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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 No. 33-7591
Oglethorpe Power Corporation
(An Electric Membership Corporation)
(Exact name of registrant as specified in its charter)
Georgia 58-1211925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Post Office Box 1349
2100 East Exchange Place
Tucker, Georgia 30085-1349
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 270-7600
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The Registrant is a
membership corporation and has no authorized or outstanding equity securities.
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OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 2001
(Unaudited) and December 31, 2000 3
Condensed Statements of Revenues and Expenses
(Unaudited) for the Three Months and Nine Months ended
September 30, 2001 and 2000 5
Condensed Statements of Patronage Capital and Membership
Fees and Accumulated Other Comprehensive Margin
(Unaudited) for the Nine Months ended
September 30, 2001 and 2000 6
Condensed Statements of Cash Flows (Unaudited)
for the Nine Months ended September 30, 2001 and 2000 7
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 2001 and December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2001 2000
Assets (Unaudited)
------------------------------------
Electric plant, at original cost:
In service $ 4,895,223 $ 4,883,680
Less: Accumulated provision for depreciation (1,847,600) (1,752,176)
----------- -----------
3,047,623 3,131,504
Nuclear fuel, at amortized cost 72,206 83,470
Construction work in progress 42,141 24,841
----------- -----------
3,161,970 3,239,815
----------- -----------
Investments and funds:
Decommissioning fund, at market 141,491 148,300
Deposit on Rocky Mountain transactions, at cost 66,922 63,665
Bond, reserve and construction funds, at market 28,773 29,167
Investment in associated organizations, at cost 21,095 19,997
Other, at cost 926 1,513
----------- -----------
259,207 262,642
----------- -----------
Current assets:
Cash and temporary cash investments, at cost 325,998 330,622
Other short-term investments, at market 88,222 81,715
Receivables 103,792 143,353
Notes and interim financing receivables 285,328 38,548
Inventories, at average cost 72,614 75,389
Prepayments and other current assets 24,288 59,824
----------- -----------
900,242 729,451
----------- -----------
Deferred charges:
Premium and loss on reacquired debt, being amortized 162,592 175,944
Deferred amortization of Scherer leasehold 103,134 102,753
Discontinued projects, being amortized 7,215 9,490
Deferred debt expense, being amortized 16,376 16,968
Other 26,458 31,107
----------- -----------
315,775 336,262
----------- -----------
$ 4,637,194 $ 4,568,170
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
3
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 2001 and December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2001 2000
Equity and Liabilities (Unaudited)
-----------------------------------
Capitalization:
Patronage capital and membership fees and accumulated
other comprehensive margin $ 351,794 $ 392,682
Long-term debt 2,930,463 3,019,019
Obligation under capital leases 261,041 267,449
Obligation under Rocky Mountain transactions 66,922 63,665
---------- ----------
3,610,220 3,742,815
---------- ----------
Current liabilities:
Long-term debt and capital leases due within one year 141,983 136,053
Accounts payable 108,171 114,964
Notes payable 258,228 78,482
Accrued interest 55,103 67,394
Accrued and withheld taxes 19,759 674
Other current liabilities 9,287 23,017
---------- ----------
592,531 420,584
---------- ----------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized 51,477 53,332
Net benefit of sale of income tax benefits, being amortized 4,005 10,012
Net benefit of Rocky Mountain transactions, being amortized 80,430 82,819
Accumulated deferred income taxes 63,485 63,485
Decommissioning reserve 165,927 174,553
Interest rate swap arrangements 46,048 -
Other 23,071 20,570
---------- ----------
434,443 404,771
---------- ----------
$4,637,194 $4,568,170
========== ==========
The accompanying notes are an integral part of these condensed financial
statements.
4
Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses (Unaudited)
For the Three and Nine Months Ended September 30, 2001 and 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months Nine Months
------------------------- --------------------------
2001 2000 2001 2000
------------------------- --------------------------
Operating revenues:
Sales to Members $ 301,765 $ 297,777 $ 856,842 $ 833,867
Sales to non-Members 17,815 16,656 49,256 40,475
--------- --------- --------- ---------
Total operating revenues 319,580 314,433 906,098 874,342
--------- --------- --------- ---------
Operating expenses:
Fuel 58,582 59,734 159,711 164,444
Production 50,945 48,111 154,777 159,207
Purchased power 134,919 124,170 341,437 280,239
Depreciation and amortization 32,093 33,022 96,250 98,653
--------- --------- --------- ---------
Total operating expenses 276,539 265,037 752,175 702,543
--------- --------- --------- ---------
Operating margin 43,041 49,396 153,923 171,799
--------- --------- --------- ---------
Other income (expense):
Investment income 9,730 10,458 28,038 31,021
Amortization of deferred gains 619 619 1,856 1,856
Amortization of proceeds from sale of income tax benefits 2,799 2,799 8,396 8,396
Allowance for equity funds used during construction 31 60 99 88
Other 1,419 1,554 3,230 2,411
--------- --------- --------- ---------
Total other income 14,598 15,490 41,619 43,772
--------- --------- --------- ---------
Interest charges:
Interest on long-term-debt and capital leases 52,782 55,621 159,675 166,334
Other interest 4,701 5,418 11,746 16,133
Allowance for debt funds used during construction (362) (1,267) (1,269) (1,494)
Amortization of debt discount and expense 4,549 5,437 15,349 16,110
--------- --------- --------- ---------
Net interest charges 61,670 65,209 185,501 197,083
--------- --------- --------- ---------
Net margin (loss) ($ 4,031) ($ 323) $ 10,041 $ 18,488
========= ========= ========= =========
The accompanying notes are an integral part of these condensed financial
statements.
5
Oglethorpe Power Corporation
Condensed Statements of Patronage Capital and Membership Fees and
Accumulated Other Comprehensive Margin (Unaudited)
For the Nine Months Ended September 30, 2001 and 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Patronage Accumulated
Capital and Other
Membership Comprehensive
Fees Margin (Loss) Total
-------------------------------------------------
Balance at December 31, 1999 $ 371,634 ($ 1,609) $ 370,025
Components of comprehensive margin:
Net margin 18,488 18,488
Unrealized gain on available-for-sale securities 1,198 1,198
--------
Total comprehensive margin 19,686
--------
-------------------------------------------------
Balance at September 30, 2000 $390,122 ($ 411) $389,711
=================================================
Balance at December 31, 2000 $ 391,611 $ 1,071 $ 392,682
Components of comprehensive margin:
Net margin 10,041 10,041
Cumulative effect of accounting change to record unrealized
loss on interest rate swap arrangements as of January 1, 2001 (33,515) (33,515)
Unrealized loss on interest rate swap arrangements (12,533) (12,533)
Unrealized gain on available-for-sale securities 2,172 2,172
Unrealized loss on financial gas hedges (7,053) (7,053)
--------
Total comprehensive margin (loss) (40,888)
--------
-----------------------------------------------
Balance at September 30, 2001 $ 401,652 ($49,858) $ 351,794
===============================================
The accompanying notes are an integral part of these condensed financial
statements.
6
Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2001 and 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2001 2000
-------------------------------
Cash flows from operating activities:
Net margin $ 10,041 $ 18,488
--------- ---------
Adjustments to reconcile net margin to net cash provided by operating
activities:
Depreciation and amortization 133,239 138,707
Allowance for equity funds used during construction (99) (88)
Amortization of deferred gains (1,856) (1,856)
Amortization of net benefit of sale of income tax benefits (8,396) (8,396)
Deferred income taxes - 283
Gain on sale of generation equipment (223) -
Other 6,678 10,180
Change in net current assets, excluding long-term debt and capital leases due
within one year and notes payable:
Receivables 39,561 3,268
Notes receivable (68) 141
Inventories 2,775 8,971
Prepayments and other current assets (7,393) (1,307)
Accounts payable (6,793) 3,038
Accrued interest (12,291) 6,769
Accrued and withheld taxes 19,085 20,082
Other current liabilities (20,782) (5,025)
--------- ---------
Total adjustments 143,437 174,767
--------- ---------
Net cash provided by operating activities 153,478 193,255
--------- ---------
Cash flows from investing activities:
Property additions (43,636) (46,200)
Net proceeds from bond, reserve and construction funds 1,092 2,680
Increase in investment in associated organizations (1,097) (871)
Increase in other short-term investments (5,034) (2,964)
Increase in decommissioning fund (5,279) (8,896)
Other-generation equipment deposits (16,781) (17,852)
Proceeds from sale of generation equipment 26,204 -
--------- ---------
Net cash used in investing activities (44,531) (74,103)
--------- ---------
Cash flows from financing activities:
Long-term debt proceeds, net 2,869 3,518
Long-term debt payments (83,202) (81,253)
Increase in notes payable 179,746 113,437
Increase in notes receivable under interim financing agreement (212,984) (97,086)
--------- ---------
Net cash used in financing activities (113,571) (61,384)
--------- ---------
Net (decrease) increase in cash and temporary cash investments (4,624) 57,768
Cash and temporary cash investments at beginning of period 330,622 222,814
--------- ---------
Cash and temporary cash investments at end of period $ 325,998 $ 280,582
========= =========
Cash paid for:
Interest (net of amounts capitalized) $ 190,139 $ 166,987
Income taxes - -
The accompanying notes are an integral part of these condensed financial
statements.
7
Oglethorpe Power Corporation
Notes to Condensed Financial Statements
September 30, 2001 and 2000
(A) The condensed financial statements included in this report have been
prepared by Oglethorpe Power Corporation (Oglethorpe), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). In the opinion of management, the information furnished
in this report reflects all adjustments (which include only normal
recurring adjustments) and estimates necessary to present fairly, in all
material respects, the results for the periods ended September 30, 2001
and 2000. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC
rules and regulations, although Oglethorpe believes that the disclosures
are adequate to make the information presented not misleading. These
condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in Oglethorpe's
latest Annual Report on Form 10-K, as filed with the SEC. Certain amounts
for 2000 have been reclassified to conform with the current period
presentation. The results of operations for the three and nine months
periods ended September 30, 2001 are not necessarily indicative of
results to be expected for the full year.
(B) Effective January 1, 2001, Oglethorpe adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The standard establishes accounting
and reporting requirements for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging
activities. It requires the recognition of certain derivatives as assets
or liabilities on Oglethorpe's balance sheet and measurement of those
instruments at fair value. The accounting treatment of changes in fair
value is dependent upon whether or not a derivative instrument is
classified as a hedge and if so, the type of hedge. Oglethorpe has
classified, pursuant to SFAS No. 133, two interest rate swap arrangements
as cash flow hedges. Accordingly, as of January 1, 2001 Oglethorpe
recorded as a cumulative effect adjustment an unrealized loss in
comprehensive margin of $33.5 million and a corresponding increase in
other liabilities. (For a discussion of the interest rate swap
arrangements, see Note 2 of Notes to Financial Statements in Item 8 of
Oglethorpe's Annual Report on Form 10-K.)
The application of the new rules for SFAS No. 133 is still evolving and
further guidance from the Financial Accounting Standards Board is
expected which could further impact Oglethorpe's financial statements. In
addition, Oglethorpe will continue to evaluate use of derivatives,
including their effectiveness for hedging, and to apply appropriate
procedures and methods for valuing them.
(C) In July 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations", and No. 142, "Goodwill and Other Intangible Assets". Under
these new standards the FASB eliminated accounting for certain mergers
8
and acquisitions as poolings of interests, eliminated amortization of
goodwill and indefinite life intangible assets, and established new
impairment measurement procedures for goodwill. For calendar-year
reporting companies, the standards become effective for all acquisitions
completed on or after June 30, 2001. Changes in financial statement
treatment for goodwill and intangible assets arising from mergers and
acquisitions completed prior to June 30, 2001 become effective January 1,
2002. Oglethorpe's management does not believe the impact will be
material. In October of 2001, the FASB issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", which is effective
for fiscal years beginning after December 15, 2001. This statement
supercedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of". However,
it retains the fundamental provisions of SFAS No. 121 for the recognition
and measurement of the impairment of long-lived assets to be held and
used and the measurement of long-lived assets to be disposed of by sale.
Impairment of Goodwill is not included in the scope of SFAS No. 144 and
will be treated in accordance with the accounting standards established
in SFAS No. 142, "Goodwill and Other Intangible Assets." According to
SFAS No. 144, long-lived assets are to be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in
continuing or discontinued operations. The statement applies to all
long-lived assets, including discontinued operations, and replaces the
provisions of APB Opinion No. 30, "Reporting the Results of Operations --
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of segments of a business. Oglethorpe
will be required to adopt this statement no later than January 1, 2002.
Oglethorpe's management does not believe the impact will be material.
In June of 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." The statement provides accounting and reporting
standards for recognizing obligations related to asset retirement costs
associated with the retirement of tangible long-lived assets. Under this
statement, legal obligations associated with the retirement of long-lived
assets are to be recognized at their fair value in the period in which
they are incurred if a reasonable estimate of fair value can be made. The
fair value of the asset retirement costs is capitalized as part of the
carrying amount of the long-lived asset and subsequently allocated to
expense using a systematic and rational method over the assets' useful
life. Any subsequent changes to the fair value of the liability due to
passage of time or changes in the amount or timing of estimated cash
flows is recognized as an accretion expense. Oglethorpe will be required
to adopt this statement no later than January 1, 2003. Oglethorpe's
management is currently assessing the impact of this statement on its
results of operations and financial condition.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Three Months and Nine Months Ended September 30, 2001 and 2000
- ----------------------------------------------------------------------
Net Margin
Oglethorpe's net margin (loss) for the three months and nine months ended
September 30, 2001 was $(4.0) million and $10.0 million compared to $(323,000)
and $18.5 million for the same periods of 2000. As a result of lower than
budgeted fixed production expenses and lower than budgeted interest costs during
the first nine months of 2001, Oglethorpe's Board of Directors approved
reductions to revenue requirements totaling $35.6 million. A portion of these
reductions was recorded in the third quarter of 2001 as an $18.3 million
reduction in Sales to Members. Year-to-date net margin, after these reductions,
is on target to meet the margin requirement under Oglethorpe's Indenture. As a
result of lower than budgeted fixed O&M expenses, the year-to-date net margin
for 2000 reflects a $10.5 million Board of Directors approved reduction to
revenue requirements. This was recorded as a $10.5 million reduction in sales to
Members resulting in a net loss for the third quarter of 2000.
Operating Revenues
Revenues from sales to Oglethorpe's 39 retail electric distribution cooperative
members (the Members) for the three months and nine months ended September 30,
2001 were 1.3% and 2.8% higher than such revenues for the same periods of 2000.
Megawatt-hour (MWh) sales to Members for the three months and nine months ended
September 30, 2001 increased 1.7% and 2.6% compared to the same periods of 2000.
The increase in MWh sales to Members in the current periods of 2001 compared to
the same periods of 2000 was primarily due to continued sales growth in the
Members' service territories. The average revenue per MWh from sales to Members
were virtually unchanged from the same periods of 2000.
The components of Member revenues for the three months and nine months ended
September 30, 2001 and 2000 were as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
(dollars in thousands)
Capacity revenues $145,371 $151,433 $446,747 $464,361
Energy revenues 156,394 146,344 410,095 369,506
------- ------- ------- -------
Total $301,765 $297,777 $856,842 $833,867
======== ======== ======== ========
10
Capacity revenues from Members for the three months and nine months ended
September 30, 2001 were 4.0% and 3.8% lower compared to the same periods of
2000. The year-to-date decrease in capacity revenues was primarily due to lower
production expenses, lower interest costs, and lower net margin for the current
period compared to the same period of 2000. Energy revenues were 6.9% and 11.0%
higher for the current periods of 2001 compared to the same periods of 2000. The
increase in energy revenues in 2001 was partly due to higher purchased power
energy costs and partly due to an increase in the volume of purchased MWhs (see
"Operating Expenses" below). Oglethorpe's average energy revenue per MWh from
sales to Members was 5.1% and 8.2% higher in the current three-month and
nine-month periods compared to the same periods of 2000.
Sales to non-Members were from energy sales to other utilities and power
marketers. The following table summarizes the sources of non-Member revenues for
the three months and nine months ended September 30, 2001 and 2000:
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
(dollars in thousands)
Sales to other utilities $17,803 $16,333 $45,757 $36,677
Sales to power marketers 12 323 3,499 3,798
------- ------- ------- -------
Total $17,815 $16,656 $49,256 $40,475
======= ======= ======= =======
Sales to other utilities represent sales made directly by Oglethorpe. Oglethorpe
sells energy to non-Members from its available resources that is neither
utilized to serve its Members nor contractually dedicated to the power
marketers. The cooler weather and corresponding decrease in MWh sales to Members
in the second quarter of 2001 resulted in an increase in energy available for
sale to other utilities. In addition, Oglethorpe increased purchased MWhs for
resale to other utilities.
Sales to the power marketers represent the net energy transmitted on behalf of
LG&E Energy Marketing Inc. (LEM) and Morgan Stanley Capital Group Inc. (Morgan
Stanley) off-system on a daily basis from Oglethorpe's total resources under the
LEM and Morgan Stanley power marketer arrangements. Oglethorpe sold this energy
to LEM at Oglethorpe's cost, subject to certain limitations, and to Morgan
Stanley at a contractually fixed price. The volume of sales to power marketers
depends primarily on the power marketers' decisions for servicing their load
requirements.
Operating Expenses
Operating expenses for the three-month and nine-month periods of 2001 were 4.3%
and 7.1% higher compared to the same periods of 2000. The increase was primarily
due to higher purchased power costs for the current three-month and nine-month
periods compared to the same periods of 2000 and offset somewhat due to lower
11
production costs and fuel costs for the current nine-month period compared to
the same period of 2000.
Purchased power costs increased 8.7% and 21.8% in the current periods of 2001
compared to the same periods of 2000. This increase in purchased power costs
resulted from a combination of increased purchased MWhs and higher average cost
per MWh in 2001 compared to 2000. Purchased MWhs increased 4.2% and 11.8% in the
three-month and nine-month periods of 2001 compared to the same periods of 2000.
The average cost per MWh of total purchased power increased 4.3% and 9.0% in
current quarter and year-to-date periods of 2001 compared to the comparable
periods of 2000. Purchased power costs were as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
(dollars in thousands)
Capacity Costs $ 31,179 $ 32,451 $ 83,193 $ 78,508
Energy Costs 103,740 91,719 258,244 201,731
------- ------ ------- -------
Total $134,919 $124,170 $341,437 $280,239
======== ======== ======== ========
Purchased power capacity costs for the three months and nine months ended
September 30, 2001 were 3.9% lower and 6.0% higher than the same periods of
2000. Capacity costs were lower for the current three-month period due to an
unplanned outage during the period of a resource from which Oglethorpe purchases
power. The year-to-date higher capacity costs were primarily a result of
capacity charges incurred for new power purchase agreements, including an
agreement with Doyle I, LLC that commenced in May 2000. Purchased power energy
costs for the three-month and nine-month periods of 2001 were 13.1% and 28.0%
higher compared to the same periods of 2000. This increase resulted partly from
higher volume of purchased MWhs and partly from greater purchases of higher cost
spot market energy. During the current periods of 2001 the average cost of
purchased power energy increased 8.6% and 14.5% compared to the same periods of
2000.
Production costs decreased 2.8% year-to-date compared to the same period of
2000. The lower production costs in 2001 resulted primarily from lower
administrative and general costs. Administrative and general costs were lower in
2001 partly due to lower expenses incurred for support services provided by
Georgia System Operations Corporation and partly due to expenses incurred in
2000 for special strategic projects.
For the current nine-month period compared to the same period of 2000 total fuel
costs decreased 2.9% primarily as result of a 2.3% decrease in total generation.
For the current year-to-date period, nuclear generation was 0.7% higher and
fossil generation was 5.3% lower as compared to the same period of 2000. The
12
larger portion of nuclear generation, with its lower average fuel cost compared
to fossil generation, yielded a 0.6% decrease in average fuel cost.
Other Income
Investment income decreased 7.0% and 9.6% in the three months and nine months
ended September 30, 2001 compared to 2000 primarily due to lower earnings from
the decommissioning fund.
Interest Charges
Interest on long-term debt and capital leases decreased 5.1% and 4.0% in the
current periods compared to the same periods of 2000 primarily as a result of
cost savings from lower variable interest rates. Other interest expense
decreased 13.2% and 27.2% for the current periods compared to the same periods
of 2000 primarily as a result of a decrease in interest earnings on
decommissioning funds, which create an offsetting interest expense.
Financial Condition
Capital Requirements and Liquidity and Sources of Capital
- ---------------------------------------------------------
Oglethorpe has entered into agreements to acquire and construct six gas-fired
combustion turbines designed to provide 618 MW of capacity and a gas-fired
combined cycle facility designed to provide 468 MW of capacity. Four of the
combustion turbines are scheduled for completion in 2002, with the other two to
be completed in 2003. The combined cycle facility is scheduled for completion in
2003. By year-end, Oglethorpe expects to transfer the facilities to two separate
entities owned by those Members participating in the respective facilities. Both
projects are now fully subscribed.
Oglethorpe is currently providing interim financing for the construction of
these facilities through its commercial paper program, which now permits
Oglethorpe to issue up to $355 million of commercial paper. As of September 30,
$258 million of commercial paper was outstanding for this purpose. Of this
amount, $125 million relates to the combustion turbine facilities and $133
million relates to the combined cycle facility. Oglethorpe expects to issue a
total of approximately $300 million in commercial paper in conjunction with the
interim financing of these facilities, representing approximately 50% of the
total cost of the projects combined.
Oglethorpe has submitted loan applications to the Rural Utilities Service (RUS)
to provide permanent financing for these projects and expects a response from
RUS in 2002. The loan applications were made on behalf of any entity that may
ultimately own these facilities. However, due to the anticipated timing of the
loan approval and ultimate funding from RUS, Oglethorpe has obtained commitments
from two lenders to make bridge loans to the two entities that will ultimately
own the facilities to fund the remaining 50% of each project's construction
costs. Oglethorpe expects that these bridge loans will close by year-end.
Oglethorpe will guarantee the bridge loan for the combined cycle project.
13
Proceeds from the permanent financing will be used to repay the two bridge loans
and to retire Oglethorpe's outstanding commercial paper.
In August, Oglethorpe sold its interests under an agreement to purchase
equipment for an additional gas-fired combined cycle facility. The proceeds from
this sale were used to retire all of the commercial paper that was issued to
fund the payments under this agreement.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Financial Condition--Capital Requirements" and "--Liquidity and
Sources of Capital " in Item 7 of Oglethorpe's 2000 Annual Report on Form 10-K.
General
- -------
Total assets and total equity plus liabilities as of September 30, 2001 were
$4.6 billion, which was $69.0 million more than the total at December 31, 2000.
The increase was due primarily to additions to plant in service and construction
work in progress and an increase in interim financing receivables offset in part
by depreciation of plant and decreases in accounts receivable and prepayments
and other current assets.
Assets
Property additions for the nine months ended September 30, 2001 totaled $43.6
million primarily for purchases of nuclear fuel and for additions, replacements,
and improvements to existing generation facilities.
The decrease in receivables was primarily due to the unseasonably cool
temperatures in December, which resulted in higher energy charges to the Members
at December 31, 2000 as compared to September 30, 2001.
The increase in notes and interim financing receivables was due to the on-going
construction of the new generating facilities discussed above. The separate
entities that will ultimately own these facilities will reimburse Oglethorpe for
the interim financing after permanent financing is obtained.
The decrease in prepayments and other current assets was primarily due to the
reclassification of $33.8 million in option payments for generation equipment to
notes and interim financing receivables. See above for discussion of notes and
interim financing receivables.
The decrease in other deferred charges was due to the amortization of nuclear
outage costs exceeding additional deferrals of nuclear outage costs.
Equity and Liabilities
The increase in notes payable was attributable to commercial paper issued by
Oglethorpe as interim financing for costs incurred in the construction of the
14
generation facilities discussed above. (See "Capital Requirements and Liquidity
and Sources of Capital" above for a discussion regarding financing of these
projects.)
The decrease in accrued interest was largely driven by the accrual associated
with the lease of Plant Scherer Unit No. 2, and to a lesser extent that
associated with certain Pollution Control Bonds. At December 31, 2000 six months
of interest expense was accrued for these debt instruments whereas only three
months of interest was accrued at September 30, 2001.
Accrued and withheld taxes increased as a result of the normal monthly accruals
for property taxes, which are generally paid in the fourth quarter of the year.
The decrease in other current liabilities resulted primarily from lower negative
cash balances, resulting from zero balance sweep accounts, at September 30, 2001
as compared to December 31, 2000, and for payment of year-end accruals. This
decrease was offset somewhat by the liability incurred as a result of entering
into natural gas cash flow hedges.
Pursuant to the adoption of SFAS No. 133, Oglethorpe has recorded an unrealized
loss related to the interest swap arrangements. (For further discussion see Note
B of Notes to Condensed Financial Statements.)
Other deferred credits and liabilities increased principally due to the accrual
of other post employment benefits, which are pass-through expenses from Georgia
Power Company.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards No. 141, "Business Combinations", and No. 142,
"Goodwill and Other Intangible Assets". Under these new standards the FASB
eliminated accounting for certain mergers and acquisitions as poolings of
interests, eliminated amortization of goodwill and indefinite life assets, and
established new impairment measurement procedures for goodwill. For
calendar-year reporting companies, the standards become effective for all
acquisitions completed on or after June 30, 2001. Changes in financial statement
treatment for goodwill and intangible assets arising from mergers and
acquisitions completed prior to June 30, 2001 become effective January 1, 2002.
Oglethorpe's management does not believe the impact will be material. In October
of 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which is effective for fiscal years beginning
after December 15, 2001. This statement supercedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". However, it retains the fundamental provisions of SFAS No. 121
for the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived assets to be disposed of by
sale. Impairment of Goodwill is not included in the scope of SFAS No. 144 and
will be treated in accordance with the accounting standards established in SFAS
No. 142, "Goodwill and Other Intangible Assets". According to SFAS No. 144,
long-lived assets are to be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing or discontinued
operations. The statement applies to all long-lived assets, including
15
discontinued operations, and replaces the provisions of APB Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions", for the disposal of segments of a business. Oglethorpe
will be required to adopt this statement no later than January 1, 2002.
Oglethorpe's management does not believe the impact will be material.
In June of 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The statement provides accounting and reporting standards for
recognizing obligations related to asset retirement costs associated with the
retirement of tangible long-lived assets. Under this statement, legal
obligations associated with the retirement of long-lived assets are to be
recognized at their fair value in the period in which they are incurred if a
reasonable estimate of fair value can be made. The fair value of the asset
retirement costs is capitalized as part of the carrying amount of the long-lived
asset and subsequently allocated to expense using a systematic and rational
method over the assets' useful life. Any subsequent changes to the fair value of
the liability due to passage of time or changes in the amount or timing of
estimated cash flows is recognized as an accretion expense. Oglethorpe will be
required to adopt this statement no later than January 1, 2003. Oglethorpe's
management is currently assessing the impact of this statement on its results of
operations and financial condition.
Forward-Looking Statements and Associated Risks
This Quarterly Report on Form 10-Q contains forward-looking statements,
including statements regarding, among other items, (i) anticipated trends in
Oglethorpe's business and (ii) Oglethorpe's future capital requirements and
sources of capital. These forward-looking statements are based largely on
Oglethorpe's current expectations and are subject to a number of risks and
uncertainties, some of which are beyond Oglethorpe's control. (For factors that
could cause actual results to differ materially from those anticipated by these
forward-looking statements, see "OGLETHORPE'S POWER SUPPLY RESOURCES--Future
Power Resources," "FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY" and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Miscellaneous--Competition" in Items 1 and 7 of Oglethorpe's 2000
Annual Report on Form 10-K.) In light of these risks and uncertainties, there
can be no assurance that events anticipated by the forward-looking statements
contained in this Quarterly Report will in fact transpire.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Oglethorpe's market risks have not changed materially from the market risks
reported in Oglethorpe's 2000 Annual Report on Form 10-K.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
2001 LEM Arbitration
As previously reported, in February 2001, LG&E Energy Marketing Inc. ("LEM") and
its affiliates, LG&E Energy Corp. and LG&E Power, Inc. (collectively, the "LG&E
Parties") initiated a binding arbitration process to resolve certain issues
relating to the interpretation and administration of a power marketing agreement
among LEM, LG&E Energy Corp. and Oglethorpe (the "LEM Agreement") and a similar
agreement among LEM, LG&E Power, Inc. and Oglethorpe that expired by its terms
in 1999. The proceedings in the arbitration were bifurcated into a liability
phase and a damage determination phase. On November 5, 2001, the arbitration
panel issued an order on an issue-by-issue basis in the liability phase, ruling
in Oglethorpe's favor on some issues and in the LG&E Parties' favor on some
issues. A hearing on the damage aspects of these issues will be held in February
2002. Oglethorpe's management does not expect any damages awarded to the LG&E
Parties in this arbitration to have a material adverse effect on its results of
operations or financial condition.
1999 LEM Arbitration
Also as previously reported, in September 2001, the LG&E Parties filed motions
in the United States District Court for the Northern District of Georgia seeking
to vacate the court's confirmation of a 1999 arbitration award in Oglethorpe's
favor affirming the validity of the LEM Agreement, to vacate the underlying
award, and to take certain discovery, all based on alleged non-disclosure of
information that LEM claims would have been pertinent to the arbitration.
Oglethorpe has filed responses opposing LEM's motions and will continue to
defend itself vigorously. LEM continues to provide power to Oglethorpe under the
LEM Agreement.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Oglethorpe filed a Current Report on Form 8-K on September 20, 2001, containing
disclosure under Item 5, Other Events, regarding motions filed by the LG&E
Parties with respect to a 1999 arbitration award. See "Legal Proceedings" in
Item 1 of Part II of this Quarterly Report.
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SIGNATURES
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.
Oglethorpe Power Corporation
(An Electric Membership Corporation)
Date: November 14, 2001 By: /s/ Thomas A. Smith
-------------------
Thomas A. Smith
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2001 /s/ Mac F. Oglesby
------------------
Mac F. Oglesby
Treasurer
(Principal Financial Officer)
Date: November 14, 2001 /s/ W. Clayton Robbins
----------------------
W. Clayton Robbins
Senior Vice President,
Finance and Administration
(Principal Financial Officer)
Date: November 14, 2001 /s/ Willie B. Collins
---------------------
Willie B. Collins
Controller
(Chief Accounting Officer)
18