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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 March 31, 2002
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
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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 MARCH 31, 2002
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 2002
(Unaudited) and December 31, 2001 3
Condensed Statements of Revenues and Expenses
(Unaudited) for the Three Months ended
March 31, 2002 and 2001 5
Condensed Statements of Patronage Capital and Membership
Fees and Accumulated Other Comprehensive Margin
(Unaudited) for the Three Months ended
March 31, 2002 and 2001 6
Condensed Statements of Cash Flows (Unaudited)
for the Three Months ended March 31, 2002 and 2001 7
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 2002 and December 31, 2001
- --------------------------------------------------------------------------------------------------------
(dollars in thousands)
2002 2001
Assets (Unaudited)
-----------------------------------
Electric plant, at original cost:
In service $5,035,711 $5,029,192
Less: Accumulated provision for depreciation (1,914,725) (1,881,918)
-------------- --------------
3,120,986 3,147,274
Nuclear fuel, at amortized cost 78,257 77,360
Construction work in progress 53,000 38,564
-------------- --------------
3,252,243 3,263,198
-------------- --------------
Investments and funds:
Decommissioning fund, at market 153,488 150,668
Deposit on Rocky Mountain transactions, at cost 69,179 68,032
Bond, reserve and construction funds, at market 26,849 28,691
Investment in associated organizations, at cost 22,227 22,187
Other, at cost 731 731
-------------- --------------
272,474 270,309
-------------- --------------
Current assets:
Cash and temporary cash investments, at cost 249,453 275,786
Other short-term investments, at market 88,938 88,589
Receivables 86,855 73,039
Notes receivable 350,042 340,396
Inventories, at average cost 86,456 81,768
Prepayments and other current assets 22,947 16,182
-------------- --------------
884,691 875,760
-------------- --------------
Deferred charges:
Premium and loss on reacquired debt, being amortized 160,559 162,690
Deferred amortization of capital leases 107,825 107,254
Discontinued projects, being amortized 5,705 6,463
Deferred debt expense, being amortized 16,191 16,475
Other 26,127 22,518
-------------- --------------
316,407 315,400
-------------- --------------
$4,725,815 $4,724,667
============== ==============
The accompanying notes are an integral part of these condensed financial
statements.
3
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 2002 and December 31, 2001
- --------------------------------------------------------------------------------------------------------
(dollars in thousands)
2002 2001
Equity and Liabilities (Unaudited)
-----------------------------------
Capitalization:
Patronage capital and membership fees and accumulated
other comprehensive margin $382,275 $367,668
Long-term debt 2,787,121 2,929,316
Obligation under capital leases 370,307 373,837
Obligation under Rocky Mountain transactions 69,179 68,032
-------------- --------------
3,608,882 3,738,853
-------------- --------------
Current liabilities:
Long-term debt and capital leases due within one year 249,376 127,621
Accounts payable 60,952 79,859
Notes payable 337,793 353,680
Power marketer payable 48,538 36,000
Accrued interest 46,689 7,793
Accrued and withheld taxes 7,024 678
Other current liabilities 7,889 15,783
-------------- --------------
758,261 621,414
-------------- --------------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized 50,239 50,858
Net benefit of sale of income tax benefits, being amortized - 2,002
Net benefit of Rocky Mountain transactions, being amortized 78,837 79,633
Decommissioning reserve 177,211 174,506
Interest rate swap arrangements 33,161 36,859
Other 19,224 20,542
-------------- --------------
358,672 364,400
-------------- --------------
$4,725,815 $4,724,667
============== ==============
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 Months Ended March 31, 2002 and 2001
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months
--------------------------------------------
2002 2001
--------------------------------------------
Operating revenues:
Sales to Members $280,872 $296,506
Sales to non-Members 7,006 10,101
------------- ------------
Total operating revenues 287,878 306,607
------------- ------------
Operating expenses:
Fuel 44,807 45,544
Production 60,329 54,584
Purchased power 94,752 106,364
Depreciation and amortization 32,384 33,350
------------- ------------
Total operating expenses 232,272 239,842
------------- ------------
Operating margin 55,606 66,765
------------- ------------
Other income (expense):
Investment income 8,811 10,249
Amortization of deferred gains 619 619
Amortization of net benefit of sale of income tax benefits 2,799 2,799
Allowance for equity funds used during construction 111 24
Other 779 682
------------- ------------
Total other income 13,119 14,373
------------- ------------
Interest charges:
Interest on long-term-debt and capital leases 51,497 56,068
Other interest 5,202 4,743
Allowance for debt funds used during construction (831) (351)
Amortization of debt discount and expense 3,588 5,395
------------- ------------
Net interest charges 59,456 65,855
------------- ------------
Net margin $9,269 $15,283
============= ============
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 Three Months Ended March 31, 2002 and 2001
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Patronage Accumulated
Capital and Other
Membership Comprehensive
Fees Margin (Loss) Total
--------------------------------------------
Balance at December 31, 2000 $391,611 $1,071 $392,682
Components of comprehensive margin:
Net margin 15,283 15,283
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 (3,928) (3,928)
Unrealized gain on available-for-sale securities 1,146 1,146
-----------------
Total comprehensive margin (loss) (21,014)
-----------------
- ------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 $406,894 ($35,226) $371,668
- ------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $410,029 ($42,361) $367,668
Components of comprehensive margin:
Net margin 9,269 9,269
Unrealized gain on interest rate swap arrangements 3,698 3,698
Unrealized gain on financial gas hedges 3,076 3,076
Unrealized loss on available-for-sale securities (1,436) (1,436)
-----------------
Total comprehensive margin 14,607
-----------------
- ------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2002 $419,298 ($37,023) $382,275
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed financial
statements.
6
Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2002 and 2001
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2002 2001
--------------------------------------
Cash flows from operating activities:
Net margin $9,269 $15,283
------------- -------------
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation and amortization 35,374 47,130
Allowance for equity funds used during construction (111) (24)
Amortization of deferred gains (619) (619)
Amortization of net benefit of sale of income tax benefits (2,799) (2,799)
Other 907 (857)
Change in net current assets, excluding long-term debt and capital leases due
within one year and notes payable:
Receivables (13,816) 40,402
Notes receivable 139 121
Inventories (4,687) (8,802)
Prepayments and other current assets (6,765) (2,804)
Accounts payable (18,907) (57,331)
Accrued interest 38,896 (18,082)
Accrued and withheld taxes 6,347 5,975
Power marketer reserve 12,538 -
Other current liabilities (4,817) (16,937)
------------- -------------
Total adjustments 41,680 (14,627)
------------- -------------
Net cash provided by operating activities 50,949 656
------------- -------------
Cash flows from investing activities:
Property additions (29,129) (11,075)
Net proceeds from bond, reserve and construction funds 1,621 399
Increase in investment in associated organizations (39) 203
Increase in other short-term investments (1,564) (1,613)
Increase in decommissioning fund (2,300) (3,100)
Other-generation equipment deposits - (4,784)
------------- -------------
Net cash used in investing activities (31,411) (19,970)
------------- -------------
Cash flows from financing activities:
Long-term debt proceeds, net 322 325
Long-term debt payments (20,521) (40,233)
(Decrease) Increase in notes payable (15,887) 51,835
Increase in notes receivable under interim financing agreement (9,785) (48,951)
------------- -------------
Net cash used in financing activities (45,871) (37,024)
------------- -------------
Net decrease in cash and temporary cash investments (26,333) (56,338)
Cash and temporary cash investments at beginning of period 275,786 330,622
------------- -------------
Cash and temporary cash investments at end of period $249,453 $274,284
============= =============
Cash paid for:
Interest (net of amounts capitalized) $14,557 $76,008
Income taxes - -
The accompanying notes are an integral part of these condensed financial
statements.
7
Oglethorpe Power Corporation
Notes to Condensed Financial Statements
March 31, 2002 and 2001
(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 March 31, 2002 and
2001. 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 2001 have been reclassified to conform with the current period
presentation. The results of operations for the three-month period ended
March 31, 2002 are not necessarily indicative of results to be expected
for the full year.
(B) In June of 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting
for Asset Retirement Obligations." The statement provides accounting and
reporting standards for recognizing obligations related to costs
associated with the retirement of long-lived assets. SFAS No. 143
requires obligations associated with the retirement of long-lived assets
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 asset's 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.
Adoption of SFAS No. 143 would require Oglethorpe to recognize the fair
value of its decommissioning liability. Under SFAS No. 71, Oglethorpe may
record an offsetting regulatory asset or liability to reflect the
difference in timing of recognition of the costs of decommissioning for
financial statement purposes and for ratemaking purposes. 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.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
For the Three Months Ended March 31, 2002 and 2001
- --------------------------------------------------
Net Margin
Oglethorpe's net margin for the three months ended March 31, 2002 was $9.3
million compared to $15.3 million and for the same period of 2001. Net margin
for the first quarter of 2001 was higher primarily due to lower than budgeted
production expenses.
Operating Revenues
Oglethorpe's operating revenues fluctuate from period to period based on factors
including weather and other seasonal factors, growth in the service territories
of Oglethorpe's 39 retail electric distribution cooperative members (the
Members), operating costs, availability of resources, and Oglethorpe's decisions
of whether to dispatch its owned or purchased resources or Member-owned
resources over which it has dispatch rights. Oglethorpe's operating revenues are
also affected by Members' decisions of whether to purchase a portion of their
growth requirements from Oglethorpe or from other suppliers and whether to
schedule separately their resources. A large number of Members have now elected
to schedule separately their percentage capacity responsibilities in Oglethorpe
resources to serve their members and nonmembers, although approximately half of
the elections will not be effective until June 1, 2002. (See "OGLETHORPE POWER
CORPORATION--Wholesale Power Contracts" in Item 1 of Oglethorpe's 2001 Annual
Report on Form 10-K.) As additional Members have made this election, the
scheduling choices of these Members are having an increasingly larger effect on
Oglethorpe's sales to Members.
Revenues from sales to the Members for the three months ended March 31, 2002
were 5.3% less than such revenues for the same period of 2001. Megawatt-hour
(MWh) sales to Members decreased 2.4% in the current three-month period compared
to the same period of 2001. The decrease in MWh sales to Members was primarily
due to a decrease in sales to Members who schedule separately their percentage
capacity responsibilities and have purchased increasing portions of their
requirements from other suppliers. The average revenue per MWh from sales to
Members decreased 2.9% from the same period of 2001.
9
The components of Member revenues for the three months ended March 31, 2002 and
2001 were as follows:
Three Months
Ended March 31,
---------------
2002 2001
---- ----
(dollars in thousands)
Capacity revenues $149,986 $158,478
Energy revenues 130,886 138,028
------- -------
Total $280,872 $296,506
======== ========
Capacity revenues from Members for the three months ended March 31, 2002
decreased 5.4% compared to the same period of 2001. The decrease in capacity
revenues was primarily due to lower interest costs and lower net margin for the
current period compared to the same period of 2001. Energy revenues were 5.2%
lower for the current period of 2002 compared to the same period of 2001. The
decrease in energy revenues in 2002 was primarily due to a decrease in the
volume of purchased MWhs (see "Operating Expenses" below). Oglethorpe's average
energy revenue per MWh from sales to Members was 2.8% lower in the current
three-month period compared to the same period of 2001.
Sales to non-Members were from energy sales to power companies and from energy
sales to LG&E Energy Marketing Inc. (LEM) and Morgan Stanley Capital Group Inc.
(Morgan Stanley) under their power marketer arrangements with Oglethorpe. The
following table summarizes the sources of non-Member revenues for the three
months ended March 31, 2002 and 2001:
Three Months
Ended March 31,
---------------
2002 2001
---- ----
(dollars in thousands)
Sales to power companies $6,979 $ 8,156
Sales to LEM and Morgan Stanley 27 1,945
------ -------
Total $7,006 $10,101
====== =======
Sales to power companies represent sales made directly by Oglethorpe. Oglethorpe
sells for its own account any energy available from the portion of its resources
dedicated to Morgan Stanley that is not scheduled by Morgan Stanley pursuant to
the power marketer arrangement.
Sales to LEM and Morgan Stanley represent the net energy transmitted on behalf
of LEM and Morgan Stanley off-system on an hourly basis from Oglethorpe's total
10
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 LEM and Morgan Stanley depends primarily on the power marketers'
decisions for servicing their load requirements.
Operating Expenses
Operating expenses for the three-month period of 2002 were 3.2% lower compared
to the same period of 2001. The decrease was primarily due to lower purchased
power costs for the current three-month period compared to the same period of
2001, offset somewhat due to higher production costs.
Purchased power costs decreased 10.9% in the current period of 2002 compared to
the same period of 2001. This decrease in total purchased power costs resulted
primarily from lower purchased MWhs in 2002 compared to 2001. Purchased MWhs
decreased 17.8% in the current three-month period of 2002 compared to the same
period of 2001. The average cost per MWh of total purchased power increased 8.4%
in the current quarter of 2002 compared to the same period of 2001. Purchased
power costs were as follows:
Three Months
Ended March 31,
---------------
2002 2001
---- ----
(dollars in thousands)
Capacity costs $20,298 $ 20,808
Energy costs 74,454 85,556
------- --------
Total $94,752 $106,364
======= ========
Purchased power energy costs for the three-month period of 2002 were 13.0% lower
compared to the same period of 2001. This decrease resulted primarily from lower
volume of purchased MWhs offset somewhat by an increase in the average energy
cost per MWh. During the current period of 2002 the average cost of purchased
power energy increased 5.9% compared to the same period of 2001, primarily as a
result of an accrual of $12.5 million in the current period in connection with
the settlement of the 2001 arbitration with LEM. The current period LEM
arbitration damages accrual and the previously recorded accrual of $36 million
remain unbilled as of March 31, 2002. Oglethorpe also agreed to pay LEM an
additional amount with respect to energy deliveries for May through June of 2002
which Oglethorpe expects will be approximately $600,000. These amounts represent
Oglethorpe's total monetary obligation with respect to the settlement of the LEM
arbitration. See "Financial Condition" herein and "Legal Proceedings-2001 LEM
Arbitrarion" in Item 1 of Part II of this Quarterly Report for further
discussion of the LEM arbitration.
Production costs increased 10.5% for the three-month period ended March 31, 2002
compared to the same period of 2001. The higher production costs in 2002
resulted primarily from higher O&M costs. The higher O&M costs resulted partly
from a forced outage and diesel generator repairs at Plant Hatch, partly from
increased security costs at Plants Vogtle and Hatch related to the events of
11
September 11, 2001 and partly from generally higher expenses at Plants Scherer
and Wansley.
Other Income
Investment income decreased 14.0% in the current three-month period compared to
the same period of 2001 primarily due to lower interest earnings from cash and
temporary cash investments.
Interest Charges
Interest on long-term debt and capital leases decreased 8.2% in the current
period compared to the same period of 2001 primarily as a result of cost savings
from lower variable interest rates. Amortization of debt discount and expense
decreased 33.5% primarily due to accelerated amortization of $7 million and $24
million in premiums paid to the Federal Financing Bank for refinancing $89
million and $424 million in 1999 and 1998, respectively. Such amortization ended
in the third and fourth quarters of 2001, respectively.
Financial Condition
Capital Requirements and Liquidity and Sources of Capital
- ---------------------------------------------------------
To meet the load growth of certain of Oglethorpe's Members, two new generating
facilities are currently under construction. Talbot EMC is constructing and
owns, on behalf of 30 Members, a six-unit gas-fired combustion turbine facility
with four units expected to be in-service in summer 2002 and two units expected
to be in-service in summer 2003. Chattahoochee EMC is constructing and owns, on
behalf of 28 Members, a gas-fired combined cycle facility expected to be
in-service by spring 2003.
Oglethorpe is currently providing loans to Talbot EMC and Chattahoochee EMC to
fund, on an interim basis, approximately 50 percent of the cost of constructing
these new generating facilities. Oglethorpe is funding these loans under its
commercial paper program, which is backed 100% by committed lines of credit. The
amount of commercial paper outstanding for this purpose at March 31, 2002 was
$338 million. At April 30, 2002 the amount outstanding had declined to $301
million. Oglethorpe expects to have approximately $300 million of commercial
paper outstanding into early 2003 in conjunction with the interim financing of
these facilities.
For information on additional construction financing and permanent financing for
these new generating facilities, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Financial Condition--Capital
Requirements" in Item 7 of Oglethorpe's 2001 Annual Report on Form 10-K.
General
- -------
Total assets and total equity plus liabilities as of March 31, 2002 were $4.7
billion, which was $1 million more than the total at December 31, 2001. The
increase was due primarily to additions to plant in service and construction
work in progress, receivables and notes receivable, offset in part by
12
depreciation of plant and a decrease in cash and temporary cash investments.
Assets
Property additions for the three months ended March 31, 2002 totaled $29.1
million, primarily for purchases of nuclear fuel and for additions,
replacements, and improvements to existing generation facilities.
The increase in receivables was primarily due to the accrual of an additional
$12.5 million in connection with the settlement of the arbitration with LEM.
Receivables now include a total of $48.5 million associated with the settlement
of the LEM arbitration that have not yet been billed to the Members but have
been recorded as unbilled energy revenues.
Prepayments and other current assets increased primarily due to payments to
Georgia Power Company for estimated Plant Hatch operations and maintenance
(O&M), nuclear and construction costs for April 2002, which were $9.6 million
higher compared to the estimates for January 2002. The increase in estimated
Plant Hatch O&M charges was related to a planned outage at Plant Hatch. Nuclear
and construction charges were higher due to the planned purchases of nuclear
fuel. These increases were offset somewhat by a decrease in prepaid insurance.
The increase in other deferred charges was primarily due to the deferral of
nuclear outage costs associated with an outage at Plant Vogtle Unit No. 1, and
to a lesser extent, an outage at Plant Hatch Unit No. 1. Both outages began
during the first quarter of 2002. Nuclear outage costs are amortized over an
18-month operating cycle for the Plant Vogtle units and a 24-month operating
cycle for the Plant Hatch units.
Equity and Liabilities
Long-term debt and capital leases due within one year increased largely as a
result of the reclassification of CoBank and CFC notes totaling $92.1 million
which are due March 31, 2003. Oglethorpe management intends to refinance these
obligations with long-term debt by issuing tax-exempt bonds later in 2002, but
Oglethorpe has not yet entered into a firm financing agreement to do so. The
remaining increase was primarily attributable to the timing of the payment made
for FFB debt at December 31, 2001 rather than January 2, 2002.
The decrease in accounts payable was primarily attributable to payment of
amounts due to Georgia Transmission Corporation (GTC) for amounts billed to the
Members on its behalf and collected by Oglethorpe, and amounts accrued at
year-end for progress payments associated with the construction of the Talbot
EMC facility. As of January 2002, the Members now remit amounts billed on GTC's
behalf directly to GTC.
The increase in the power marketer payable is the result of an accrual of an
additional $12.5 million in connection with the settlement of the arbitration
with LEM. Oglethorpe will pay the entire $48.5 million to LEM on May 24, 2002 in
accordance with the arbitration settlement.
13
The increase in accrued interest was largely driven by accruals associated with
the long-term FFB mortgage notes, and to a lesser extent, the lease of Plant
Scherer Unit No. 2. At March 31, 2002 three months of interest expense was
accrued for these debt instruments whereas no interest was accrued at December
31, 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 payment of
year-end accruals and performance based pay, and a decrease in the liability
associated with natural gas cash flow hedges due to changing market value.
Oglethorpe has recorded an unrealized loss related to the interest rate swap
arrangements of $33.2 million, which represents the estimated payment Oglethorpe
would make if the swap arrangements were terminated.
New Accounting Pronouncements
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 costs associated with the retirement of
long-lived assets. SFAS No 143 requires obligations associated with the
retirement of long-lived assets 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.
Adoption of SFAS No. 143 would require Oglethorpe to recognize the fair value of
its decommissioning liability. Under SFAS No. 71, Oglethorpe may record an
offsetting regulatory asset or liability to reflect the difference in timing of
recognition of the costs of decommissioning for financial statement purposes and
for ratemaking purposes. 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 "FACTORS AFFECTING THE ELECTRIC UTILITY
INDUSTRY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
14
RESULTS OF OPERATIONS--Miscellaneous--Competition" in Items 1 and 7 of
Oglethorpe's 2001 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 2001 Annual Report on Form 10-K.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
2001 LEM Arbitration
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. In April
2002, Oglethorpe and the LG&E Parties settled this arbitration. As part of the
settlement, Oglethorpe agreed to pay to LEM approximately $48.5 million.
Oglethorpe had previously recorded a reserve of $36 million for estimated
damages payable to LEM. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Results of Operations--For the Three Months
Ended March 31, 2002 and 2001--Operating Expenses" and "--Financial
Condition--General--Assets" in Item 2 of Part I of this Quarterly Report.
1999 LEM Arbitration
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.29 - Oglethorpe Power Corporation Executive Supplemental Retirement
Plan.
10.30 - Participation Agreement for the Oglethorpe Power Corporation
Executive Supplemental Retirement Plan, dated as of March 15,
2002, between Oglethorpe and Thomas A. Smith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended
March 31, 2002.
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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: May 15, 2002 By: /s/ Thomas A. Smith
------------------------------------
Thomas A. Smith
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2002 /s/ Mac F. Oglesby
------------------------------------
Mac F. Oglesby
Treasurer
(Principal Financial Officer)
Date: May 15, 2002 /s/ W. Clayton Robbins
------------------------------------
W. Clayton Robbins
Senior Vice President, Finance and
Administration
(Principal Financial Officer)
Date: May 15, 2002 /s/ Mark Chesla
------------------------------------
Mark Chesla
Controller
(Chief Accounting Officer)
17