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 March 31, 1997
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 X No __
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
Consolidated Balance Sheets - March 31, 1997 (Unaudited)
and December 31, 1996 3
Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three Months Ended
March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows (Unaudited) - Three
Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
------------ -----------
(IN THOUSANDS)
ASSETS: (UNAUDITED) (*)
Electric Plant:
In service $ 882,879 $ 882,879
Less accumulated depreciation (97,523) (91,525)
----------- -----------
785,356 791,354
Nuclear fuel, at amortized cost 6,796 8,311
Plant acquisition adjustment, at amortized cost 24,273 24,790
Construction work in progress 11,518 11,106
----------- -----------
Net Electric Plant 827,943 835,561
----------- -----------
Decommissioning Fund 39,249 39,298
Other Investments and Funds, Available for Sale 35,312 35,112
Restricted Investments and Funds 110,303 109,019
Current Assets:
Cash and cash equivalents 100,133 46,217
Note receivable, net of allowance of $1.6 million
in 1997 and 1996 -- 6,992
Receivables, net of allowance of $4.5 million in 1997
and $5.1 million in 1996 27,858 36,084
Fuel stock 4,214 3,052
Materials and supplies, at average cost 5,247 5,186
Prepayments 1,693 1,187
----------- -----------
Total Current Assets 139,145 98,718
----------- -----------
Deferred Charges 27,041 27,412
Other Assets 11,058 11,226
----------- -----------
Total Assets $ 1,190,051 $ 1,156,346
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1996, 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
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
(IN THOUSANDS)
CAPITALIZATION AND LIABILITIES: (UNAUDITED) (*)
Capitalization:
Patronage capital $ 187,614 $ 184,753
Long-term debt 664,513 664,490
---------- ----------
Total Capitalization 852,127 849,243
---------- ----------
Current Liabilities:
Long-term debt due within one year 18,442 17,928
Accounts payable 58,820 45,717
Construction contract payable 15,211 15,283
Deferred energy 3,291 1,771
Accrued interest 17,492 4,445
Accrued taxes 2,225 497
Other 4,941 4,342
---------- ----------
Total Current Liabilities 120,422 89,983
---------- ----------
Decommissioning Reserve 39,249 39,298
Deferred Credits 64,179 64,868
Obligations Under Long-Term Leases 113,322 112,202
Other Liabilities 752 752
Committments and Contingencies
---------- ----------
Total Capitalization and Liabilities $1,190,051 $1,156,346
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1996, has been taken
from the audited financial statements at that date, but does not
include all disclosures required by generally accepted accounting
principles.
4
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Operating Revenues:
Sales to Members $ 88,818 $ 99,129
Sales to non-member 27 2
--------- ---------
88,845 99,131
--------- ---------
Operating Expenses:
Operation:
Fuel 10,441 8,650
Purchased power 43,368 67,967
Other 5,474 2,335
--------- ---------
59,283 78,952
Maintenance 1,923 2,082
Administrative and general 3,952 3,782
Depreciation and amortization 6,515 4,663
Amortization of lease gains (689) --
Decommissioning cost 170 170
Taxes other than income taxes 1,804 1,710
--------- ---------
Total Operating Expenses 72,958 91,359
--------- ---------
Operating Margin 15,887 7,772
--------- ---------
Other Income, net 118 5,764
--------- ---------
Investment Income:
Interest 970 1,654
Other 107 239
--------- ---------
Total Investment Income 1,077 1,893
--------- ---------
Interest Charges:
Interest on long-term debt, net 14,259 15,864
Other 47 93
Allowance for borrowed funds used during construction (86) (3,720)
--------- ---------
Net Interest Charges 14,220 12,237
--------- ---------
Net Margin 2,862 3,192
Patronage Capital-beginning of period 184,752 172,513
--------- ---------
Patronage Capital-end of period $ 187,614 $ 175,705
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
----------- ----------
(IN THOUSANDS)
Cash Provided by Operating Activities:
Net margin $ 2,862 $ 3,192
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation 5,973 4,115
Amortization of plant acquisition adjustment 517 517
Amortization of nuclear fuel 1,516 1,060
Decommissioning cost 170 170
Amortization of debt discount 537 243
Amortization of other debt costs 306 309
Amortization of deferred charges and other assets 22 28
Amortization of lease obligations 1,936 --
Gain from lease transactions (689) (5,852)
Changes in Current Assets and Current Liabilities:
Change in current assets 13,489 (1,282)
Change in current liabilities 29,997 (223)
Decrease in deferred charges 90 160
Decrease (increase) in other assets 121 (809)
Increase in deferred credits -- 23,639
Increase in other liabilities -- 2
--------- ---------
Net Cash Provided by Operating Activities 56,847 25,269
--------- ---------
Cash (Used for) Provided by Financing Activities:
Additions to long-term debt -- 23,884
Obligations under long-term lease (816) 51,498
Reductions of long-term debt -- (6,891)
--------- ---------
Net Cash (Used for) Provided by Financing Activities (816) 68,491
--------- ---------
Cash Provided by (Used for) Investing Activities:
Additions to electric plant (514) (9,438)
Decommissioning fund deposits (170) (170)
Decrease in (additions to) other investments and funds, net (200) (92,449)
Additions to restricted investments and funds, net (1,285) --
Retirement work in progress 54 (6)
--------- ---------
Net Cash Provided by (Used for) Investing Activities (2,115) (102,063)
--------- ---------
Net Change in Cash and Cash Equivalents 53,916 (8,303)
Beginning of Period Cash and Cash Equivalents 46,217 63,670
--------- ---------
End of Period Cash and Cash Equivalents $ 100,133 $ 55,367
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
6
OLD DOMINION ELECTRIC COOPERATIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the management of Old Dominion Electric Cooperative
("Old Dominion"), the accompanying unaudited 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 March 31, 1997, and its
consolidated results of operations and cash flows for the three months
ended March 31, 1997 and 1996. The consolidated results of operations for
the three months ended March 31, 1997 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 Old Dominion's 1996 Annual Report on Form
10-K filed with the Securities and Exchange Commission (the "SEC").
2. On April 17, 1997, the turbine generator unit on Clover Power Station's
("Clover") Unit 2 was damaged when necessary auxiliary power was not
available after the unit tripped off-line. The damage, repairs for which
are estimated to be approximately $2.0 million to $3.0 million, is
insured. The impact on Old Dominion's consolidated financial statements
is unknown at this time. Repairs have begun on the unit and are
anticipated to be completed by mid-July.
3. In 1996, Old Dominion entered into two long-term lease and leaseback
transactions. The net benefit to Old Dominion of these transactions was
approximately $63.0 million. After the transactions closed, the staff of
the Virginia State Corporation Commission ("SCC") asserted that a 2.1%
gross receipts tax is applicable to the approximately $635.0 million base
value of the leaseback transaction. In anticipation of an assessment, Old
Dominion filed a Petition for Declaratory Judgment ("Petition") with the
SCC. The SCC dismissed the Petition without prejudice and Old Dominion is
allowed to pursue existing statutory remedies for review and correction
of any assessment, or portion thereof, of gross receipts taxes.
Management anticipates a maximum assessment of approximately $13.3
million. Old Dominion will continue to vigorously contest any anticipated
assessment.
4. In 1995, Old Dominion and 10 of its 12 member distribution systems
established an affiliate, CSC Services, Inc. ("CSC"), to explore
alternative business opportunities on behalf of the cooperatives. During
1996, CSC invested in an approximate one-half interest in Seacoast Power
LLC, whose wholly-owned subsidiary, Seacoast, Inc. ("Seacoast"), executed
a six-month power sales contract with INECEL, the state-owned electric
utility in Ecuador. CSC and the other participants in Seacoast Power LLC
also formed Power Ventures LLC ("Power Ventures"). Through loans of
approximately $17.5 million to Seacoast, Old Dominion and CSC funded
approximately one-half the cost to construct and operate the generating
assets necessary to fulfill the power sales contract with INECEL.
Because of contract disputes, INECEL did not pay invoices rendered by
Seacoast for energy made available under the terms of the power sales
contract. Accordingly, in July 1996, Seacoast filed a $26.0 million
lawsuit in Ecuador against INECEL seeking to recover approximately $16.3
million in amounts owed under the power sales contract, plus damages and
fees. Management of Seacoast plans to vigorously pursue this matter;
however, a trial date has not been set.
On May 24, 1996, a default judgment of approximately $27.0 million was
rendered against Seacoast pursuant to a claim filed in the District Court
of Travis County, Texas, by an entity seeking damages for breach of an
oral contract by the former owners of Seacoast. Seacoast's registered
agent in Texas failed to notify the current owners of Seacoast of the
claim in a timely manner. On appeal, the judgment was remanded back to
the District Court in December 1996; however, in January 1997, the
7
appellate court reversed its decision and agreed to hear the appeal. No
rehearing date has been scheduled. Management of Seacoast expects to
prevail in having the judgment overturned.
5. On February 27, 1997, Southside Electric Cooperative ("Southside"), one
of two member distribution systems that did not participate in forming
CSC, raised a dispute as to whether the loss, with respect to Old
Dominion's interest in Seacoast, should be borne totally by Old Dominion,
thus resulting in a greater financial burden on Southside. Southside
asserts that their share of the loss should be limited to the amount of
Old Dominion's 30% participation in CSC, which may be less than their
proportionate share as an Old Dominion member. Management believes that
this dispute will be resolved.
6. Certain reclassifications have been made to the accompanying prior year's
consolidated financial statements to conform to the current year's
presentation.
8
OLD DOMINION ELECTRIC COOPERATIVE
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OPERATING REVENUES. Old Dominion's operating revenues are derived from
power sales to its Members. Revenues from sales to Members are a function of the
requirement for power by the Members' consumers and Old Dominion's cost of
service in meeting that requirement. The major factors affecting Members'
consumers' demand for power are the growth in the number of consumers and
seasonal weather fluctuations.
The following table illustrates the changes (increases (decreases)) in
operating revenues by component:
Three Months
Ended
March 31,
1997 vs 1996
------------
(in thousands)
Sales to Members:
Power sales volume $(11,078)
Blended rates (191)
Fuel adjustment revenue (2,354)
Margin stabilization plan adjustment 3,312
---------
(10,311)
Sales to non-member 25
---------
$(10,286)
=========
Operating revenues for the three month period ended March 31, 1997,
decreased as compared to the same period in 1996 primarily due to an 11.7%
decrease in demand sales and a 7.3% decrease in energy sales. These decreases
were the result of the relatively mild weather in the first quarter of 1997 as
compared to the extremely cold temperatures in February 1996, and the below
normal temperatures in March 1996. The number of heating degree days decreased
13.3% from the prior year. Old Dominion's demand and energy sales for the three
months ended March 31, 1997, were 3,803,952 MW and 1,965,120 MWh, respectively.
Old Dominion's demand and energy sales for the three months ended March 31,
1996, were 4,297,723 MW and 2,117,939 MWh, respectively.
OPERATING EXPENSES. Old Dominion has an 11.6% ownership interest in the
North Anna Nuclear Power Station ("North Anna"). While nuclear power plants,
such as North Anna, generally have relatively high fixed costs, such facilities
operate with relatively low variable costs due to lower fuel costs and
technological efficiencies. Owners of nuclear power plants, including Old
Dominion, incur the embedded fixed costs of these facilities whether or not the
units operate.
Old Dominion also holds a 50% undivided interest in the Clover Power
Station ("Clover"), which became fully operational when Unit 2 began commercial
operation on March 28, 1996.
When either North Anna or Clover is off-line, Old Dominion must purchase
replacement power that is more costly. Any change in the amount of Old
Dominion's energy output from North Anna or Clover displaces or is replaced by
9
higher cost supplemental energy purchases from Virginia Electric and Power
Company ("Virginia Power"). As a result, Old Dominion's operating expenses, and
therefore its rates to the Members, are significantly impacted by the operation
of North Anna and Clover.
North Anna and Clover capacity factors for 1997 and 1996 were as follows:
North Anna Clover
------------------ --------------------
Three Months Ended Three Months Ended
March 31, March 31,
------------------ --------------------
1997 1996 1997 1996
-------- -------- ------- -------
Unit 1 100.9% 54.7% 61.9% 68.4%
Unit 2 100.7 101.1 70.3 -
Combined 100.8 77.9 66.1 68.4%
North Anna Units 1 and 2 were not off-line during the first quarter of
1997. During the first quarter of 1996, North Anna Unit 1 was off-line 30 days
for scheduled maintenance and refueling. Unit 2 was not off-line during the
first quarter of 1996.
During the first quarter of 1997, Clover Unit 1 was off-line 13 days for
repairs to the chimney's titanium liner, one day for other minor unscheduled
maintenance and three days for scheduled maintenance. Clover Unit 2 was off-line
11 days for a scheduled one-year warranty inspection and three days for
unscheduled maintenance.
Old Dominion's energy supply for 1997 and 1996 was as follows:
Three Months Ended
March 31,
---------------------------------------
1997 1996
---------------- -----------------
(MWh) (MWh)
North Anna 452,309 22.4% 353,599 16.1%
Clover 621,660 30.7 470,800 21.5
Purchased Power:
Virginia Power 473,671 23.4 844,395 38.4
Delmarva Power 168,073 8.3 198,892 9.1
PSE&G & Others 254,025 12.6 280,632 12.8
Other 52,449 2.6 46,471 2.1
--------- ----- --------- -----
Total Available Energy 2,022,187 100.0% 2,194,789 100.0%
========= ===== ========= =====
1997 COMPARED TO 1996
Fuel costs increased and purchased power costs decreased during the first
quarter of 1997 as compared to the first quarter of 1996 primarily because
Clover Units 1 and 2 were in operation during 1997, while only Unit 1 was in
operation during 1996. Additionally, North Anna ran at greater than 100.0%
capacity during the quarter and demand was down due to the milder temperatures.
Other operating costs increased in the first three months of 1997 as
compared to the same period in 1996 due to an increase in production at both
North Anna and Clover.
Depreciation expense increased in the first quarter of 1997 as compared to
the first quarter of 1996 due to depreciation on Clover Unit 2 in 1997.
10
Amortization of lease gains represents the recognition of the portion of
the gains attributable to the first quarter of 1997 on the two long-term lease
transactions completed in 1996. The gains are being amortized ratably into
income over the operating lease terms of 21.8 years and 23.4 years for Clover
Units 1 and 2, respectively.
Other income, net, decreased due to the cross-border tax benefit lease
income recognized in 1996. Recognition of the gain from the lease had been
deferred until Clover Unit 2 was put into commercial operation.
Investment income for the first quarter of 1997 decreased as compared to
the first quarter of 1996 due to a decrease in investment balances.
Interest on long-term debt decreased in 1997 due to the purchase in 1996
of $83.1 million of outstanding debt and $18.4 million of debt service payments.
Allowance for borrowed funds used during construction decreased in the
first three months of 1997 as compared to the same period in 1996 due to the
completion of Clover Unit 2.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. Net cash provided by operating activities increased
in the first quarter of 1997 as compared to 1996 primarily due to changes
between the periods in non-cash working capital, mainly note receivable,
receivables, accounts payable and accrued expenses.
OTHER MATTERS
On April 17, 1997, the turbine generator unit on Clover Unit 2 was damaged
when necessary auxiliary power was not available after the unit tripped
off-line. The damage, repairs for which are estimated to be approximately $2.0
million to $3.0 million, is insured. The impact on Old Dominion's consolidated
financial statements is unknown at this time. Repairs have begun on the unit and
are anticipated to be completed by mid-July.
In 1996, Old Dominion entered into two long-term lease and leaseback
transactions. The net benefit to Old Dominion of these transactions was
approximately $63.0 million. After the transactions closed, the staff of the
Virginia State Corporation Commission ("SCC") asserted that a 2.1% gross
receipts tax is applicable to the approximately $635.0 million base value of the
leaseback transaction. In anticipation of an assessment, Old Dominion filed a
Petition for Declaratory Judgment ("Petition") with the SCC. The SCC dismissed
the Petition without prejudice and Old Dominion is allowed to pursue existing
statutory remedies for review and correction of any assessment, or portion
thereof, of gross receipts taxes. Management anticipates a maximum assessment of
approximately $13.3 million. Old Dominion will continue to vigorously contest
any anticipated assessment.
In 1995, Old Dominion and 10 of its 12 member distribution systems
established an affiliate, CSC Services, Inc. ("CSC"), to explore alternative
business opportunities on behalf of the cooperatives. During 1996, CSC invested
in an approximate one-half interest in Seacoast Power LLC, whose wholly-owned
subsidiary, Seacoast, Inc. ("Seacoast"), executed a six-month power sales
contract with INECEL, the state-owned electric utility in Ecuador. CSC and the
other participants in Seacoast Power LLC also formed Power Ventures LLC ("Power
Ventures"). Through loans of approximately $17.5 million to Seacoast, Old
Dominion and CSC funded approximately one-half the cost to construct and operate
the generating assets necessary to fulfill the power sales contract with INECEL.
11
Because of contract disputes, INECEL did not pay invoices rendered by
Seacoast for energy made available under the terms of the power sales contract.
Accordingly, in July 1996, Seacoast filed a $26.0 million lawsuit in Ecuador
against INECEL seeking to recover approximately $16.3 million in amounts owed
under the power sales contract, plus damages and fees. Management of Seacoast
plans to vigorously pursue this matter; however, a trial date has not been set.
On May 24, 1996, a default judgment of approximately $27.0 million was
rendered against Seacoast pursuant to a claim filed in the District Court of
Travis County, Texas, by an entity seeking damages for breach of an oral
contract by the former owners of Seacoast. Seacoast's registered agent in Texas
failed to notify the current owners of Seacoast of the claim in a timely manner.
On appeal, the judgment was remanded back to the District Court in December
1996; however, in January 1997, the appellate court reversed its decision and
agreed to hear the appeal. No rehearing date has been scheduled. Management of
Seacoast expects to prevail in having the judgment overturned.
On February 27, 1997, Southside Electric Cooperative ("Southside"), one of
two member distribution systems that did not participate in forming CSC, raised
a dispute as to whether the loss, with respect to Old Dominion's interest in
Seacoast, should be borne totally by Old Dominion, thus resulting in a greater
financial burden on Southside. Southside asserts that their share of the loss
should be limited to the amount of Old Dominion's 30% participation in CSC,
which may be less than their proportionate share as an Old Dominion member.
Management believes that this dispute will be resolved.
SUBSEQUENT EVENT
In April 1997, Old Dominion purchased a total of $32.0 million of its
First Mortgage Bonds, Series 1992 A. The transactions resulted in net losses of
approximately $2.0 million, including the write-off of original issuance costs.
The losses have been deferred and are being amortized over the life of the
remaining bonds.
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. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Other Matters" for a discussion of certain disputes
relating to Old Dominion's interest in Seacoast and the assertion
by the staff of the Virginia State Corporation Commission that
gross receipts tax is payable in connection with certain lease
and leaseback transactions.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the
quarter ended March 31, 1997.
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: May 15, 1997 /s/Daniel M. Walker
-----------------------------------
Daniel M. Walker
Vice President of Accounting and Finance
(Chief Financial Officer)
14
EXHIBIT INDEX
Exhibit Page
Number Description of Exhibit Number
- ------- ----------------------- ------
27. Financial Data Schedule
15