================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to
Commission file number 33-46795
OLD DOMINION ELECTRIC COOPERATIVE
(Exact Name of Registrant as Specified in Its Charter)
VIRGINIA 23-7048405
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4201 Dominion Boulevard, Glen Allen, Virginia 23060
(Address of Principal Executive Offices) (Zip Code)
______________
(804) 747-0592
(Registrant's Telephone Number, Including Area Code)
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 __ No X
The Registrant is a membership corporation and has no authorized or outstanding
equity securities.
================================================================================
OLD DOMINION ELECTRIC COOPERATIVE
INDEX
Page
Number
------
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2001 (Unaudited)
and December 31, 2000 3
Condensed Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three and Nine Months Ended
September 30, 2001 and 2000 4
Condensed Consolidated Statements of Comprehensive Income (Unaudited) -
Three and Nine Months Ended September 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine
Months Ended September 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
---------------- -----------------
(in thousands)
ASSETS: (unaudited) (*)
- ---------------------------------------------------------------------------------------
Electric Plant:
In service $ 902,406 $ 900,290
Less accumulated depreciation (340,523) (304,588)
--------------- ----------------
561,883 595,702
Nuclear fuel, at amortized cost 1,789 5,598
Construction work in progress 100,249 47,598
--------------- ----------------
Net Electric Plant 663,921 648,898
--------------- ----------------
Investments:
Nuclear decommissioning trust fund 58,825 60,530
Lease deposits 134,934 131,364
Invested bond proceeds 211,466 -
Other 75,854 54,836
--------------- ----------------
Total Investments 481,079 246,730
--------------- ----------------
Current Assets:
Cash and cash equivalents 3,378 20,259
Receivables 38,374 46,769
Fuel, materials and supplies, at average cost 10,639 10,236
Prepayments 2,146 1,508
Deferred energy 35,753 15,376
--------------- ----------------
Total Current Assets 90,290 94,148
--------------- ----------------
Deferred Charges and Other Assets 33,241 20,796
--------------- ----------------
Total Assets $ 1,268,531 $ 1,010,572
=============== ================
CAPITALIZATION AND LIABILITIES:
- ---------------------------------------------------------------------------------------
Capitalization:
Patronage capital $ 222,928 $ 224,598
Accumulated other comprehensive income 1,722 (256)
Long-term debt 663,495 449,823
--------------- ----------------
Total Capitalization 888,145 674,165
--------------- ----------------
Current Liabilities:
Long-term debt due within one year 30,488 30,488
Accounts payable 36,324 29,091
Accounts payable - Members 44,222 20,912
Accrued expenses 15,433 6,849
--------------- ----------------
Total Current Liabilities 126,467 87,340
--------------- ----------------
Deferred Credits and Other Liabilities:
Decommissioning reserve 58,825 60,530
Obligations under long-term leases 137,912 134,463
Other 57,182 54,074
--------------- ----------------
Total Deferred Credits and Other Liabilities 253,919 249,067
--------------- ----------------
Commitments and Contingencies - -
--------------- ----------------
Total Capitalization and Liabilities $ 1,268,531 $ 1,010,572
=============== ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
(*) The Consolidated Balance Sheet at December 31, 2000, has been taken from
the audited financial statements at that date, but does not include all
disclosures required by generally accepted accounting principles.
3
OLD DOMINION ELECTRIC COOPERATIVE
CONDENSED CONSOLIDATED STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2001 2000 2001 2000
----------------- ---------------- --------------- -----------------
(in thousands)
Operating Revenues $ 130,414 $ 107,232 $ 364,635 $ 307,466
---------------- --------------- --------------- -----------------
Operating Expenses:
Fuel 15,698 12,653 43,451 35,970
Purchased power 78,596 43,397 202,024 124,373
Operations and maintenance 8,313 9,193 25,617 26,787
Administrative and general 5,942 5,206 17,397 14,600
Depreciation, amortization, and
decommissioning 9,916 24,208 41,574 65,034
Taxes other than income taxes 776 1,820 2,363 6,316
---------------- --------------- --------------- -----------------
Total Operating Expenses 119,241 96,477 332,426 273,080
---------------- --------------- --------------- -----------------
Operating Margin 11,173 10,755 32,209 34,386
Other Income/(Expense), net (6) 10 676 (703)
Investment Income 359 1,012 1,826 3,464
Interest Charges, net (9,592) (9,800) (28,881) (30,916)
---------------- --------------- --------------- -----------------
Net Margin 1,934 1,977 5,830 6,231
Patronage Capital-Beginning of Period 220,994 220,623 224,598 216,369
Capital Credits Payments - - (7,500) -
---------------- --------------- --------------- -----------------
Patronage Capital-End of Period $ 222,928 $ 222,600 $ 222,928 $ 222,600
================ =============== =============== =================
- --------------------------------------------------------------------------------
OLD DOMINION ELECTRIC COOPERATIVE
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2001 2000 2001 2000
----------------- ---------------- ---------------- -----------------
(in thousands)
Net Margin $ 1,934 $ 1,977 $ 5,830 $ 6,231
Other comprehensive income:
Unrealized gain on investments 1,080 1,322 1,978 1,487
---------------- --------------- --------------- ----------------
Comprehensive income $ 3,014 $ 3,299 $ 7,808 $ 7,718
================ =============== =============== ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
OLD DOMINION ELECTRIC COOPERATIVE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
-------------------------------------
2001 2000
---------------- -----------------
(in thousands)
Operating Activities:
Net margin $ 5,830 $ 6,231
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation, amortization, and decommissioning 41,574 65,034
Other noncash charges 5,943 6,420
Amortization of lease obligation 7,108 6,812
Interest on lease deposits (6,961) (6,663)
Change in current assets (13,023) (19,693)
Change in current liabilities 31,627 6,592
Deferred charges and other (6,849) (2,304)
--------------- ----------------
Net Cash Provided by Operating Activities 65,249 62,429
--------------- ----------------
Financing Activities:
Reductions of long-term debt (3,572) (32,985)
Additions to long-term debt 215,271 -
Payment of debt issuance costs (5,781) -
Obligations under long-term leases (268) (265)
--------------- ----------------
Net Cash Used in Financing Activities 205,650 (33,250)
--------------- ----------------
Investing Activities:
Lease deposits and other investments (230,506) (1,426)
Electric plant additions (56,763) (28,400)
Decommissioning fund deposits (511) (511)
--------------- ----------------
Net Cash Used in Investing Activities (287,780) (30,337)
--------------- ----------------
Net Change in Cash and Cash Equivalents (16,881) (1,158)
Cash and Cash Equivalents - Beginning of Period 20,259 25,088
--------------- ----------------
Cash and Cash Equivalents - End of Period $ 3,378 $ 23,930
=============== ================
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
OLD DOMINION ELECTRIC COOPERATIVE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the management of Old Dominion Electric Cooperative (Old
Dominion), the accompanying unaudited condensed consolidated financial
statements contain all adjustments, which include only normal recurring
adjustments, necessary for a fair statement of Old Dominion's consolidated
financial position as of September 30, 2001, and its consolidated results of
operations, comprehensive income, and cash flows for the three and nine
months ended September 30, 2001 and 2000. The consolidated results of
operations for the three and nine months ended September 30, 2001, are not
necessarily indicative of the results to be expected for the entire year.
These financial statements should be read in conjunction with the financial
statements and notes thereto included in our 2000 Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
2. In 1997, we adopted certain strategic objectives designed to mitigate the
effects of transition to a competitive electric market, which became known as
our Strategic Plan Initiative. As part of our Strategic Plan Initiative, our
board of directors unanimously approved a resolution to record accelerated
depreciation on our generation assets from January 1, 1999 through December
31, 2003, and to recover the additional expense through rates pursuant to our
formulary rate. During the first nine months of 2001, we recorded additional
depreciation of $18.5 million as compared to $43.1 million in the first nine
months of 2000 ($16.9 million in the third quarter).
To date we have collected $160.3 million through our Strategic Plan
Initiative and have purchased $86.1 million of our outstanding debt ($3.6
million in the first nine months of 2001).
Based on current market projections, we believe that the $160.3 million
accumulated through the Strategic Plan Initiative since 1998 and held as cash
or investments or already applied to reduce our indebtedness is sufficient to
reduce our costs to a level that would enable our member distribution
cooperatives' rates for power to their customers to be at or below projected
market rates by January 1, 2004. As a result, we ceased recording accelerated
depreciation on our generating facilities effective June 1, 2001. At the same
time, our board of directors authorized a revenue deferral plan for the
period June 1, 2001 through December 31, 2002. Under this plan we estimate
that we will collect approximately $9.1 million through the demand component
of the formulary rate we charged our members in 2001, which we will use to
partially offset the increases in the demand component of the formulary rate
that we expect in 2002. At September 30, 2001, we had deferred $5.2 million,
which is included in other liabilities and depreciation, amortization and
decommissioning expense.
3. Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by Statement of Financial Accounting
Standards No. 138 (SFAS 138), "Accounting for Certain Derivative Instruments
and Certain Hedging Activities." The adoption of these accounting standards
did not have a significant effect on our financial statements.
4. In June 2001, we formed ODEC Power Trading, Inc. ("ODEC Power Trading") with
$7.5 million of capital and immediately distributed the stock of ODEC Power
Trading as a patronage distribution to our member distribution cooperatives
on the same date. ODEC Power Trading is now owned by our member distribution
cooperatives to sell power in the market, manage the members' exposure to
changes in fuel prices and take advantage of other power trading
opportunities, which may become available in the market. In addition, to
facilitate ODEC Power Trading's ability to sell power to the market, we have
agreed to guarantee a maximum of $42.5 million of ODEC Power Trading's
delivery and payment obligations associated with its energy trades. Our
guarantee of ODEC Power
6
Trading's obligations will enable it to maintain credit support sufficient to
meet its delivery and payment obligations associated with its energy trades.
5. On August 15, 2001, the Financial Accounting Standards Board issued SFAS No.
143 "Accounting for Asset Retirement Obligations" which will be effective
with respect to us beginning 2003. The new rules will change our current
accounting and reporting relative to our decommissioning costs. The standard
requires entities to record at fair value an asset retirement obligation in
the period in which it is incurred. When the liability is initially
recorded, the entity capitalizes the costs by increasing the carrying amount
of the related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized asset is depreciated over the
useful life of the long-lived asset. We do not believe that this statement
will have a material adverse effect on results of our operations due to our
current and future ability to recover decommissioning costs through rate
adjustments.
6. In September 2001, we issued $215.0 million of 2001 Series A bonds. The
bonds bear interest at 6.25% and mature in 2011. The proceeds will be used
primarily for the construction of our combustion turbine facilities and the
retirement of debt.
7. Certain reclassifications have been made to the accompanying prior year's
consolidated financial statements to conform to the current year's
presentation.
7
OLD DOMINION ELECTRIC COOPERATIVE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Caution Regarding Forward Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements regarding matters that could have
an impact on our business, financial condition, and future operations. These
statements, based on our expectations and estimates, are not guarantees of
future performance and are subject to risks, uncertainties, and other factors
that could cause actual results to differ materially from those expressed in the
forward-looking statements. These risks, uncertainties, and other factors
include, but are not limited to, general business conditions, increased
competition in the electric utility industry, changes in our tax status, demand
for energy, federal and state legislative and regulatory actions and legal and
administrative proceedings, changes in and compliance with environmental laws
and policies, weather conditions, the cost of commodities used in our industry,
and unanticipated changes in operating expenses and capital expenditures. Our
actual results may vary materially from those discussed in the forward-looking
statements as a result of these and other factors. Any forward-looking statement
speaks only as of the date on which the statement is made, and we undertake no
obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which the statement is made even if
new information becomes available or other events occur in the future.
Results of Operations
Operating Revenues
Sales to Members. Our operating revenues are derived from power sales to
our members and to non-members. Revenues from sales to members are a function of
our member distribution cooperatives' consumers' requirements for power and our
formulary rate for sales of power to our member distribution cooperatives. Our
formulary rate is based on our cost of service in meeting these requirements.
The formulary rate has three components: a demand rate, a base energy rate and a
fuel factor adjustment. Our member revenues by formulary rate component, energy
sales to our members and average member cost per megawatthour for the three and
nine month periods ended September 30, 2001 and 2000, were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
2001 2000 2001 2000
---------- ----------- ---------- -----------
Member Revenues (in thousands)
Demand $ 51,359 $ 64,822 $ 157,456 $ 183,825
Base energy rate 43,986 40,771 125,435 117,850
Fuel factor adjustment 34,258 2,128 77,951 (211)
---------- ----------- ---------- -----------
Total Member Revenues $ 129,603 $ 107,721 $ 360,842 $ 301,464
========== =========== ========== ===========
Sales (in MWh) 2,430,893 2,064,302 6,957,092 6,597,771
Average Member Cost (in MWh) $ 53.32 $ 52.18 $ 51.87 $ 45.69
Three factors significantly affect our member distribution cooperatives'
consumers' requirements for power:
. growth in the number of consumers,
. growth in consumers' requirements for power, and
. seasonal weather fluctuations.
8
Changes in our member revenues attributed to growth in sales volume and
changes in our rates for demand and energy (including our base energy rate and
our fuel factor adjustment) for the three and nine month periods ended September
30, 2001, as compared with the three and nine month periods ended September 30,
2000, were as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
2001 Compared to 2000 2001 Compared to 2000
---------------------- ----------------------
Change in member revenues (in thousands)
due to change in:
Demand sales volume $ 3,971 $ 6,969
Energy sales volume 7,618 6,407
-------- ---------
Total sales volume 11,589 13,376
-------- ---------
Demand rate (17,433) (33,338)
Energy rate 27,726 79,340
-------- ---------
Total rates 10,293 46,002
-------- ---------
Total change in member revenues $ 21,882 $ 59,378
======== =========
Weather affects the demand for electricity. Although the exact amount of
sales attributable to weather conditions cannot be quantified, extreme
temperatures tend to increase the demand for energy while mild weather generally
reduces the demand. Other factors affecting our distribution cooperative
members' consumers' demand for energy include the amount, size and usage of
electronics and machinery and the expansion of operations among their commercial
and industrial customers.
Total member revenues for the third quarter and first nine months of 2001
increased $21.9 million and $59.4 million, or 20.3% and 19.7%, respectively,
over the same periods in 2000 primarily as a result of an increase in our
average energy rate.
Our average energy rate (including our base energy rate and our fuel factor
adjustment) for the three and nine months ended September 30, 2001, increased
54.9% and 64.0%, respectively, over the same periods in 2000 as a result of
changes in our fuel factor adjustment. The base energy rate is a fixed rate in
our formulary rate and did not change. We increased our fuel factor adjustment
for two reasons. First, our energy costs were higher than we projected and we
needed to recover energy costs that we previously incurred but did not fully
recover under the base energy rate and existing fuel factor adjustment. Second,
we increased the fuel factor adjustment to a level that, combined with the base
energy rate, we anticipated would adequately recover future energy costs that we
expect to be more expensive than we originally budgeted. These higher energy
costs relate to, among other items, short-term power purchases and coal
purchases.
The increase in our energy costs was partially offset by a 13.0% decrease
in the average demand rate for the nine month period ended September 30, 2001 as
compared to 2000, which resulted from three separate reductions in the demand
rate. We reduced the demand rate by approximately 1.0% effective January 1,
2001, as a result of the elimination of the gross receipts tax, which had
applied to providers of electricity in Virginia. We reduced the demand rate
approximately 20.0% in April 2001 to recover evenly the remaining amounts then
anticipated to be collected under our Strategic Plan Initiative. Finally, in
response to new projected power prices, effective June 1, 2001, we stopped
recovering accelerated depreciation under the Strategic Plan Initiative, which
had the effect of amending our budget and automatically reducing our demand rate
by the terms of the formulary rate and the wholesale power contracts with the
member distribution cooperatives. At the same time our board of directors
authorized a revenue deferral plan for the period June 1, 2001 through December
31, 2002. Under this plan, we estimate that we will collect as deferred revenue
approximately $9.1 million through the demand rate in 2001. At September 30,
2001, we had deferred $5.2 million, which is included in other liabilities and
depreciation, amortization and decommissioning expense. We will use these
additional amounts to partially offset the increase in the
9
demand rate we expect in 2002. The net effect of these two actions by our board
of directors was a decrease in our demand rate of approximately 5.0% effective
June 1, 2001.
Sales to Non-Members. Sales to non-members represent sales of excess
purchased energy and sales of excess generated energy from the Clover Power
Station ("Clover"). Excess purchased energy is sold to the Pennsylvania-New
Jersey-Maryland Interconnection LLC ("PJM") power pool. Excess generated energy
from Clover is sold to Virginia Electric and Power Company ("Virginia Power"),
pursuant to the requirements of the Clover Operating Agreement.
Non-member revenues for the first nine months of 2001 decreased $2.2
million over the same period in 2000 primarily as a result of lower sales of
energy to PJM. During the first eight months of 2001, we purchased the majority
of the energy for our member distribution cooperatives located on the Delmarva
Peninsula under an energy contract that matched those members' need for power.
Beginning September 1, 2001, we met these needs through a combination of forward
contracts and market purchases. During 2000 we purchased fixed amounts of power
to meet our peak needs and sold the amounts not needed by those members to PJM.
Operating Expenses
We have an 11.6% undivided ownership interest in the North Anna Nuclear
Power Station ("North Anna") and a 50% undivided ownership interest in Clover.
Generating facilities, particularly nuclear generating facilities such as North
Anna, generally have relatively high fixed costs. Nuclear facilities operate
with relatively low variable costs due to lower fuel costs and technological
efficiencies. Owners of nuclear and other generating facilities incur the
embedded fixed costs of these facilities whether or not the units operate.
When either North Anna or Clover is off-line, we must purchase replacement
energy from either Virginia Power, which is more costly, or from the market,
which may be more or less costly. As a result, our operating expenses, and
consequently our rates to our member distribution cooperatives, are
significantly affected by the operations of North Anna and Clover. The output of
North Anna and Clover for the three and nine month periods ended September 30,
2001 and 2000 as a percentage of the maximum dependable capacity rating of the
facilities was as follows:
North Anna Clover
-------------------------------------- -----------------------------------------
Three Nine Three Nine
Months Ended Months Ended Months Ended Months Ended
September 30, September 30, September 30, September 30,
----------------- ------------------ -------------------- -------------------
2001 2000 2001 2000 2001 2000 2001 2000
------ ------- -------- -------- --------- -------- -------- --------
Unit 1 60.7% 104.0% 87.3% 87.7% 88.7% 93.1% 85.2% 86.7%
Unit 2 99.6 102.3 84.4 101.6 93.1 91.7 87.2 89.0
Combined 80.2 103.2 85.9 94.7 90.9 92.4 86.2 87.9
North Anna. North Anna Unit 1 was online for 487 consecutive days before it
began a scheduled refueling outage on September 10, 2001. Unit 1 was returned to
service on October 10, 2001. Prior to that North Anna Unit 1 had run for 522
consecutive days before it began a scheduled refueling outage on March 12, 2000.
Unit 1 was returned to service on April 8, 2000. Additionally, the unit
experienced minor unscheduled outages during the first nine months of 2000.
North Anna Unit 2 began a scheduled refueling outage on March 11, 2001,
after 340 days of being online, and was returned to service on April 10, 2001.
As of September 30, 2001, Unit 2 had been online for 128 consecutive days. Unit
2 experienced only minor unscheduled outages during the first nine months of
2000.
Clover. During the first nine months of 2001, Clover Unit 1 was off-line
for 13 days for a scheduled maintenance outage and had previously been online
for 276 consecutive days prior to that. The Unit was off-line 15 days in April
2000 for a scheduled maintenance outage and also experienced minor unscheduled
outages during the first nine months of 2000.
Clover Unit 2 was off-line for 15 days during the first nine months of 2001
for a scheduled maintenance outage after being online for 241 consecutive days.
Clover Unit 2 experienced only minor outages during the first half of 2000.
10
In addition to power generated at Clover and North Anna, we purchase power
from Virginia Power, Public Service Electric & Gas Company, Conectiv Energy,
Pennsylvania Power & Light, and others. Our energy supply for the three and nine
month periods ended September 30, 2001 and 2000, was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- --------------------------------------
2001 2000 2001 2000
----------- ------------ ----------- -----------
(MWh) (MWh) (MWh) (MWh)
Generation:
Clover 884,932 33.9% 895,005 37.8% 2,464,245 33.7% 2,524,082 36.6%
North Anna 377,735 14.5 472,871 20.0 1,201,443 16.5 1,292,361 18.8
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Generation 1,262,667 48.4 1,367,876 57.8 3,665,688 50.2 3,816,443 55.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Purchased Power:
Virginia Area 688,413 26.4 443,672 18.8 1,857,824 25.4 1,420,135 20.6
Delmarva Area 597,691 22.9 500,157 21.1 1,611,495 22.1 1,487,362 21.6
Other 58,476 2.3 54,480 2.3 170,586 2.3 165,132 2.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Purchased Power 1,344,580 51.6 998,309 42.2 3,639,905 49.8 3,072,629 44.6
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total Available Energy 2,607,247 100.0% 2,366,185 100.0% 7,305,593 100.0% 6,889,072 100.0%
========== ===== ========== ===== ========== ===== ========== =====
Market forces influence the structure of new power supply contracts. Within
PJM, our contracts reflect the need to have capacity (either owned generation or
purchase contracts) to meet load. To meet our energy needs, we purchase energy
from the market or utilize the PJM power pool when economical. In Virginia,
demand and energy requirements contracts are provided principally by Virginia
Power, American Electric Power-Virginia, and Allegheny Power System, although
energy may be displaced under our Interconnection and Operating Agreement with
Virginia Power.
Three and Nine Months Ended September 30, 2001 Compared to Three and Nine
Months Ended September 30, 2000. Aggregate operating expenses for the third
quarter and first nine months of 2001 increased $22.8 million and $59.3 million,
or 23.6% and 21.7%, respectively, over the same periods in 2000, because of an
increase in energy costs. Primarily as a result of rising energy prices, our
average cost of purchased power rose 34.5% and 37.1% in the third quarter and
first nine months of 2001, respectively, as compared to the same periods in
2000. We have secured the majority of our energy needs for 2002 and 2003 at
fixed prices that are below those that we paid during the first nine months of
2001. The average cost of fuel per MWh generated from Clover and North Anna
increased 34.4% and 25.8% in the third quarter and first nine months of 2001,
respectively, as compared to the third quarter and first nine months of 2000
because of the higher price of coal and a fuel inventory adjustment.
Administrative and general expenses increased in the first nine months of
2001 as compared to the first nine months of 2000 primarily because of an
increase in engineering consulting and legal fees related to pre-construction
activities for the combustion turbine facilities. See "Liquidity and Capital
Resources - Investing Activities." Administrative and general expenses in the
third quarter of 2001 did not change significantly from the third quarter of
2000.
The increases in our operating expenses generally caused by higher energy
costs, which we recover through our base energy rate and fuel factor adjustment,
were partially offset by decreases in two cost components of our demand rate.
First, depreciation, amortization and decommissioning decreased as compared to
the first nine months of 2000, primarily due to a $24.6 million decrease in the
amount of accelerated depreciation recorded on generation assets in accordance
with our Strategic Plan Initiative. Accelerated depreciation for the nine months
ended September 30, 2001 and 2000, was $18.5 million and $43.1 million,
respectively. Second, taxes, other than income taxes, decreased in the third
quarter and first nine months of 2001 as compared to the same periods in 2000
since we are no longer subject to the Virginia gross receipts tax as of January
1, 2001.
Non-Operating Income and Expenses
Investment Income. Investment income decreased in the third quarter and
first nine months of 2001, as compared to the same periods in 2000 primarily
because we made $76.2 million in progress payments on combustion turbine
11
generators ($53.3 million of which was paid in the first nine months of 2001)
and a lower interest rate on our investments.
Interest. Interest on long-term debt decreased in the third quarter and
first nine months of 2001 because of the purchase of $33.3 million of our
outstanding debt and $28.5 million in principal payments in 2000. Additionally,
we purchased $3.6 million of our outstanding debt in the first nine months of
2001.
Net Margin. Our net margin, which is a function of our interest expense,
decreased in the third quarter and first nine months of 2001 as compared to the
same periods in 2000, because our interest expense was lower as a result of debt
principal payments and purchases of our outstanding debt in accordance with our
Strategic Plan Initiative.
Financial Condition
The principal changes in our financial condition from December 31, 2000
through September 30, 2001, were caused by accelerated depreciation recorded on
our generation facilities and an increase in long-term indebtedness. The
additional depreciation was recorded as part of our Strategic Plan Initiative.
The increase in our long-term indebtedness resulted from the issuance of
$215.0 million in 2001 Series A Bonds, the proceeds of which are included in
cash and cash equivalents.
Our deferred energy balance changed from $15.4 million at December 31, 2000
to $35.8 million at September 30, 2001 because the base energy rate and fuel
factor adjustment of our formulary rate inadequately recovered increased energy
costs over the period. The fuel factor adjustment was increased to collect these
energy costs and to attempt to reduce the deferred energy balance. Additionally,
construction work in progress increased primarily because of payments made on
combustion turbines.
Liquidity and Capital Resources
Operations. Historically, our operating cash flows have been sufficient to
meet our short and long-term capital expenditures relating to the operation of
North Anna and Clover, our debt service requirements and our ordinary business
operations. During the first nine months of 2001, our operating cash has been
sufficient to meet all of our cash requirements, including all costs related to
the development and construction of the three combustion turbine facilities we
are developing in Virginia and Maryland.
Financing activities. In September 2001, we issued $215.0 million of 2001
Series A Bonds. The bonds bear interest at 6.25% and mature in 2011. The
proceeds will be used primarily for the construction of our combustion turbine
facilities and the retirement of debt.
Pursuant to our Strategic Plan Initiative, we collected approximately
$160.3 million to reduce our outstanding indebtedness. Of this amount, we have
spent $89.2 million (including premiums and discounts) to purchase our
outstanding debt. These debt purchases include principal retirements of $3.6
million during the first nine months of 2001 and $33.3 million and $49.3 million
in 2000 and 1999, respectively. We intend to use the remaining $71.1 million to
purchase additional higher cost outstanding debt from time to time in the most
economical method before 2004.
Investing activities. Our investing activities for the first nine months of
2001 consisted primarily of the purchase of generators for our combustion
turbine facilities.
12
OLD DOMINION ELECTRIC COOPERATIVE
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Other than certain legal proceedings arising out of the ordinary
course of business, which management believes will not have a material
adverse impact on the results of operations or financial condition of
Old Dominion, there is no other litigation pending or threatened
against Old Dominion.
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter ended
September 30, 2001.
13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD DOMINION ELECTRIC COOPERATIVE
Registrant
Date: November 13, 2001 /s/Daniel M. Walker
-----------------------------------------------
Daniel M. Walker
Senior Vice President of Accounting and Finance
(Chief Financial Officer)
14