and environmental action groups (petitioners)
in early August 2000.
On February 23, 2001, the court ruled that (a) construction could continue,
(b) LDEQ had no jurisdiction over groundwater withdrawal and (c) the
Company submitted certain documents too late during or subsequent to the
public comment period. Therefore, the court remanded the permit back to
LDEQ so the public could have additional time to comment. The public
comment period closed on October 31, 2001. The Company and LDEQ entered
into an out-of-court settlement agreement with all of the petitioners. The
settlement obligated the Company to revise certain air emissions and to
install components to reduce ground water consumption. The litigation was
dismissed with prejudice on May 17, 2002, and the matter has been concluded
in its entirety.
In December 2001, a lawsuit seeking $1,500,000 in damages was filed against
the Subsidiary alleging wrongful termination of a pipeline construction
project. The case was settled out of court in May 2003, for $1,100,000.
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