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, 1998
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)
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(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
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PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 (Unaudited)
and December 31, 1997 3
Consolidated Statements of Revenues, Expenses and
Patronage Capital (Unaudited) - Three Months Ended
March 31, 1998 and 1997 5
Consolidated Statements of Comprehensive Income (Unaudited)
- Three Months Ended March 31, 1998 and 1997 6
Consolidated Statements of Cash Flows (Unaudited) - Three
Months Ended March 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. Other Information
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Exhibit Index 16
OLD DOMINION ELECTRIC COOPERATIVE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
ASSETS: (unaudited) (*)
Electric Plant:
In service $ 885,679 $ 885,670
Less accumulated depreciation (122,685) (116,409)
------------ ------------
762,994 769,261
Nuclear fuel, at amortized cost 5,120 6,401
Plant acquisition adjustment, at amortized cost 17,040 22,721
Construction work in progress 16,128 12,701
------------ ------------
Net Electric Plant 801,282 811,084
------------ ------------
Decommissioning Fund 48,039 44,162
Other Investments and Funds 27,816 24,539
Restricted Investments and Funds 114,422 116,080
Current Assets:
Cash and cash equivalents 93,532 61,740
Receivables, net of allowance of $6.0 million in
1998 and 1997 32,236 34,582
Fuel stock 3,375 4,254
Materials and supplies, at average cost 5,459 5,362
Prepayments 1,580 1,439
------------ ------------
Total Current Assets 136,182 107,377
------------ ------------
Deferred Charges 13,867 14,058
Other Assets 12,479 12,612
------------ ------------
Total Assets $ 1,154,087 $ 1,129,912
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1997, has been taken from
the audited financial statements at that date, but does not include all
disclosures required by generally accepted accounting principles.
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
------------ ------------
(in thousands)
CAPITALIZATION AND LIABILITIES: (unaudited) (*)
Capitalization:
Patronage capital $ 197,046 $ 197,552
Accumulated other comprehensive income 334 -
Long-term debt 606,442 605,878
------------ ------------
Total Capitalization 803,822 803,430
------------ ------------
Current Liabilities:
Long-term debt due within one year 29,535 30,116
Accounts payable 27,726 31,732
Accounts payable - Member deposits 40,780 26,118
Deferred energy 3,651 3,960
Accrued interest 16,147 4,111
Accrued taxes 907 263
Other 4,067 4,151
------------ ------------
Total Current Liabilities 122,813 100,451
------------ ------------
Decommissioning Reserve 48,039 44,162
Deferred Credits 61,093 61,782
Obligations Under Long-Term Leases 117,576 119,343
Other Liabilities 744 744
Committments and Contingencies
------------ ------------
Total Capitalization and Liabilities $ 1,154,087 $ 1,129,912
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
(*) The Consolidated Balance Sheet at December 31, 1997, has been taken from
the audited financial statements at that date, but does not include all
disclosures required by generally accepted accounting principles.
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF REVENUES,
EXPENSES AND PATRONAGE CAPITAL (UNAUDITED)
Three Months Ended
March 31,
----------------------------
1998 1997
----------- -----------
(in thousands)
Operating Revenues:
Sales to Members $ 85,675 $ 88,818
Sales to non-member 172 27
----------- ----------
85,847 88,845
----------- ----------
Operating Expenses:
Operation:
Fuel 10,979 10,441
Purchased power 36,116 43,368
Other 5,749 5,474
----------- ----------
52,844 59,283
Maintenance 1,838 1,923
Administrative and general 3,791 3,952
Depreciation and amortization 12,100 6,515
Amortization of lease gains (689) (689)
Decommissioning cost 170 170
Taxes other than income taxes 1,857 1,804
----------- ----------
Total Operating Expenses 71,911 72,958
----------- ----------
Operating Margin 13,936 15,887
----------- ----------
Other Income, net 574 118
----------- ----------
Investment Income:
Interest 960 970
Other 94 107
----------- ----------
Total Investment Income 1,054 1,077
----------- ----------
Interest Charges:
Interest on long-term debt, net 12,995 14,259
Other 63 47
Allowance for borrowed funds used during construction (104) (86)
----------- ----------
Net Interest Charges 12,954 14,220
----------- ----------
Net Margin 2,610 2,862
Patronage Capital-beginning of period 197,552 184,752
Payment of Capital Credits (3,116) -
----------- ----------
Patronage Capital-end of period $ 197,046 $ 187,614
=========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
OLD DOMINION ELECTRIC COOPERATIVE
STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
March 31,
----------------------------
1998 1997
----------- -----------
(in thousands)
Net Margin $ 2,610 $ 2,862
Other comprehensive income:
Unrealized gains on investments 334 -
----------- -----------
Comprehensive income $ 2,944 $ 2,862
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
OLD DOMINION ELECTRIC COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
-----------------------------
1998 1997
----------- ----------
(in thousands)
Cash Provided by Operating Activities:
Net margin $ 2,610 $ 2,862
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation 6,316 5,973
Amortization of plant acquisition adjustment 5,681 517
Amortization of nuclear fuel 1,281 1,516
Decommissioning cost 170 170
Amortization of debt discount 564 537
Amortization of other debt costs 237 306
Amortization of deferred charges and other assets 100 22
Amortization of lease obligations 2,082 1,936
Gain from lease transactions (689) (689)
Changes in Current Assets and Current Liabilities:
Change in current assets 2,986 13,489
Change in current liabilities 22,943 29,997
(Increase) decrease in deferred charges (100) 90
Decrease in other assets 87 121
----------- ------------
Net Cash Provided by Operating Activities 44,268 56,847
----------- ------------
Cash Used for Financing Activities:
Obligations under long-term lease (3,848) (816)
Payment of long-term debt (581) -
Payment of capital credits (3,116) -
----------- ------------
Net Cash Used for Financing Activities (7,545) (816)
----------- ------------
Cash Used for Investing Activities:
Additions to electric plant (3,453) (514)
Decommissioning fund deposits (170) (170)
Additions to other investments and funds, net (2,942) (200)
Decrease (increase) in restricted investments and funds, net 1,657 (1,285)
Retirement work in progress (23) 54
----------- ------------
Net Cash Used for Investing Activities (4,931) (2,115)
----------- ------------
Net Change in Cash and Cash Equivalents 31,792 53,916
Beginning of Period Cash and Cash Equivalents 61,740 46,217
----------- ------------
End of Period Cash and Cash Equivalents $ 93,532 $ 100,133
=========== ============
The accompanying notes are an integral part of the consolidated financial
statements.
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, 1998, and its consolidated results of operations,
comprehensive income and cash flows for the three months ended March 31,
1998 and 1997. The consolidated results of operations for the three months
ended March 31, 1998, 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 1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
2. In April 1998, Ronald W. Watkins and Old Dominion's Board of Directors
decided not to renew Mr. Watkins' employment contract, which expired April
1, 1998. Mr. Watkins had been president and chief executive officer of Old
Dominion since April 1, 1995. The Board of Directors named Charles R.
Rice, Jr., current vice chairman of Old Dominion's board, to serve as
acting president until a new president and chief executive officer is
hired.
3. 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. 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. A trial date has not been set. CSC and the other participants in
Seacoast Power LLC have sold their interest in this venture but have
retained their interest in this lawsuit.
4. 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. On January 29, 1998, the Texas
Court of Appeals issued an order affirming the default judgment against
Seacoast but reversing and remanding the award of damages as factually
unsupported.
5. On February 27, 1997, Southside Electric Cooperative ("Southside"), one of
two member distribution systems that did not participate in forming CSC,
raised a question 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 a pro rata share of Old
Dominion's 30% common equity participation in CSC, which may be less than
their proportionate share as an Old Dominion Member. On October 16,
1997, the Board of Directors of Southside passed a resolution
outlining various issues of concern with Old Dominion. Management
believes these issues will be resolved over time and without a material
impact on Old Dominion's financial position.
6. On October 14, 1997, Old Dominion's Board of Directors approved a
resolution adopting certain strategic objectives designed to mitigate the
effects of the transition to a competitive electric market (the "Strategic
Plan Initiative"). Management is currently evaluating various alternatives
as Old Dominion prepares for transition to competition. The Strategic Plan
Initiative could result in an alternate treatment of Old Dominion's excess
margins, which are currently returned to Members through the Margin
Stabilization Plan. Northern Virginia Electric Cooperative ("NOVEC"),
Rappahannock Electric Cooperative ("REC"), and Southside have voiced
concerns about the level and timing of stranded cost recovery as
contemplated by the Strategic Plan Initiative. Further, NOVEC and REC have
expressed concerns about the Strategic Plan Initiative regarding: (1) the
all-requirements nature of the Wholesale Power Contracts that they have
with Old Dominion, and (2) whether Old Dominion has the right under the
Wholesale Power Contracts to "over-collect" monies from its members for
future debt retirement or for payment of future stranded costs. To address
these concerns, Old Dominion is working with representatives from NOVEC and
REC.
7. In accordance with Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, Old Dominion has included a Statement of
Comprehensive Income in its consolidated financial statements for the
quarter ended March 31, 1998.
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 and to non-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 increases (decreases) in operating
revenues by component:
Three Months
Ended
March 31,
1998 vs 1997
--------------
(in thousands)
Sales to Members:
Power sales volume $(3,013)
Blended rates (492)
Fuel adjustment revenue (1,006)
Margin stabilization plan adjustment 1,368
---------
(3,143)
Sales to non-member 145
---------
$(2,998)
=========
The milder weather in the first quarter of 1998 as compared to the same
period of 1997 resulted in a 4.3% decrease in demand sales and a 2.2% decrease
in energy sales. Old Dominion's demand and energy sales for the three months
ended March 31, 1998, were 3,668,716 MW and 1,924,132 MWh, respectively. 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.
Operating Expenses. Old Dominion has an 11.6% undivided ownership interest
in the North Anna Nuclear Power Station ("North Anna") and a 50% undivided
interest in the Clover Power Station ("Clover"). 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.
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
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 affected by the operation
of North Anna and Clover.
North Anna and Clover capacity factors for 1998 and 1997 were as follows:
North Anna Clover
------------ ------
Three Months Ended Three Months Ended
March 31, March 31,
--------------------- --------------------
1998 1997 1998 1997
-------- -------- ------- ------
Unit 1 99.8% 100.9% 87.6% 61.9%
Unit 2 97.0 100.7 58.6 70.3
Combined 98.4 100.8 73.1 66.1%
North Anna Units 1 and 2 were not off-line during the first quarter of 1998
or 1997.
As of March 31, 1998, Clover Unit 1 had been on-line 138 consecutive days.
Clover Unit 2 was taken off-line February 28, 1998, for a scheduled chimney
liner replacement. During the first quarter of 1997, Clover Unit 1 was off-line
13 days while repairs were made to the chimney's titanium liner and Clover Unit
2 was off-line 11 days for a scheduled one-year warranty inspection.
In addition to power generated at North Anna and Clover, Old Dominion
purchases power from Virginia Power, Public Service Electric & Gas ("PSE&G"),
Delmarva Power & Light ("Delmarva Power") and others. Old Dominion's energy
supply for 1998 and 1997 was as follows:
Three Months Ended
March 31,
----------------------------------------------
1998 1997
--------------------- -------------------
(MWh) (MWh)
North Anna 441,113 22.6% 452,309 22.4%
Clover 689,043 35.2 621,660 30.7
Purchased Power:
Virginia Power 397,140 20.3 473,671 23.4
PSE&G & Others 285,076 14.6 254,025 12.6
Delmarva Power 87,840 4.5 168,073 8.3
Other 54,872 2.8 52,449 2.6
--------- ------ ---------- -------
Total Available Energy 1,955,084 100.0% 2,022,187 100.0%
========= ====== ========== =======
Increased production at Clover and mild weather were the primary factors
affecting operating expenses in the first quarter of 1998. Purchased power costs
were lower than in the first quarter of 1997 because of the increased production
at Clover and the decrease in sales. Fuel and other operation costs were greater
in 1998 than in the first quarter of 1997 because of the increased production at
Clover.
Other operating expenses in the first quarter of 1998 remained approximately
the same as in the first quarter of 1997 except for depreciation expense, which
increased as a result of accelerating amortization of the remaining North Anna
plant acquisition adjustment.
Other income, net, increased because of a refund of administrative and
general expenses for 1996 and 1997 which resulted from implementation of a new
Interconnection and Operating Agreement with Virginia Power.
Interest on long-term debt decreased in the first quarter of 1998 as
compared to the same period in 1997 due to the purchase of $32.0 million of
outstanding debt in 1997.
Liquidity and Capital Resources
Operating Activities. Operating activities are an important source of cash
for Old Dominion providing $44.3 million in the first quarter of 1998 and $56.8
million in the first quarter of 1997. The decrease of $12.5 million is primarily
due to the accelerated amortization of certain regulatory assets in December
1997 and the change between periods in non-cash working capital, mainly accounts
payable and accrued expenses.
Financing Activities. Financing activities resulted in a cash outflow of
$7.5 million as Old Dominion used its cash from operations for debt service and
the retirement of a portion of capital credits.
Investing Activities. Investing activities resulted in a net cash outflow
of $4.9 million mainly due to electric plant additions.
Other Matters
In April 1998, Ronald W. Watkins and the Board of Directors of Old Dominion
decided not to renew Mr. Watkins' employment contract, which expired April 1,
1998. Mr. Watkins had been president and chief executive officer of Old Dominion
since April 1, 1995. The Board of Directors named Charles R. Rice, Jr., current
vice chairman of Old Dominion's board, to serve as acting president until a new
president and chief executive officer is hired.
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. 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. A trial date has not been set. CSC and the
other participants in Seacoast Power LLC have sold their interest in this
venture but have retained their interest in this lawsuit.
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. On January 29, 1998, the Texas Court
of Appeals issued an order affirming the default judgment against Seacoast but
reversing and remanding the award of damages as factually unsupported.
On February 27, 1997, Southside Electric Cooperative ("Southside"), one of
two Member distribution systems that did not participate in forming CSC, raised
a question 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 a pro rata share of Old Dominion's 30% common equity
participation in CSC, which may be less than their proportionate share as an Old
Dominion Member. On October 16, 1997, the Board of Directors of Southside passed
a resolution outlining various issues of concern with Old Dominion. Management
believes these issues will be resolved over time and without a material impact
on Old Dominion's financial position.
On October 14, 1997, Old Dominion's Board of Directors approved a resolution
adopting certain strategic objectives designed to mitigate the effects of the
transition to a competitive electric market (the "Strategic Plan Initiative").
Management is currently evaluating various alternatives as Old Dominion prepares
for transition to competition. The Strategic Plan Initiative could result in an
alternate treatment of Old Dominion's excess margins, which are currently
returned to Members through the Margin Stabilization Plan. Northern Virginia
Electric Cooperative ("NOVEC"), Rappahannock Electric Cooperative ("REC"), and
Southside have voiced concerns about the level and timing of stranded cost
recovery as contemplated by the Strategic Plan Initiative. Further, NOVEC and
REC have expressed concerns about the Strategic Plan Initiative regarding: (1)
the all-requirements nature of the Wholesale Power Contracts that they have with
Old Dominion, and (2) whether Old Dominion has the right under the Wholesale
Power Contracts to "over-collect" monies from its members for future debt
retirement or for payment of future stranded costs. To address these concerns,
Old Dominion is working with representatives from NOVEC and REC.
Future Issues
Competition
The electric utility industry is becoming increasingly competitive as a
result of deregulation, competing energy suppliers, new technology, and other
factors. The Energy Policy Act of 1992 amended the Federal Power Act and the
Public Utilities Holding Company Act to allow for increased competition among
wholesale electricity suppliers and increased access to transmission services by
such suppliers. A number of other significant factors have affected the
operations of electric utilities, including the availability and cost of fuel
for the generation of electric energy; the use of alternative fuel sources for
space and water heating and household appliances; fluctuating rates of load
growth; compliance with environmental and other governmental regulations;
licensing and other delays affecting the construction, operation, and cost of
new and existing facilities; and the effects of conservation, energy management,
and other governmental regulations on the use of electric energy. All these
factors present an increasing challenge to companies in the electric utility
industry, including Old Dominion and its Members, to reduce costs, increase
efficiency and innovation, and improve management of resources.
Year 2000 Compliance
Old Dominion has entered into a contract for an assessment of its
information systems and vendor supplied application software as it relates to
their ability to comply with the year 2000. The assessment is scheduled to begin
May 18, 1998 and is expected to be complete in mid-July. Management anticipates
that some computer systems may require modification or replacement; however, the
cost of any modification or replacement has not been determined at this time.
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, Inc.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.Financial Data Schedule
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter ended
March 31, 1998.
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: March 15, 1998 /s/Daniel M. Walker
------------------------------------
Daniel M. Walker
Vice President of Accounting and Finance
(Chief Financial Officer)
EXHIBIT INDEX
Exhibit Page
Number Description of Exhibit Number
- ------- ---------------------- ------
27. Financial Data Schedule 17