SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file number 0-24240
RIDGEWOOD ELECTRIC POWER TRUST I
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3105824
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
c/o Ridgewood Power LLC, 947 Linwood Avenue,
Ridgewood, New Jersey 07450-2939
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (201) 447-9000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
There is no market for the Shares. The aggregate capital contributions made
for the Registrant's voting Shares held by non-affiliates of the Registrant at
March 30, 2001 was $10,550,000.
Exhibit index is at page 36.
PART I
Item 1. Business.
Forward-looking statement advisory
This Annual Report on Form 10-K, as with some other statements made by
the Trust from time to time, has forward-looking statements. These statements
discuss business trends and other matters relating to the Trust's future results
and the business. In order to make these statements, the Trust has had to make
assumptions as to the future. It has also had to make estimates in some cases
about events that have already happened, and to rely on data that may be found
to be inaccurate at a later time. Because these forward-looking statements are
based on assumptions, estimates and changeable data, and because any attempt to
predict the future is subject to other errors, what happens to the Trust in the
future may be materially different from the Trust's statements here.
The Trust therefore warns readers of this document that they should not
rely on these forward-looking statements without considering all of the things
that could make them inaccurate. The Trust's other filings with the Securities
and Exchange Commission and its Confidential Memorandum discuss many (but not
all) of the risks and uncertainties that might affect these forward-looking
statements.
Some of these are changes in political and economic conditions, federal
or state regulatory structures, government taxation, spending and budgetary
policies, government mandates, demand for electricity and thermal energy, the
ability of customers to pay for energy received, supplies and prices of fuels,
operational status of plant, mechanical breakdowns, availability of labor and
the willingness of electric utilities to perform existing power purchase
agreements in good faith. Some of the cautionary factors that readers should
consider are described below at Item 1(c)(4) Trends in the Electric Utility and
Independent Power Industries.
By making these statements now, the Trust is not making any commitment
to revise these forward-looking statements to reflect events that happen after
the date of this document or to reflect unanticipated future events.
(a) General Development of Business.
Ridgewood Electric Power Trust I (the "Trust") was organized as a
Delaware business trust on May 9, 1994. It was organized to acquire all of the
assets and to carry on the business of Ridgewood Energy Electric Power, L.P.
(the "Partnership"). The Partnership was a Delaware limited partnership, which
was organized in March 1991 to participate in the development, construction and
operation of independent power generating facilities ("Projects"). On June 15,
1994, with the approval of the partners, the Partnership was combined into the
Trust, which acquired all of the Partnership's assets and which became liable
for all of the Partnership's obligations. In exchange for their interests in the
Partnership, the investors in the Partnership received an equivalent number of
Investor Shares in the Trust. The Partnership has been dissolved.
The predecessor Partnership raised $10.5 million in a single private
offering conducted in 1991 and early 1992. Substantially all of those funds were
applied prior to 1995 to the purchase of interests in the three Projects
described below, to funding business ventures that were unsuccessful and to
paying the fees and expenses of the Partnership's offering and the Partnership.
The Trust made an election to be treated as a "business development
company" under the Investment Company Act of 1940, as amended (the "1940 Act").
On May 26, 1994 the Trust notified the Securities and Exchange Commission of
that election and registered its shares of beneficial interest (the "Investor
Shares") under the Securities Exchange Act of 1934, as amended (the "1934 Act").
On June 25, 1994 the election and registration became effective. The Trust
currently has 223 holders of record of Investor Shares.
The Trust is organized similarly to a limited partnership. Ridgewood
Power LLC (the "Managing Shareholder"), a Delaware corporation, is the Managing
Shareholder of the Trust. For information about the merger of the prior Managing
Shareholder, Ridgewood Power Corporation, into Ridgewood Power LLC, see Item
10(b) - Directors and Executive Officers of the Registrant - Managing
Shareholder.
In general, the Managing Shareholder has the powers of a general
partner of a limited partnership. It has complete control of the day-to-day
operation of the Trust and as to most acquisitions. The Managing Shareholder is
not regularly elected by the owners of the Investor Shares (the "Investors").
The Managing Shareholder and the Independent Trustees of the Trust meet together
and take the actions that the 1940 Act requires a board of directors to take for
a business development company. The Board of the Trust also provides general
supervision and review of the Managing Shareholder, but does not have the power
to take action on its own. The Independent Trustees do not have any management
or administrative powers over the Trust or its property other than as expressly
authorized or required by the Declaration of Trust of the Trust (the
"Declaration") or the 1940 Act.
Ridgewood Energy Holding Corporation ("Ridgewood Holding"), a Delaware
corporation, is the Corporate Trustee of the Trust. The Corporate Trustee acts
on the instructions of the Managing Shareholder and is not authorized to take
independent discretionary action on behalf of the Trust. See Item 10. -
Directors and Executive Officers of the Registrant below for a further
description of the management of the Trust.
The following summarizes some of these relationships.
Robert E. Swanson and certain Swanson family trusts own 100% of the
equity of the following entities:
o Ridgewood Securities Corporation - Placement Agent ("Ridgewood Securities");
o Ridgewood Power Management, LLC - Operates the Projects owned by the Trust and
six other Trusts organized by Managing Shareholder ("RPM");
o Ridgewood Power LLC - Managing Shareholder of seven trusts ("Ridgewood
Power");
o Ridgewood Energy Holding Corporation - Corporate Trustee for all six trusts;
and
o Ridgewood Capital Management LLC - marketing affiliate and manager of six
venture capital funds ("Ridgewood Capital").
Mr. Swanson has sole voting and investment power over the Swanson family trusts
and is the sole manager, chief executive officer of the above entities.
In addition, the Trust is affiliated with the following trusts, which have been
organized by the Managing Shareholder:
o Ridgewood Electric Power Trust II ("Power II");
o Ridgewood Electric Power Trust III ("Power III");
o Ridgewood Electric Power Trust IV ("Power IV");
o Ridgewood Electric Power Trust V ("Power V");
o The Ridgewood Power Growth Fund (the "Growth Fund"); and
o Ridgewood/Egypt Fund ("Egypt Fund")
(b) Financial Information about Industry Segments.
The Trust operates in only one industry segment: independent electric power
generation.
(c) Narrative Description of Business.
(1) General Description.
The Trust was formed to participate in the development, construction
and operation of independent electric power projects. The Trust owns the Olinda
Project, which is a 5-megawatt capacity electric generating plant fueled by
methane gas from a local landfill in Brea, Orange County, California (the
"Olinda Project"). It also owns a preferred limited partnership interest in the
Stillwater Project, a 3.5-megawatt hydroelectric facility located on the Hudson
River north of Albany, New York (the "Stillwater Project"). In 1997, the Trust
sold its South Boston Project (previously designated as the "Lynchburg
Project"), a 3-megawatt capacity electric generating plant at South Boston,
Virginia that burns waste fuel oil. These Projects are Qualifying Facilities,
which are generally exempt from federal and state regulations that apply to
investor-owned electric utilities. Generally, utilities are required to purchase
electricity generated by Qualifying Facilities and many utilities have entered
into long-term power contracts ("Power Contracts") with such Qualifying
Facilities. The electricity produced by each Project is sold to the local
electric utility company under Power Contracts or is used on site to power
equipment. When or if those Power Contracts end, the Projects will have to sell
their output on the competitive electric power market and there is no assurance
that they can do so at a profit.
In addition, effective August 1999 the Trust, through a subsidiary,
bought two Caterpillar mobile electric generating units having a total output
capacity of 2.35 megawatts. These are rented through an equipment supplier to
businesses needing short-term mobile power and are not Qualifying Facilities.
Historically, producers of electric power in the United States
consisted of regulated utilities serving end-use retail customers and certain
industrial users that produced electricity to satisfy their own needs. The
independent power industry in the United States was created by federal
legislation passed in response to the energy crises of the 1970s. The Public
Utility Regulatory Policies Act of 1978, as amended ("PURPA"), among other
things, requires utilities to purchase electric power from Qualifying
Facilities, including "cogeneration facilities" and "small power producers," and
also exempts these Qualifying Facilities from most federal and state utility
regulatory requirements. In addition, the price paid by electric utilities under
PURPA for electricity produced by Qualifying Facilities is the utility's avoided
cost of producing electricity (i.e., the incremental costs the utility would
otherwise face to generate electricity itself or purchase electricity from
another source). Pursuant to PURPA, and state implementation of PURPA, many
electric utilities have entered into long-term Power Contracts with rates set by
contract formula approved by state regulatory commissions. Historically, the
contract formula rates have been significantly higher that the rates the utility
could obtain in a competitive market. In some areas of the country this still
may be true. However, beginning during the summer of 2000 in California, where
the Olinda Project is located, due to the electric energy crises in that state,
competitive market rates where significantly higher than the formula rates
contained in many Qualifying Facilities Power Contracts. As later described
below, the electric energy market in California is quite volatile and appears
that it will remain so for the foreseeable future. It is difficult to predict
when, if ever, the rates to Qualifying Facilities' in California will again
exceed competitive electric market rates.
In accounting for its Projects, the Trust treats each Project as a
portfolio investment that is not consolidated with the Trust's accounts.
Accordingly, the revenues and expenses of each Project are not reflected in the
Trust's financial statements and only distributions are included as revenue when
declared. Accordingly, the recognition of revenue from Projects by the Trust is
dependent upon the timing of a declaration of distributions from Projects by the
Managing Shareholder. As discussed below and at Item 5, Market for Registrant's
Common Equity and Related Stockholder Matters, distributions from Projects may
include both income and capital components.
(2) Projects.
(i) Olinda Project. In October 1994, the Trust purchased, for $3.1
million, an equity interest in Brea Power Partners, L.P., a partnership, which
owns and operates the Olinda Project. The Olinda Project is a landfill gas
facility that uses as fuel, methane and other burnable gases created by the
decomposing of garbage in a landfill. If not used for fuel, those gases would
escape to the atmosphere. Methane is a potent "greenhouse gas" that increases
global warming by significantly more than the carbon dioxide and water vapor
produced when it is burned.
The Trust's original limited partnership interest essentially was
designed to allow it to recover its initial investment of $3.1 million and to
provide an internal rate of return of approximately 15% per year, and to yield a
small residual amount thereafter. As of January 1, 1997, the owner of the
remaining limited partnership interest in the Partnership was GSF Energy, LLC,
an indirect subsidiary of DQE Corporation. GSF Energy, LLC also owned the
general partner of the Partnership, which had a 1% interest in the Partnership's
profits and losses.
On June 1, 1997, the Trust, through subsidiaries, acquired the general
partnership interest and the limited partnership interest owned by GSF Energy,
LLC for a base price of $3,000,000, and thus acquired the entire beneficial
interest in the Partnership. The parties agreed that the base price was to be
adjusted for operating cash flow generated and cash distributions made by the
Partnership from the effective date of January 1, 1997 through May 31, 1997 and
for the Partnership's current assets at the closing date. The purchase price as
so adjusted was $2,813,000, inclusive of a cash payment of $2,257,000 to the
seller, assumed liabilities of $441,000 and acquisition costs of approximately
$116,000. In the second half of 1997 the Trust invested an additional $661,000
to provide working capital.
Until June of 1997, an affiliate of DQE operated the Olinda Project
under an operations and maintenance agreement. The operations and maintenance
agreement was terminated in June 1997 and Ridgewood Power Management LLC, an
affiliate of the Trust's Managing Shareholder, began operating and continues to
operate the Olinda Project. It is reimbursed by the Trust for its actual costs
incurred and allocable overhead expenses but will not otherwise be compensated.
Neither GSF Energy, LLC ("GSF") nor DQE Corporation was affiliated with
or had any material relationship with the Trust, its Managing Shareholder or
their affiliates, directors, officers or associates of their directors and
officers, other than their prior relationships with the Partnership and the
ongoing responsibility of the corporate successor to GSF Energy, LLC to operate
the gas collection system as described below. The sales price and the terms of
the acquisition were determined in arm's length negotiations between the
Managing Shareholder of the Trust and representatives of DQE Corporation.
All electricity generated by the Olinda Project over and above its own
requirements is sold to Southern California Edison Company ("SCE") under a Power
Contract. The energy price under the Power Contract is the higher of 5.8 cents
per kilowatt-hour or an amount determined by a contract formula set forth in the
Power Contract. Generally, Qualifying Facilities are paid avoided cost, which is
computed under a contract formula prescribed by the California Public Utility
Commission ("CPUC") consisting of a fixed payment for the plant's capacity and a
payment per unit of energy delivered to the utility.
Currently, and as a result of the deregulation of the California energy
market, SCE has allegedly suffered billions of dollars in losses during the
later part of 2000 and is teetering on the brink of bankruptcy. This has
resulted in part because SCE, like the other two investor-owned electric
utilities ("IOUs") in California, was required by the 1996 deregulation law to
sell 50% of its fossil-fuel electric generation resources located in California
to unaffiliated third parties, although SCE sold more than such 50% amount. In
addition, the law required that SCE sell the electric output of all of its
remaining electric resources to and purchase all of its electric energy needs
from the California Power Exchange ("CalPx"), a day-ahead and day-of spot market
for electricity that was also created by the deregulation legislation. During
the early years of deregulation, this framework worked well and was profitable
for SCE because the wholesale price of electricity purchased from the CalPx was
substantially lower than the "frozen" retail price of electricity that SCE could
legally charge its end-use customers. The difference between the two prices was
used by SCE, among other things, to recoup stranded investments and pay
dividends to its parent Edison International, Inc., which dividends were then
invested in unregulated subsidiaries and used for other corporate purposes.
However, beginning in the summer of 2000, due to explosive growth of power
consumption in California, the lack of new electric generation, water and fuel
shortages, and other reasons, the situation changed dramatically and the CalPx
price for electricity (which SCE paid) was substantially higher than the retail
price that SCE was permitted by law to charge its retail customers, resulting in
huge losses for SCE. See, Section 1c(4) - Trends in the Electric Utility and
Independent Power Industries.
On January 16, 2001, as a result of its precarious financial position
and in an effort to conserve what little cash it possessed, SCE sent the
Qualifying Facilities under contract with it, including the Olinda Project, a
letter informing them that it was temporarily suspending payments to Qualifying
Facilities. SCE has not paid the Olinda Project for energy and capacity
delivered to SCE for the months of November and December, 2000, January and
February 2001 and SCE has written in public documents that it will be unable to
pay Qualifying Facilities, as well as other suppliers and creditors, for the
foreseeable future. As a result of SCE's failure to pay, the Olinda Project, on
January 16, 2001, wrote to GSF Energy, the gas supplier to the Olinda Project,
and informed it that the Olinda Project was scheduling major maintenance and
thus output would be reduced while certain of the machines are off-line for such
maintenance. On January 18, 2001, DQE Financial responded on behalf of GSF to
the Olinda Project and asserted that the timing of such major maintenance was an
attempt by Olinda to escape the minimum purchase obligations of the Gas Sale and
Purchase Agreement ("Gas Agreement") and it retained all of its rights and
remedies under the Gas Agreement. The Trust believes that the Gas Agreement
permits the Olinda Project to schedule and take the major maintenance but
recognizes that GSF disagrees with that position. In addition, due to SCE's
failure to pay the Olinda Project, it has not paid GSF Energy for the landfill
gas supplied during the above mentioned months and will not pay for such gas
until SCE pays the Olinda Project. Therefore, unless payment is made or
assurances of payment are provided by SCE, GSF could commence legal proceedings
against the Olinda Project seeking damages for outstanding payments for gas
delivered and breach of contract. GSF Energy has not commenced any such
proceedings. In addition, the Trust has claims against SCE for breach of the
Power Contract and is currently reviewing its alternatives and legal remedies,
but has not at this time commenced proceedings against SCE. However, on March 8,
2001, the Managing Shareholder, filed with FERC a "Request For Emergency Relief
and Extension of Waiver of Qualifying Facility Regulations" in which the
Managing Shareholder seeks an order for FERC permitting Qualifying Facilities to
sell to third parties. If such order were issued by FERC, the Olinda Project
would be able to sell its power, even if on a temporary basis, to third party
purchasers.
In an effort to resolve the California crises, there have been numerous
proposals by the CPUC, as well as the legislature, to adjust downward the prices
paid by California utilities to Qualifying Facilities. The Trust expects that
any regulatory proceeding to set an energy price applicable to Qualifying
Facilities will be extremely protracted and that a legislative solution, if one
were to be enacted and approved by the governor, is likely to be arbitrary and
significantly below the avoided cost of the energy to SCE. Current proposed
legislation in California regarding non gas-fired Qualifying Facilities under
contract with SCE, such as the Olinda Project, is proposing an energy price of
approximately 5.37 cents for approximately a term of 5 years, to June 30, 2006.
If such legislation were to be enacted and withstand legal challenge, it would
effective lower the price paid by SCE to Olinda for the 5-year term. In
addition, the legislation would require that SCE pay Qualifying Facilities for
all outstanding amounts owed. This proposed legislation is but one of many
solutions that must be enacted as a "global" solution to the California crises.
The Trust believes that such proposed legislation, as currently written, will
fail to address the problem in that, among other problems, it fails to address
the issue of acceptable and necessary creditworthiness of the utilities. In any
event, the Trust cannot predict whether this legislation, or any legislative or
regulatory proposals, will be enacted or adopted and, if so, provide any relief
to the electricity crises or assure that the Trust will ever be paid by SCE for
the energy and capacity delivered to SCE.
Notwithstanding the current crises in California, the Trust believes
that California's needs for electric power in the foreseeable future will likely
increase and that there will be a need for additional electric generation in the
near future. To that end, the Olinda Project has a letter of intent with Stewart
& Stevenson ("S&S"), an engineering and construction firm, to contract an
additional 2.5-megawatt facility at the Olinda Project site. The proposed cost
of the additional facility is approximately $1,500,000. This new facility will
be an "exempt wholesale generator" and sell its power to third party purchasers
and will not be contractually obligated to sell any power to SCE. Certain
equipment necessary for the expansion was in short supply so a purchase order
for such equipment was placed with S&S by the Olinda Project despite the fact
that negotiations with S&S have not concluded. However, according to the letter
of intent, if the Olinda Project decides not to conclude negotiations with S&S
and abandons the expansion, the equipment will be remarketed by S&S. Discussions
have been initiated with GSF Energy to discuss an increase in landfill gas
sufficient to supply the expansion.
The Trust's purchase of the Olinda Project in 1994 did not include the
landfill gas collection system and the processing units. Under the Gas
Agreement, GSF sells gas to the Olinda Project at a price in year 2000 of
approximately $.82 per million British Thermal Units ("BTU") of heat equivalent
plus an additional fixed payment of $12,500 annually (both the BTU price and the
annual fixed payment escalate at 3.7% per year). If the gas supplied is
insufficient to operate the generators at assumed levels, the Olinda Project may
take action to remedy the deficiency. Further, in that instance GSF would be
liable to the Olinda Project for damages of up to $3.1 million on a cumulative
basis. The gas supply agreement expires on the later of December 31, 2004 or the
stated term of the Power Contract. The landfill gas is produced from a landfill
owned by the County of Orange, California, under a gas lease agreement that
expires no earlier than the end of 2004. The County is entitled to a royalty
payable by GSF.
Congress has created a $3 per barrel of oil equivalent tax credit as an
incentive for burning landfill gas (with numerous exceptions and phase-outs).
The credit currently expires on December 31, 2002. The credit can only be
obtained, however, by a seller of landfill gas to an unaffiliated generating
facility. Accordingly, neither the Trust nor its Investors are entitled to any
tax credit for landfill gas. If the credit is not extended or another tax or
subsidy incentive is not substituted for it, GSF may not be able to operate the
collection system under the existing arrangements and the cost of landfill gas
fuel to the Project may increase.
In spring 1998, GSF sustained repeated short-term compressor failures
that interrupted delivery of gas to the Project. Although GSF obtained used
replacement compressors, those replacements in turn failed during July and
August 1998, causing a material revenue loss to the Project. The Trust claimed
$389,000 as liquidated damages (which approximates the Trust's actual damages)
under the Gas Agreement in September 1998 and has offset the claims against the
Trust's obligations to GSF to pay for delivered gas. Since September 1998 GSF
Energy has not had any extended failures to deliver gas but the Trust continues
to monitor GSF's actions to remedy the compressor problems. If GSF were unable
to provide the Olinda Project with sufficient supplies of landfill gas such that
the Olinda Project could not meet certain performance and availability standards
set forth in the Power Contract, the Olinda Project could be liable to SCE for
liquidated damages. However, given SCE's current failure to pay, which the Trust
believes is a breach of the Power Contract, the imposition of liquidated damages
by SCE in the foreseeable future is not likely.
Finally, the Power Contract may be terminated by either party no
earlier than the end of 2004 on 5 years' advance notice. On March 23, 2000, SCE
provided such written notice to the Olinda Project to the effect that it was
electing to terminate the Power Contract as of March 23, 2005.
(ii) Stillwater Project. In October 1991, the Trust acquired certain
equity rights with respect to a 3.5 megawatt (nominal capacity) hydroelectric
facility which was then under construction on the Hudson River in the village of
Stillwater, New York (approximately 30 miles northeast of Albany) at the site of
a pre-existing 800 foot wide masonry dam structure (the "Stillwater Project")
for a purchase price of $750,000. The Stillwater Project commenced commercial
operation in May 1993.
The Trust and affiliates of the general contractor and affiliates of
the equipment supplier formed Stillwater Hydro Partners, L.P. ("SHP") to
continue development of the Stillwater Project. The Trust's total investment was
$1,162,000. Debt financing for the Project was provided by the CIT Group/Capital
Equipment Financing Inc. ("CIT"). The CIT financing is a fixed rate 15-year term
loan in the principal amount of approximately $8,995,000, with the final payment
due in 2009. In addition to the fixed interest payments, CIT is also entitled to
receive, as additional interest, 22.5% of the available cash flow of the
Stillwater Project. The term loan is payable only by SHP, and is non-recourse to
the Trust.
The Trust now owns a fixed preferred partnership interest entitling it
to aggregate distributions of $1 million, plus a compound annual return of 12%
thereon until paid in full. Over the nine-year schedule of annual payments, the
Trust was to receive total payments, including the annual return, of
approximately $1,720,000. SHP is required to apply substantially all of SHP's
available cash flow after funding of debt service (up to a maximum amount each
year) to satisfy the payment obligation to the Trust, with any shortfalls to be
carried forward with interest into subsequent years.
The Trust has only received a single partial payment of $126,000 in
1994 and does not expect to receive any additional payments for an indefinite
period of time. The Stillwater Project has been unable to earn sufficient cash
flow to cover its fixed debt service obligations and to pay all of the 22.5% of
available cash flow to which CIT is entitled.
The Project's revenues are dependent upon water levels in the Hudson
River, which have fluctuated significantly during the last several years. During
low flow periods, generation is curtailed. The Project's ability to reach
projected generation levels requires the use of flashboards during high water
periods. The flashboards are removable wood and metal planks that fit over
spillways and that increase the level of the water behind the dam by up to two
feet. The extra water height behind the dam increases the force of the water
through the generation turbines and thus increases power output. However, the
flashboards as installed have consistently been ripped from their moorings by
high water flows and floating debris, and they cannot be reinstalled during high
water periods. Further, state environmental requirements limit the times during
which repairs can be made. As a result, power output during high flow periods
has not reached projected levels. In addition, even if water flow levels are
optimal, the Project is unable to generate the full projected output of 3.5
megawatts of electricity because of a design defect.
For these reasons, the Trust reviewed the value of the Stillwater
Project in 1997 on the assumption that the Project will be able to meet debt
service obligations to CIT as scheduled but that the Project will be unable to
make any distributions to the Trust until the CIT loan is retired in 2009. On
those assumptions and discounting post-2009 payments at the rate of 18% per
year, the Trust's investment in the Stillwater Project was revalued to $600,000
as of December 31, 1997 and the Trust took an investment writedown of $400,000,
charged against income.
Electricity generated by the Stillwater Project is sold to Niagara
Mohawk Power Corporation under a long-term Power Contract with a remaining term
of 28 years.
(iii) South Boston Project. The Trust made an approximately $3.9
million equity investment (including without limitation construction costs and
cash advances) in a 3 megawatt electrical generating facility that was
constructed in an industrial park near South Boston, Halifax County, Virginia
(the "South Boston Project"). The facility used waste oil as its primary fuel
source for three refurbished reciprocating diesel engine generators and also
included a waste oil treatment facility. The Trust's investment covered all
development and construction costs of the facility.
In July 1995, Virginia Electric Power and Light Co. ("VEPCO"), the
utility which purchased electricity from the South Boston Project under a
long-term Power Contract, sent a notice to the Trust purporting to cancel the
Power Contract for alleged failures by the project to comply with the terms of
the Power Contract. Litigation followed and on January 17, 1997, the Trust and
VEPCO settled the litigation and VEPCO paid the Trust's subsidiary $3,750,000 in
cash and waived substantial capacity payments that might have been due to VEPCO
in the event of an early termination of the Power Contract. The subsidiary
surrendered the Power Contract to VEPCO and agreed to the entry of an order
dismissing its lawsuit against VEPCO. The settlement permits the Trust or buyers
of the Project to continue operating the generating station and the associated
waste oil treatment plant, but not to sell electricity except to investor-owned
electric utilities for resale or use outside VEPCO's service area or to meet the
facility's own load. The facility may be operated for non-generating purposes
such as waste oil treatment.
The Trust shut down the South Boston Project in January 1997 and sold
it to an unaffiliated third party in December 1997 for a $700,000 promissory
note secured by the Project property and the right to receive 2% of any future
gross revenues from the Project. The buyer of the South Boston Project was
unable to operate it successfully and closed it in August 1999. The Trust wrote
off the mortgage as being uncollectible effective December 31, 1999.
(iv) Mobile Power Units. Effective August 1999, the Trust purchased two
mobile electric generating units manufactured by Caterpillar Inc. (the "Units").
The Units combine a large diesel engine with a fuel tank, emission equipment, an
electric generator and control equipment on a single skid and therefore can be
moved to remote areas as a self-contained power plant. The owner of the Units is
Ridgewood Mobile Power I, LLC, a wholly-owned subsidiary of the Trust. The Trust
bought the Units from Hawthorne Power Systems, Inc. ("Hawthorne") of San Diego,
California (a Caterpillar distributor) for $710,241. Hawthorne added the Units
to its own rental fleet of similar equipment and rents them to contractors,
engineering firms and other industrial or commercial customers who need
emergency, temporary or peak power supplies. The Trust receives 80% of the net
rental revenues and is responsible for major maintenance; Hawthorne receives 20%
of the net rental revenues to compensate it for marketing and managing the
Units.
Additional information regarding the Projects is found in the Notes to
the Financial Statements.
(3) Project Operation
The success of a Qualifying Facility Project is dependent on the
ability of the Project to perform efficiently under its Power Contract and is
also dependent upon obtaining a necessary fuel supply at reasonable prices (or
obtaining rights or licenses in the case of hydropower or geothermal resources).
The Olinda Project has a long-term gas supply agreement providing for 100% of
its requirements (subject to actual availability of landfill gas) at a fixed
price escalated by 3.7% annually through the term. The Stillwater Project has
the necessary permits to use hydroelectric resources and thus may use those
resources to the extent available. Use of those resources is limited seasonally
by the New York State Department of Environmental Conservation to protect fish
spawning populations and river quality and is subject to unpredictable local
drought and flood conditions.
The Units are managed by Hawthorne and rented at fixed rates. Their
major costs are capital recovery, maintenance, taxes and storage costs;
operating costs are borne by the customer. Electricity generated from the Units
is generally used by the renter on-site. If there were a shortage of electric
generation capacity, the Units could be rented as additional peak generation
capacity by a utility or electricity seller, subject to local environmental
limitations. The Units are rented at fixed prices per month and are operated by
the renter. Rental periods typically range from one to six weeks.
The major costs of a Qualifying Facility Project while in operation
will be debt service (if applicable), fuel, taxes, maintenance and operating
labor. The ability to reduce operating interruptions and to have a Project's
capacity available at times of peak demand are critical to the profitability of
a Project. Accordingly, skilled management is a major factor in the Trust's
business.
The Managing Shareholder has organized Ridgewood Power Management LLC
("RPM") to provide operating management for facilities operated by its
investment programs, and has assigned day-to-day management of the Olinda
Project to RPM. Like the Managing Shareholder, RPM is wholly owned by Robert E.
Swanson. It entered into an "Operation Agreement," effective June 1, 1997, under
which RPM provides all management, purchasing, engineering, planning and
administrative services for the Olinda Project. These services are charged to
the Project at RPM's cost. See Item 10 - Directors and Executive Officers of the
Registrant and Item 13 Certain Relationships and Related Party Transactions for
further information regarding the Operation Agreement and RPM and for the cost
reimbursements received by RPM. The Stillwater Project is managed by its
remaining equity partners and the Trust has no management responsibility for the
Project.
Electricity produced by a Qualifying Facility Project is delivered to
the electric utility purchaser through transmission lines and equipment that are
built to interconnect with the utility's existing power grid. The Power
Contracts for the Projects require the utility to take all electricity generated
up to the Projects' rated capacity and accordingly seasonal fluctuations in
demand do not affect the Projects. The price payable to the Olinda Project
increases in daylight hours of the summer months when demand peaks, so the Trust
attempts to perform maintenance during off-peak periods. Electricity generated
from the Units is generally used by the renter on-site. If there were a shortage
of electric generation capacity, the Units could be rented as additional peak
generation capacity by a utility or electricity seller, subject to local
environmental limitations.
Generally, working capital requirements are not a significant item for the
Trust. See Item 7 - Management's Discussion and Analysis.
Most Projects require a variety of permits, including zoning and
environmental permits. Such permits must usually be kept in force in order for a
Project to continue its operations. If future environmental standards require
that a Project spend increased amounts for compliance, such increased
expenditures could have an adverse effect on the Trust to the extent it is a
holder of such Project's equity securities. See Item 1(c)(6)--
Business-Narrative Description of Business -- Regulatory Matters.
(4) Trends in the Electric Utility and Independent Power Industries.
In September 1996, California enacted Assembly Bill 1890 ("AB 1890"),
which totally restructured California's existing monopolistic electric utility
industry into a market-based competitive industry. Among other things, AB 1890
required that California's investor-owned utilities ("IOUs") sell 50% of their
fossil-fueled electric generation assets to unaffiliated thirds parties. The
money received for these assets was used, among other purposes, to reduce
stranded investments. The IOUs, however, were permitted to retain certain
generation assets, including generation from Qualifying Facilities, certain
hydroelectric generation facilities, nuclear generation facilities, and some
fossil-fueled generation facilities ("IOU Retained Generation"). In addition, AB
1890 created the CalPx, a day-ahead and day-of energy spot market, and required
that the IOUs sell all of the electric generation from their IOU Retained
Generation to and purchase all of their electric supply needs from the CalPx. In
addition, the rates that the IOUs were permitted to charge their retail end-use
customers were frozen at certain levels until the end of the transition period,
which for SCE and Pacific Gas and Electric Company was in 2003.
From the passage of AB 1890 until approximately the summer of 2000, the
framework instituted by AB 1890 worked well in that the wholesale price for
electricity purchased from the CalPx by SCE and the other IOUs was significantly
lower than the frozen retail rates that SCE was permitted to charge to retail
customers. The resulting "profit" made by SCE was used, among other things, to
recoup SCE's stranded investments and to pay dividends to SCE's corporate
parent, Edison International ("Edison"). Edison then used such funds to invest
in unregulated assets as well as for other general corporate purposes. However,
during the summer of 2000 the situation changed dramatically. The CalPx
wholesale price of electricity increased significantly due in large part to
California's explosive growth in power consumption, environmental regulation,
natural gas shortages, the failure of the state to add any significant electric
generation facilities for over a decade, and the lack of available electric
energy from other areas of the West. SCE was now purchasing its electric
generation needs at wholesale prices significantly above the frozen retail rates
it was permitted by AB 1890 to charge to retail customers. As a result, SCE has
incurred substantial losses and, as described above, has suspended payments to
Qualifying Facilities, as well as to the CalPX and other creditors. Unless some
resolution is worked out, SCE may ultimately declare bankruptcy. In such event,
the Power Contract with SCE would be subject to modification or rejection and
given the situation in California there can be no assurance that SCE will not
declare bankruptcy.
There have been numerous proposals and actions taken by a variety of
parties in California in an attempt to find a reasonable and workable solution
to the electric crises. For example, the Federal Energy Regulatory Commission
("FERC") removed the requirement that the IOUs purchase all of their electricity
needs from the CalPx. In addition, a wholesale rate soft cap or "breakpoint" of
$150 Mwh has been imposed by FERC, however, most believe it is a short-term
measure as such cap may provide a disincentive to the construction of new power
plants and transmission facilities. Although the market cap is a short-term
solution, there is a reasonable probability that such wholesale rate caps may be
continued for an indefinite period of time. The CalPx was unable to institute
and operate under the $150 Mwh breakpoint and, as a result of this and certain
other FERC orders, suspended trading as of January 31, 2001.
The IOUs in California have also sought to remedy the problems by
seeking regulatory and legal relief from the losses they have incurred. SCE and
Pacific Gas and Electric Company ("PG&E") petitioned the CPUC seeking relief
from the retail rate freeze and an increase of approximately 30% in retail
rates. The CPUC approved only a 10% increase, significantly less than requested
and far below what was necessary for SCE and PGE to remain solvent. SCE and PG&E
have also instituted separate court actions seeking to have the court rule that
the high wholesale power costs they have incurred in obtaining power for their
retail load must by law be allowed to be passed through to retail rate payers.
In addition, the CPUC gave IOUs permission to enter into long-term
bilateral power contracts with independent energy producers ("IPPs"). However,
due to SCE's failure to make payments to the CalPx for past energy deliveries,
which in turn meant that the CalPx could not pay such IPPs, many large IPPs were
reluctant to make further energy deliveries to the CalPx or directly to SCE
without being paid for past deliveries and receiving assurances of future
payments. SCE could do neither and during the later part of 2000 and early 2001,
such IPPs were ordered either by the Secretary of the United States Department
of Energy or by the federal courts to continuing selling power. These orders
essentially required the IPPs to sell to the California Department of Water
Resources ("DWR"), a state agency that has been purchasing power at wholesale
from IPPs and reselling it to the IOUs at prices that approximates the IOUs
retail rate authorization, which is significantly lower that the wholesale
price. As a result, the California DWR is losing substantial sums of money such
that every several weeks or on a monthly basis the California legislature has to
appropriate more funds for the DWR to continue purchasing. None of those orders
forcing electric sales, however, applied to Qualifying Facilities.
Finally, the California legislature has been considering certain
proposals to substitute an arbitrarily derived price for the energy price to be
paid to Qualifying Facilities. Any regulatory proceeding to set an energy price
applicable to Qualifying Facilities will be extremely protracted and a
legislative solution, if one were to be enacted and approved by the governor, is
likely to be arbitrary and below the avoided cost of the energy to the IOUs.
Because federal law requires that Qualifying Facilities be paid at least the
avoided cost to IOUs of obtaining the same amount of energy from a marginal
supplier, if the energy price set by California is less than that avoided cost,
Qualifying Facilities will have the right to sue for the correct avoided cost
price in federal court or before the FERC. Such proceedings could also be
protracted and expensive unless the FERC acts on its own or other generators
bring a proceeding before the Commission or a court.
Prior to the summer of 2000, many IOUs were attempting to purchase and
terminate the Power Contracts of Qualifying Facilities because, historically,
the electric rates paid to Qualifying Facilities have been significant higher
than wholesale power rates. Currently, however, the rates paid to Qualifying
Facilities by California IOUs are lower than current wholesale power rates and,
if the legislation proposed to substitute a legislatively derived energy price
is enacted and survives legal challenges, Qualifying Facilities will be an
attractive generating asset for California's IOUs.
After the Power Contracts expire (in 2005 for Olinda and 2029 for
Stillwater) or terminate earlier for other reasons, the Projects under currently
anticipated conditions would be free to sell their output on the competitive
electric supply market, either in spot, auction or short-term arrangements or
under long-term contracts if those Power Contracts could be obtained. There is
no assurance that the Projects could sell their output or do so profitably. The
Trust is unable to anticipate whether the fuel cost advantages the Projects
currently have as balanced against their relatively high costs of operation and
maintenance would allow the Projects to operate profitably.
(5) Competition
The Olinda and Stillwater Projects, as described above, are not
currently subject to competition because those Projects have entered into
long-term Power Contracts to sell their output at specified prices. However, a
particular Project could be subject to future competition to market its
electricity output if its Power Contract expires or is terminated because of a
default or failure to pay by the purchasing utility or other purchaser; due to
bankruptcy or insolvency of the purchaser; because of the failure of a Project
to comply with the terms of the Power Contract; regulatory changes; or other
reasons. The Olinda Project would then face competition to market its capacity
and energy output. Given the current crises and need for electric generation in
California, the Trust believes that, if subjected to competition, the Olinda
Project in the near future could effectively compete and profitably sell its
energy and capacity, although no such profit, if any, can be assured due to
certain other uncertainties, such as future legislation, natural gas prices,
continued imposition of a wholesale rate cap, and possible protracted
litigation. The process of deregulation in New York, where the Stillwater
Project is located, is still uncertain and it is difficult to estimate the level
of marketing competition that it would face in any such event.
There are a large number of participants in the independent power
industry. Several large corporations specialize in developing, building and
operating Independent Power Projects. Equipment manufacturers, including many of
the largest corporations in the world, provide equipment and planning services
and provide capital through finance affiliates. Many regulated utilities have
organized subsidiaries or affiliates to participate in unregulated activities
such as planning, development, construction and operating services or in owning
exempt wholesale generators or up to 50% of Independent Power Projects. In
addition, there are many smaller firms whose businesses are conducted primarily
on a regional or local basis. Many of these companies focus on limited segments
of the cogeneration and independent power industry and do not provide a wide
range of products and services. There is significant competition among
non-utility producers, subsidiaries of utilities and utilities themselves in
developing and operating energy-producing projects and in marketing the power
produced by such projects.
The Units compete against numerous other fleets of mobile power
generation equipment on a regional and international level. To some extent,
local or governmental electricity utilities also compete to provide short-term
electricity in less-remote areas. Hawthorne owns many units in its rental fleet
but has agreed to market the Trust's Units on a basis at least as favorable at
it does for its own equipment. Demand for the Units is heavily dependent on the
level of construction and civil engineering work in the Southern California area
and on the availability of equipment from vendors, other area rental fleets and,
to a limited extent, from outside-of-area fleets. Demand can be very volatile.
Further, Hawthorne may cancel the rental arrangement on short notice.
6. Regulatory Matters.
Projects are subject to energy and environmental laws and regulations
at the federal, state and local levels in connection with development,
ownership, operation, geographical location, zoning and land use of a Project
and emissions and other substances produced by a Project. These energy and
environmental laws and regulations generally require that a wide variety of
permits and other approvals be obtained before the commencement of construction
or operation of an energy-producing facility and that the facility then operate
in compliance with such permits and approvals. Since the Trust operates as a
"business development company" under the 1940 Act, it is also subject to
provisions of that act pertaining to such companies.
(i) Energy Regulation.
(A) PURPA. The enactment in 1978 of PURPA and the adoption of
regulations thereunder by FERC provided incentives for the development of
cogeneration facilities and small power production facilities meeting certain
criteria. Qualifying Facilities under PURPA are generally exempt from the
provisions of the Public Utility Holding Company Act of 1935, as amended (the
"Holding Company Act"), the Federal Power Act, as amended (the "FPA"), and,
except under certain limited circumstances, state laws regarding rate or
financial regulation. In order to be a Qualifying Facility, a cogeneration
facility must (a) produce not only electricity but also a certain quantity of
heat energy (such as steam) which is used for a purpose other than power
generation, (b) meet certain energy efficiency standards when natural gas or oil
is used as a fuel source and (c) not be controlled or more than 50% owned by an
electric utility or electric utility holding company. Other types of Independent
Power Projects, known as "small power production facilities," can be Qualifying
Facilities if they meet regulations respecting maximum size (in certain cases),
primary energy source and utility ownership.
The exemptions from extensive federal and state regulation afforded by
PURPA to Qualifying Facilities are important to the Trust and its competitors.
The Trust believes that each of its Projects is a Qualifying Facility. If a
Project loses its Qualifying Facility status, the utility can reclaim payments
it made for the Project's non-qualifying output to the extent those payments are
in excess of current avoided costs or the Project's Power Contract can be
terminated by the electric utility.
(B) The 1992 Energy Act. The Comprehensive Energy Policy Act of 1992
(the "1992 Energy Act") empowered FERC to require electric utilities to make
available their transmission facilities to and wheel power for Independent Power
Projects under certain conditions and created an exemption for electric
utilities, electric utility holding companies and other independent power
producers from certain restrictions imposed by the Holding Company Act. Although
the Trust believes that the exemptive provisions of the 1992 Energy Act will not
materially and adversely affect its business plan, the Energy Act may result in
increased competition in the sale of electricity.
The 1992 Energy Act created the "exempt wholesale generator" category
for entities certified by FERC as being exclusively engaged in owning and
operating electric generation facilities producing electricity for resale.
Exempt wholesale generators remain subject to FERC regulation in all areas,
including rates, as well as state utility regulation, but electric utilities
that otherwise would be precluded by the Holding Company Act from owning
interests in exempt wholesale generators may do so. Exempt wholesale generators,
however, may not sell electricity to affiliated electric utilities without
express state approval that addresses issues of fairness to consumers and
utilities and of reliability.
(C) The Federal Power Act. The FPA grants FERC exclusive rate-making
jurisdiction over wholesale sales of electricity in interstate commerce. Again,
this will not affect the Trust's Projects unless they were to attempt sales to
other customers.
(D) State Regulation. The Trust's Projects are not subject to material
state economic regulation except for requirements in California and New York to
supply the purchasing utility with information to confirm compliance with
Qualifying Facility fuel use and efficiency requirements and to make the
Projects available for audit and inspection to confirm Qualifying Facility
compliance. The Olinda Project as operated by the Trust complies with these
requirements and the Trust believes that both the Olinda and Stillwater Projects
meet Qualifying Facility standards. States also have authority to regulate
certain environmental, health and siting aspects of Qualifying Facilities.
(E) Mobile Power Units. The Mobile Power Units, as temporary on-site
units operated by the electricity consumer, are not subject to economic
regulation in California or most other jurisdictions. If a Unit were rented by a
regulated utility, that utility might be subject to economic regulation but the
rental fee for the Unit would probably not be directly regulated. There might be
an indirect regulatory effect to the extent that the utility were regulated as
to the rental price it would be authorized to pay. Under current conditions in
California, this is unlikely.
(ii) Environmental Regulation.
The operation of Independent Power Projects and the exploitation of
natural resource properties are subject to extensive federal, state and local
laws and regulations adopted for the protection of human health and the
environment and to regulate land use. The laws and regulations applicable to the
Trust and Projects in which it invests primarily involve the discharge of
emissions into the water and air and the disposal of waste, but also include
wetlands preservation, fisheries protection (at the Stillwater Project) and
noise regulation. These laws and regulations in many cases require a lengthy and
complex process of renewing or obtaining licenses, permits and approvals from
federal, state and local agencies. Obtaining necessary approvals regarding the
discharge of emissions into the air is critical to a Project and can be
time-consuming and difficult. Each Project requires technology and facilities
which comply with federal, state and local requirements, which sometimes result
in extensive negotiations with regulatory agencies. Meeting the requirements of
each jurisdiction with authority over a Project may require modifications to
existing Projects.
Title V of the Clean Air Act Amendments added a new permitting
requirement for existing sources that requires all significant sources of air
pollution to submit new applications to state agencies. Title V implementation
by the states generally does not impose significant additional restrictions on
the Trust's Projects, other than requirements to continually monitor certain
emissions and document compliance. The permitting process is voluminous and
protracted and the costs of fees for Title V applications, of testing and of
engineering firms to prepare the necessary documentation have increased. The
Trust believes that all of its facilities, which require Title V compliance, are
in compliance with such requirements.
The Trust's Projects must comply with many federal and state laws and
regulations governing wastewater and storm water discharges from the Projects.
These are generally enforced by states under "NPDES" permits for point sources
of discharges and by storm water permits. Under the Clean Water Act, NPDES
permits must be renewed every five years and permit limits can be reduced at
that time or under re-opener clauses at any time. The Projects have not had
material difficulty in complying with their permits or obtaining renewals. The
Projects use closed-loop engine cooling systems which do not require large
discharges of coolant except for periodic flushing to local sewer systems under
permit and do not make other material discharges.
The Trust's Projects are subject to and comply with the reporting
requirements of the Emergency Planning and Community Right-to-Know Act that
require the Projects to prepare toxic release inventory release forms. These
forms list all toxic substances on site that are used in excess of threshold
levels so as to allow governmental agencies and the public to learn about the
presence of those substances and to assess potential hazards and hazard
responses. The Trust does not anticipate that this will result in any material
adverse effect on it.
The Units, which do not have a fixed location, are subject to differing
air quality standards that depend in part on the locations of use, the amount of
time and time periods of use and the quantity of pollutants emitted. The Trust
believes that the Units as used comply with all applicable air quality rules.
The Managing Shareholder expects that environmental and land use
regulations may become more stringent. The Trust and the Managing Shareholder
have developed a certain expertise and experience in obtaining necessary
licenses, permits and approvals, but will nonetheless rely upon co-owners of the
Stillwater Project and as to all Projects on qualified environmental consultants
and environmental counsel retained by it to assist in evaluating the status of
Projects regarding such matters.
(iii) The 1940 Act.
Since its Shares are registered under the 1934 Act, the Trust is
required to file with the Commission certain periodic reports (such as Forms
10-K (annual report), 10-Q (quarterly report) and 8-K (current reports of
significant events) and to be subject to the proxy rules and other regulatory
requirements of that act that are applicable to the Trust.
As a "business development company," the Trust is a closed-end company
(defined by the 1940 Act as a company that does not offer for sale or have
outstanding any redeemable security) that is regulated under the 1940 Act only
as a business development company. The act contains prohibitions and
restrictions on transactions between business development companies and their
affiliates as defined in that act, and requires that a majority of the board of
the company be persons other than "interested persons" as defined in the act.
The Board of the Trust is comprised of Ridgewood Power and three individuals,
John C. Belknap, Dr. Richard D. Propper and Seymour Robin, who also serve as
independent trustees of Power IV and the Growth Fund, two similar programs
sponsored by the Managing Shareholder, but who are not otherwise affiliated with
the Trust, Ridgewood Power or any of their affiliates. See Item 10 -- Directors
and Executive Officers below.
Under the 1940 Act, Commission approval is required for certain
transactions involving certain closely affiliated persons of business
development companies, including many transactions with the Managing Shareholder
and the other investment programs sponsored by the Managing Shareholder. There
can be no assurance that such approval, if required, would be obtained. In
addition, a business development company may not change the nature of its
business so as to cease to be, or to withdraw its election as, a business
development company unless authorized to do so by at least a majority vote of
its outstanding voting securities.
The 1940 Act restricts the kind of investments a business development
company may make. A business development company may not acquire any asset other
than a "Qualifying Asset" unless, at the time the acquisition is made,
Qualifying Assets comprise at least 70% of the company's total assets by value.
The principal categories of Qualifying Assets that are relevant to the Trust's
activities are:
(A) Securities issued by "eligible portfolio companies" that are
purchased by the Trust from the issuer in a transaction not involving any public
offering (i.e., private placements of securities). An "eligible portfolio
company" (1) must be organized under the laws of the United States or a state
and have its principal place of business in the United States; (2) may not be an
investment company other than a small business investment company licensed by
the Small Business Administration and wholly-owned by the Trust and (3) may not
have issued any class of securities that may be used to obtain margin credit
from a broker or dealer in securities. The last requirement essentially excludes
all issuers that have securities listed on an exchange or quoted on the National
Association of Securities Dealers, Inc.'s national market system, along with
other companies designated by the Federal Reserve Board. The Olinda and
Stillwater Projects are Qualifying Assets under this provision.
(B) Securities received in exchange for or distributed on or with
respect to securities described in paragraph (A) above, or on the exercise of
options, warrants or rights relating to those securities.
(C) Cash, cash items, U.S. Government securities or high quality debt
securities maturing not more than one year after the date of investment.
A business development company must make available "significant
managerial assistance" to the issuers of Qualifying Assets described in
paragraphs (A) and (B) above, which may include without limitation arrangements
by which the business development company (through its directors, officers or
employees) offers to provide (and, if accepted, provides) significant guidance
and counsel concerning the issuer's management, operation or business objectives
and policies.
A business development company also must be organized under the laws of
the United States or a state, have its principal place of business in the United
States and have as its purpose the making of investments in Qualifying Assets
described in paragraph (A) above.
The Managing Shareholder believes that it may no longer be necessary
for the Trust to continue its status as a business development company, because
of the Managing Shareholder's active involvement in operating Projects through
the Trust and other investment programs. Although the Managing Shareholder
believes it would be beneficial to the Trust to end the election and reduce
costs of legal compliance that do not contribute to income, the process of
withdrawing the business development company election requires a proxy
solicitation and a special vote of investors, which is also costly. Accordingly,
the Managing Shareholder does not intend at this time to request the Investors'
consent to withdrawing the business development company election. Any change in
the Trust's status will be effected only with the Investors' consent.
As required by the business development company election, the Trust's
Shares are currently registered under the 1934 Act, which requires the Trust to
make periodic reports to the Securities and Exchange Commission, to comply with
proxy solicitation and insider trading restrictions and to take other actions
required of most publicly traded companies. The Trust currently has 218
Investors of record, which is less than the minimum number (300) that would
require the Trust to maintain registration if the Trust were not a business
development company. Because the Trust is not currently withdrawing its business
development company election, it will continue to be required to be registered
and report under the 1934 Act.
(iv) Potential Legislation and Regulation.
All federal, state and local laws and regulations, including but not
limited to PURPA, the Holding Company Act, the 1992 Energy Act and the FPA, are
subject to amendment or repeal. Future legislation and regulation is uncertain,
and could have material effects on the Trust.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
The Trust has invested in Projects located in California, New York and
Virginia and has no foreign operations.
(e) Employees.
The employees of the Olinda Project are employed by RPM, the Trust is
administered by the Managing Shareholder and accordingly the Trust has no
employees. The persons described below at Item 10 -- Directors and Executive
Officers of the Registrant serve as executive officers of the Trust and have the
duties and powers usually applicable to similar officers of a Delaware
corporation in carrying out the Trust business.
Item 2. Properties.
Pursuant to the Management Agreement between the Trust and the Managing
Shareholder (described at Item 10(c) -- Directors and Executive Officers --
Management Agreement), the Managing Shareholder provides the Trust with office
space at the Managing Shareholder's principal office at The Ridgewood Commons,
947 Linwood Avenue, Ridgewood, New Jersey 07450.
The following table shows the material properties (relating to Projects)
owned or leased by the Trust's subsidiaries or partnerships in which the Trust
has an interest. All of the Projects are described in further detail at Item
1(c)(2).
Power Est.Amount Approximate
Contract of Land Square
Project Location Land Expiration (acreage) Footage
Olinda Olinda, Leased 2004 2 6,000
CA
Still- Stillwater, Leased 2029 .75 N/A
water- NY and
Licensed
Item 3. Legal Proceedings.
From time to time, the Trust and its subsidiaries are engaged in legal
proceedings incident to the normal course of their businesses which primarily
involve claims for damages, or other immaterial actions.
Item 4. Submission of Matters to a Vote of Security Holders.
The Trust did not submit any matters to a vote of the Investors during
the fourth quarter of 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information.
The Trust has 105.5 Investor Shares of beneficial interest in the Trust
resulting from the merger with the Partnership, which was effective on June 15,
1994. As of the date of this Form 10-K, all such Investor Shares have been
issued and are outstanding. There are no outstanding options or warrants to
purchase or securities convertible into Investor Shares and the Trust has no
intention to make any public offering of its Investor Shares.
Investor Shares are restricted as to transferability under the
Declaration. In addition, under federal laws regulating securities the Investor
Shares have restrictions on transferability when they are held by persons in a
control relationship with the Trust. Investors wishing to transfer Shares should
also consider the applicability of state securities laws. The Investor Shares
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), or under any other similar law of any state (except for certain
registrations that do not permit free resale) in reliance upon what the Trust
believes to be exemptions from the registration requirements contained therein.
Because the Investor Shares have not been registered, they are "restricted
securities" as defined in Rule 144 under the 1933 Act.
The Managing Shareholder is considering the possibility of a
combination of the Trust and Power II through V, the Growth Fund and the Egypt
Fund into a publicly traded entity. This would require the approval of the
Investors in the Trust and the other programs after proxy solicitations,
complying with requirements of the Securities and Exchange Commission, and a
change in the federal income tax status of the Trust from a partnership (which
is not subject to tax) to a corporation. The process of considering and
effecting a combination, if the decision is made to do so, will be very lengthy.
There is no assurance that the Managing Shareholder will recommend a
combination, that the Investors of the Trust or other programs will approve it,
that economic conditions or the business results of the participants will be
favorable for a combination, that the combination will be effected or that the
economic results of a combination, if effected, will be favorable to the
Investors of the Trust or other programs.
(b) Holders.
As of the date of this Form 10-K, there are 223 holders of record of
Investor Shares.
(c) Dividends.
The Trust made distributions as follows for the years 1999 and 2000:
Year ended Year ended
December 31, December 31,
2000 1999
Total distributions to Investors $1,477,793 $1,297,654
Distributions per Investor Share 14,008 12,300
Total distributions to
Managing Shareholder 14,927 13,108
The Trust's ability to make future distributions to the Investors and their
timing will depend on the net cash flow of the Trust and retention of reasonable
reserves as determined by the Trust to cover its anticipated expenses.
The Trust's cash flow derives primarily from distributions from
Projects. Those distributions are from cash flow of the Projects, which includes
income of Projects plus funds representing depreciation and amortization charges
taken by the Projects. A substantial portion of many distributions by the Trust
will include cash flow derived from depreciation and amortization charges
against assets at the Project level. Nevertheless, because the Projects are not
consolidated with the Trust for accounting purposes, all funds received from
Projects are considered to be revenue to the Trust for accounting purposes.
Distributions may also include cash released from operating reserves. Investors
should be aware that the Trust is organized to return net cash flow rather than
accounting income to Investors. Prior to January 2001, the Trust had made
regular quarterly or monthly distributions. Effective January 1, 2001, the Trust
ceased making distributions pending (i) the resolution of SCE's financial
difficulties, (ii) the possible expansion of the Olinda Project, (iii) and the
possible combination of the Trust with the six affiliated investment programs,
as described above.
Item 6. Selected Financial Data (all amounts in $).
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
Selected Financial Data
As of and for the year ended December 31,
2000 1999 1998 1997 1996
Total Fund Information:
Net project revenues 2,172,195 1,850,230 2,049,728 1,851,763 606,863
Net income (loss) 2,065,970 1,333,461 1,963,215 1,316,797 496,802
Net assets (share-
holders' equity) 8,228,752 7,655,502 7,632,803 6,993,143 6,604,641
Investments in power
generation limited
partnerships 6,630,024 6,583,781 6,560,616 6,515,771 7,177,875
Total assets 8,356,360 7,766,845 7,710,882 7,668,271 7,505,197
Per Investor Share
Project revenues 20,589 17,537 19,429 17,552 5,752
Expenses 1,852 5,559 1,390 5,917 1,069
Net income (loss) 19,583 12,639 18,609 12,481 4,709
Net asset value 77,998 72,564 72,349 66,286 62,832
Distributions
Per share 13,723 12,300 12,420 8,711 7,588
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Introduction
The following discussion and analysis should be read in conjunction with the
Trust's financial statements and the notes thereto presented below. Dollar
amounts in this discussion are generally rounded to the nearest $1,000.
Revenue is recorded by the Trust as cash distributions are declared by the
Projects. Trust revenues may fluctuate from period to period depending on the
operating cash flow generated by the Projects and the amount of cash retained to
fund capital expenditures.
Outlook
The U.S. electricity markets are being restructured and there is a trend away
from regulated electricity systems towards deregulated, competitive market
structures. The States that the Trust's Projects operate in have passed or are
considering new legislation that would permit utility customers to choose their
electricity supplier in a competitive electricity market. The Olinda and
Stillwater Projects are "Qualified Facilities" as defined under the Public
Utility Regulatory Policies Act of 1978 and currently sell their electric output
to utilities under long-term contracts expiring in 2004 and 2029, respectively.
During the term of the contracts, the utilities may or may not attempt to buy
out the contracts prior to expiration. At the end of the contracts, the Projects
will become merchant plants and may be able to sell the electric output at then
current market prices. There can be no assurance that future market prices will
be sufficient to allow the Trust's Projects to operate profitably.
All available cash flow from the Stillwater Project is being used to meet debt
service requirements. Distributions to the Trust will resume after repayment of
bonds and partner loan obligations. Assuming normal water flows and no
operational failures, the bonds and partner loans should be repaid in or after
2010.
Additional trends affecting the independent power industry generally are
described at Item 1 - Business.
Results of Operations
The year ended December 31, 2000 compared to the year ended December 31, 1999.
Total revenue increased by 17.8% from $1,920,000 in 1999 to $2,261,000 in 2000,
primarily due to a 13.4% increase in income from the Olinda Project due to lower
maintenance costs. In addition, the income from the two mobile power modules
acquired in August 1999 increased from $59,000 in 1999 to $141,000 in 2000.
Total expenses decreased by $392,000 (66.8%) from $587,000 in 1999 to $195,000
in 2000. The primary cause of the decrease was the absence of a writedown in
1999 of the Trust's note receivable from the sale of the South Boston Project.
All other 1999 Trust expenses were comparable to those of 2000.
The year ended December 31, 1999 compared to the year ended December 31, 1998.
Total revenue decreased 9.0% to $1,920,000 from $2,110,000 in 1998, primarily
due to a 12.6% decrease in income from the Olinda Project to $1,791,000 from
$2,050,000 in 1998. The decrease in income from the Olinda Project was a result
of higher maintenance costs and was partially offset by $59,000 of income from
the two mobile power modules acquired in August 1999.
Total expenses increased by $440,000 (299.3%) to $587,000 from $147,000 in 1998.
The primary cause of the increase was the 1999 writedown of the Trust's note
receivable from the sale of the South Boston Project. All other 1999 Trust
expenses were comparable to those of 1998.
Liquidity and Capital Resources
In 2000 and 1999, the Trust's operating activities generated $2,061,000 and
$1,315,0000 of cash, respectively. The lower level of cash from operations in
1999 reflects lower earnings from the Olinda plant and the purchase of the two
Caterpillar engines in August 1999.
Cash used in financing activities in 2000 and 1999 of $1,493,000 and $1,311,000,
respectively, was consistent and represented distributions to shareholders. The
Trust ceased making distributions to shareholders in the first quarter of 2001.
Obligations of the Trust are generally limited to payment of Project operating
expenses, payment of a management fee to the Managing Shareholder, payments for
certain accounting and legal services to third persons and distributions to
shareholders. Accordingly, the Trust has not found it necessary to retain a
material amount of working capital.
The Trust anticipates that during 2001 its cash flow from operations will be
sufficient to meet its obligations, notwithstanding that, as explained in
Section 1(c)(2), the Olinda Project is not currently being paid by SCE and has
not been paid for energy and capacity delivered to SCE for the months November
2000, December 2000, January 2001 and February 2001.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Qualitative Information About Market Risk.
The Trust's investments in financial instruments are short-term investments of
working capital or excess cash. Those short-term investments are limited by its
Declaration of Trust to investments in United States government and agency
securities or to obligations of banks having at least $5 billion in assets.
Because the Trust invests only in short-term instruments for cash management,
its exposure to interest rate changes is low. The Trust has limited exposure to
trade accounts receivable and believes that their carrying amounts approximate
fair value.
The Trust's primary market risk exposure is limited interest rate risk caused
by fluctuations in short-term interest rates. The Trust does not anticipate any
changes in its primary market risk exposure or how it intends to manage it. The
Trust does not trade in market risk sensitive instruments.
Quantitative Information About Market Risk
This table provides information about the Trust's financial instruments that
are defined by the Securities and Exchange Commission as market risk sensitive
instruments. These include only short-term U.S. government and agency securities
and bank obligations. The table includes principal cash flows and related
weighted average interest rates by contractual maturity dates.
December 31, 2000
Expected Maturity Date
2001
(U.S. $)
Bank Deposits and Certificates of Deposit $ 1,711,000
Average interest rate 5.6%
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Report of Independent Accountants F-2
Balance Sheet at December 31, 2000 and 1999 F-3
Statement of Operations for the three years ended
December 31, 2000 F-4
Statement of Changes in Shareholders' Equity
for the three years ended December 31, 2000 F-5
Statement of Cash Flows for the three years
ended December 31, 2000 F-6
Notes to Financial Statements F-7 to F-10
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
The financial statements are presented in accordance with generally
accepted accounting principles and Securities and Exchange Commission positions
applicable to business investment companies, which require the Trust's
investments in Projects to be presented on the cash method, rather than on the
equity method.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Neither the Trust nor the Managing Shareholder has had an independent
accountant resign or decline to continue providing services since their
respective inceptions and neither has dismissed an independent accountant during
that period. During that period of time no new independent accountant has been
engaged by the Trust or the Managing Shareholder, and the Managing Shareholder's
current accountants, PricewaterhouseCoopers LLP, have been engaged by the Trust.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholder of the Trust, Ridgewood Power LLC has direct
and exclusive discretion in management and control of the affairs of the Trust
(subject to the general supervision and review of the Independent Trustees and
the Managing Shareholder acting together as the Board of the Trust). The
Managing Shareholder will be entitled to resign as Managing Shareholder of the
Trust only (i) with cause (which cause does not include the fact or
determination that continued service would be unprofitable to the Managing
Shareholder) or (ii) without cause with the consent of a majority in interest of
the Investors. It may be removed from its capacity as Managing Shareholder as
provided in the Declaration.
Ridgewood Holding, which was incorporated in April 1992, is the
Corporate Trustee of the Trust.
(b) Managing Shareholder.
Ridgewood Power Corporation was incorporated in February 1991 as a
Delaware corporation for the primary purpose of acting as a managing shareholder
of business trusts and as a managing general partner of limited partnerships
which are organized to participate in the development, construction and
ownership of Independent Power Projects. It organized the Trust and acted as
managing shareholder until April 1999. On or about April 21, 1999 it was merged
into the current Managing Shareholder, Ridgewood Power LLC. Ridgewood Power LLC
was organized in early April 1999 and has no business other than acting as the
successor to Ridgewood Power Corporation. Robert E. Swanson has been the
President, sole director and sole stockholder of Ridgewood Power Corporation
since its inception in February 1991 and is now the controlling member, sole
manager and President of the Managing Shareholder. All of the equity in the
Managing Shareholder is or will be owned by Mr. Swanson or by family trusts. Mr.
Swanson has the power on behalf of those trusts to vote or dispose of the
membership equity interests owned by them.
The Managing Shareholder has also organized Power II, Power III, Power
IV, Power V, The Growth Fund, and the Egypt Fund as Delaware business trusts.
Ridgewood Power LLC is now also their managing shareholder. The business
objectives of these trusts are similar to those of the Trust.
A number of other companies are affiliates of Mr. Swanson and the
Managing Shareholder. Each of these also was organized as a corporation that was
wholly-owned by Mr. Swanson. In April 1999, most of them were merged into
limited liability companies with similar names and Mr. Swanson became the sole
manager and controlling owner of each limited liability company. For
convenience, the remainder of this Memorandum will discuss each limited
liability company and its corporate predecessor as a single entity.
The Managing Shareholder is an affiliate of Ridgewood Energy
Corporation ("Ridgewood Energy"), which has organized and operated 48 limited
partnership funds and one business trust (of which 25 have terminated) and which
had total capital contributions in excess of $190 million. The programs operated
by Ridgewood Energy have invested in oil and natural gas drilling and completion
and other related activities. Other affiliates of the Managing Shareholder
include Ridgewood Securities, an NASD member which has been the placement agent
for the private placement offerings of the seven trusts sponsored by the
Managing Shareholder and the funds sponsored by Ridgewood Capital, which assists
in offerings made by the Managing Shareholder and which is the sponsor of
privately offered venture capital funds; and RPM. Each of these companies is
controlled by Robert E. Swanson, who is their sole director or manager.
Set forth below is certain information concerning Mr. Swanson and other
executive officers of the Managing Shareholder.
Robert E. Swanson, age 54, has also served as President of the Trust
since its inception in 1991 and as President of RPM, Power II, Power III, Power
IV, Power V, the Growth Fund and the Egypt Fund, since their respective
inceptions. Mr. Swanson has been President and registered principal of Ridgewood
Securities and became the Chairman of the Board of Ridgewood Capital on its
organization in 1998. He also is Chairman of the Board of the Ridgewood Capital
Venture Partners I, II and III venture capital funds. In addition, he has been
President and sole stockholder of Ridgewood Energy since its inception in
October 1982. Prior to forming Ridgewood Energy in 1982, Mr. Swanson was a tax
partner at the former New York and Los Angeles law firm of Fulop & Hardee and an
officer in the Trust and Investment Division of Morgan Guaranty Trust Company.
His specialty is in personal tax and financial planning, including income,
estate and gift tax. Mr. Swanson is a member of the New York State and New
Jersey bars, the Association of the Bar of the City of New York and the New York
State Bar Association. He is a graduate of Amherst College and Fordham
University Law School.
Robert L. Gold, age 42, has served as Executive Vice President of the
Managing Shareholder, RPM, the Trust, Power II, Power III, Power IV, Power V,
the Growth Fund, and the Egypt Fund since their respective inceptions, with
primary responsibility for marketing and acquisitions. He has been President of
Ridgewood Capital since its organization in 1998. As such, he is President of
the Ridgewood Capital Venture Partners I and II funds. He has served as Vice
President and General Counsel of Ridgewood Securities Corporation since he
joined the firm in December 1987. Mr. Gold has also served as Executive Vice
President of Ridgewood Energy since October 1990. He served as Vice President of
Ridgewood Energy from December 1987 through September 1990. For the two years
prior to joining Ridgewood Energy and Ridgewood Securities, Mr. Gold was a
corporate attorney in the law firm of Cleary, Gottlieb, Steen & Hamilton in New
York City where his experience included mortgage finance, mergers and
acquisitions, public offerings, tender offers, and other business legal matters.
Mr. Gold is a member of the New York State bar. He is a graduate of Colgate
University and New York University School of Law.
Martin V. Quinn, age 53, has been the Executive Vice President and
Chief Operating Officer of Ridgewood Power since April 2000. Before that, he had
assumed the duties of Chief Financial Officer of Ridgewood Power in November
1996 under a consulting arrangement. In April 1997, he became a Senior Vice
President and Chief Financial Officer of Ridgewood Power.
Mr. Quinn has over 30 years of experience in financial management and
corporate mergers and acquisitions, gained with major, publicly traded companies
and an international accounting firm. He formerly served as Vice President of
Finance and Chief Financial Officer of NORSTAR Energy, an energy services
company, from February 1994 until June 1996. From 1991 to March 1993, Mr. Quinn
was employed by Brown-Forman Corporation, a diversified consumer products
company and distiller, where he was Vice President-Corporate Development. From
1981 to 1991, Mr. Quinn held various officer-level positions with NERCO, Inc., a
mining and natural resource company, including Vice President- Controller and
Chief Accounting Officer for his last six years and Vice President-Corporate
Development. Mr. Quinn's professional qualifications include his certified
public accountant qualification in New York State, membership in the American
Institute of Certified Public Accountants, six years of experience with the
international accounting firm of PricewaterhouseCoopers,LLP and a Bachelor of
Science degree in Accounting and Finance from the University of Scranton (1969).
Daniel V. Gulino, age 40, has been Senior Vice President and General
Counsel of the Managing Shareholder since August 2000. He began his legal career
as an associate for Pitney, Hardin, Kipp & Szuch, a large New Jersey law firm,
where his experience included corporate acquisitions and transactions. Prior to
joining Ridgewood, Mr. Gulino was in-house counsel for several large electric
utilities, including GPU, Inc., Constellation Power Source, and PPL Resources,
Inc., where he specialized in non-utility generation projects, independent power
and power marketing transactions. Mr. Gulino also has experience with the
electric and natural gas purchasing of industrial organizations, having worked
as in-house counsel for Alumax, Inc. (now part of Alcoa) where he was
responsible for, among other things, Alumax's electric and natural gas
purchasing program. Mr. Gulino is a member of the New Jersey State Bar and
Pennsylvania State Bar. He is a graduate of Fairleigh Dickinson University and
Rutgers University School of Law - Newark.
Christopher I. Naunton, 36, has been the Vice President and Chief
Financial Officer of the Managing Shareholder since April 2000. From February
1998 to April 2000, he was Vice President of Finance of an affiliate of the
Managing Shareholder. Prior to that time, he was a senior manager at the
predecessor accounting firm of PricewaterhouseCoopers LLP. Mr. Naunton's
professional qualifications include his certified public accountant
qualification in Pennsylvania, membership in the American Institute of Certified
Public Accountants and a Bachelor of Science degree in Business Administration
from Bucknell University (1986).
Mary Lou Olin, age 48, has served as Vice President of the Managing
Shareholder, RPM, Ridgewood Capital, the Trust, Power II, Power III, Power IV,
Power V, the Growth Fund, and Egypt Fund since their respective inceptions. She
has also served as Vice President of Ridgewood Energy since October 1984, when
she joined the firm. Her primary areas of responsibility are investor relations,
communications and administration. Prior to her employment at Ridgewood Energy,
Ms. Olin was a Regional Administrator at McGraw-Hill Training Systems where she
was employed for two years. Prior to that, she was employed by RCA Corporation.
Ms. Olin has a Bachelor of Arts degree from Queens College.
(c) Management Agreement.
The Trust has entered into a Management Agreement with the Managing
Shareholder, detailing how the Managing Shareholder will render management,
administrative and investment advisory services to the Trust. Specifically, the
Managing Shareholder will perform (or arrange for the performance of) the
management and administrative services required for the operation of the Trust.
Among other services, it will administer the accounts and handle relations with
the Investors provide the Trust with office space, equipment and facilities and
other services necessary for its operation and conduct the Trust's relations
with custodians, depositories, accountants, attorneys, brokers and dealers,
corporate fiduciaries, insurers, banks and others, as required.
The Managing Shareholder will also be responsible for making investment
and divestment decisions, subject to the provisions of the Declaration. The
Managing Shareholder will be obligated to pay the compensation of the personnel
and administrative and service expenses necessary to perform the foregoing
obligations. The Trust will pay all other expenses of the Trust, including
transaction expenses, valuation costs, expenses of preparing and printing
periodic reports for Investors and the Commission, postage for Trust mailings,
Commission fees, interest, taxes, legal, accounting and consulting fees,
litigation expenses and other expenses properly payable by the Trust. The Trust
will reimburse the Managing Shareholder for all such Trust expenses paid by it.
As compensation for the Managing Shareholder's performance under the
Management Agreement, the Trust is obligated to pay the Managing Shareholder an
annual management fee described below at Item 13 -- Certain Relationships and
Related Transactions.
The Board of the Trust (including Independent Trustees) have approved
the initial Management Agreement and its renewals. Each Investor consented to
the terms and conditions of the initial Management Agreement by subscribing to
acquire Investor Shares in the Trust. The Management Agreement will remain in
effect year to year thereafter as long as it is approved at least annually by
(i) either the Board of the Trust or a majority in interest of the Investors and
(ii) a majority of the Independent Trustees. The agreement is subject to
termination at any time on 60 days' prior notice by the Board, a majority in
interest of the Investors or the Managing Shareholder. The agreement is subject
to amendment by the parties with the approval of (i) either the Board or a
majority in interest of the Investors and (ii) a majority of the Independent
Trustees.
(d) Executive Officers of the Trust.
Pursuant to the Declaration, the Managing Shareholder has appointed
officers of the Trust to act on behalf of the Trust and sign documents on behalf
of the Trust as authorized by the Managing Shareholder. Mr. Swanson has been
named the President of the Trust and the other principal officers of the Trust
are identical to those of the Managing Shareholder.
The officers have the duties and powers usually applicable to similar
officers of a Delaware business corporation in carrying out Trust business.
Officers act under the supervision and control of the Managing Shareholder,
which is entitled to remove any officer at any time. Unless otherwise specified
by the Managing Shareholder, the President of the Trust has full power to act on
behalf of the Trust. The Managing Shareholder expects that most actions taken in
the name of the Trust will be taken by Mr. Swanson and the other principal
officers in their capacities as officers of the Trust under the direction of the
Managing Shareholder rather than as officers of the Managing Shareholder.
(e) The Trustees.
The 1940 Act requires the Independent Trustees to be individuals who are
not "interested persons" of the Trust as defined under the 1940 Act (generally,
persons who are not affiliated with the Trust or with affiliates of the Trust).
There must always be at least two Independent Trustees; a larger number may be
specified by the Board from time to time. Each Independent Trustee has an
indefinite term. Vacancies in the authorized number of Independent Trustees will
be filled by vote of the remaining Board members so long as there is at least
one Independent Trustee; otherwise, the Managing Shareholder must call a special
meeting of Investors to elect Independent Trustees. Vacancies must be filled
within 90 days. An Independent Trustee may resign effective on the designation
of a successor and may be removed for cause by at least two-thirds of the
remaining Board members or with or without cause by action of the holders of at
least two-thirds of Shares held by Investors. Under the Declaration, the
Independent Trustees are authorized to act only where their consent is required
under the 1940 Act and to exercise a general power to review and oversee the
Managing Shareholder's other actions. They are under a fiduciary duty similar to
that of corporate directors to act in the Trust's best interest and are entitled
to compel action by the Managing Shareholder to carry out that duty, if
necessary, but ordinarily they have no duty to manage or direct the management
of the Trust outside their enumerated responsibilities.
The Independent Trustees of the Trust are John C. Belknap, Dr. Richard D.
Propper and Seymour Robin. Mr. Belknap, Dr. Propper and Mr. Robin also serve as
independent trustees for Ridgewood Power IV and the Growth Fund. Set forth below
is certain information concerning these individuals, who are not otherwise
affiliated with the Trust, the Managing Shareholder or their directors, officers
or agents.
John C. Belknap, age 54, has been chief financial officer of three national
retail chains and their parent companies. Currently, he is a managing director
of Manticore Partners, LLC, a venture advisory and development firm. From July
1997 to August 1999, he was Executive Vice President and Chief Financial Officer
of Richfood Holdings, Inc., a Virginia-based food distributor and retailer. From
December 1995 to June 1997 Mr. Belknap was Executive Vice President and Chief
Financial Officer of OfficeMax, Inc., a national chain of office supply stores.
From February 1994 to February 1995, Mr. Belknap was Executive Vice President
and Chief Financial Officer of Zal Corporation, a 1large and national jewelry
retail chain. From January 1990 to January 1994 and from February 1995 to
December 1995, Mr. Belknap was an independent financial consultant. From January
1989 through May 1993 he also served as a director of and consultant to Finlay
Enterprises, Inc., an operator of leased fine jewelry departments in major
department stores nationwide. Prior to 1989, Mr. Belknap served as Chief
Financial Officer of Seligman & Latz, Kay Corporation and its subsidiary, Kay
Jewelers, Inc.
From 1979 to 1985, Mr. Belknap served as Chief Financial Officer of Kay
Corporation, the parent of Kay Jewelers, Inc. ("KJI"), a national chain of
jewelry stores and leased jewelry departments in major department stores. He
served as Chief Financial Officer of KJI from 1974 to 1979. Mr. Belknap was a
senior auditor at Arthur Young & Company (now Ernst & Young), a national
accounting firm. Mr. Belknap earned BA and MBA degrees from Cornell University.
Dr. Richard D. Propper, age 52, graduated from McGill University in 1969
and received his medical degree from Stanford University in 1972. He completed
his internship and residency in Pediatrics in 1974, and then attended Harvard
University for postdoctoral training in hematology/oncology. Upon the completion
of such training, he joined the staff of the Harvard Medical School where he
served as an assistant professor until 1983. In 1983, Dr. Propper left academic
medicine to found Montgomery Medical Ventures, one of the largest medical
technology venture capital firms in the United States. He served as managing
general partner of Montgomery Medical Ventures until 1993. Dr. Propper is
currently a consultant to a variety of companies for medical matters, including
international opportunities in medicine. In June 1996 Dr. Propper agreed to an
order of the Commission that required him to make filings under Sections 13(d)
and (g) and 16 of the 1934 Act and that imposed a civil penalty of $15,000. In
entering into that agreement, Dr. Propper did not admit or deny any of the
alleged failures to file recited in that order. Dr. Propper is also an
acquisition consultant for Ridgewood Capital Venture Partners, LLC and Ridgewood
Institutional Venture Partners, LLC, the first two venture capital funds
sponsored by Ridgewood Capital. He receives a fixed consulting fee from those
funds and contingent compensation from Ridgewood Capital.
Seymour (Si) Robin, age 73, has been the Executive Vice President and
CEO of Sensor Systems, Inc., an antenna manufacturing company located in
Chatsworth, California. He has held this position since 1972. From 1949 to 1953,
he owned and operated United Manufacturing Company, which specialized in
aircraft and missile antennas. From 1953 to 1957, he managed Bendix Antenna
Division, which specialized in aircraft and space antennas and avionics. In
1957, he started SRA Antenna Company as a manufacturer and technical consultant
to worldwide manufacturers or commercial and military aircraft and space
vehicles. He remained at SRA Antenna Company until 1971, at which time he became
Executive Vice President and CEO of Sensor Systems, Inc.
Mr. Robin holds degrees in mechanical and electrical engineering from
Montreal Technical Institute and U.C.L.A. He is an FAA-certified pilot
(multi-engine, instrument, land and sea ratings) since 1966. He has received the
AMC Airline Voltaire Award for the Most Outstanding Contribution to Airline
Avionics in the Past 50 Years. He also owns significant interests in commercial
and residential real estate in the southwest U.S. Mr. Robin was elected as an
Independent Trustee by the two other Independent Trustees and Mr. Swanson in
January 2000. He also serves as an Independent Trustee of Trust IV and of the
Growth Fund.
The Corporate Trustee of the Trust is Ridgewood Holding. Legal title to
Trust Property will be in the name of the Trust if possible or Ridgewood Holding
as trustee. Ridgewood Holding is also a trustee of Ridgewood Power II - V, the
Growth Fund, and the Egypt Fund and of an oil and gas business trust sponsored
by Ridgewood Energy and is expected to be a trustee of other similar entities
that may be organized by the Managing Shareholder and Ridgewood Energy. The
President and sole stockholder of Ridgewood Holding is Robert E. Swanson; its
other executive officers are identical to those of the Managing Shareholder. See
- -Managing Shareholder. The principal office of Ridgewood Holding is at 1105
North Market Street, Suite 1300, Wilmington, Delaware 19899.
The Trustees are not liable to persons other than shareholders for the
obligations of the Trust.
The Trust has relied and will continue to rely on the Managing
Shareholder and engineering, legal, investment banking and other professional
consultants (as needed) and to monitor and report to the Trust concerning the
operations of Projects in which it invests, to review proposals for additional
development or financing, and to represent the Trust's interests. The Trust will
rely on such persons to review proposals to sell its interests in Projects in
the future.
(f) Section 16(a) Beneficial Ownership Reporting Compliance
All individuals subject to the requirements of Section 16(a) have
complied with those reporting requirements during 1999.
(g) RPM.
As discussed above at Item 1 - Business, RPM assumed day-to-day
management responsibility for the Olinda Project, effective June 1, 1997. Like
the Managing Shareholder, RPM is wholly owned by Robert E. Swanson. It entered
into an "Operation Agreement" with the Trust's subsidiary that owns the Project,
effective June 1, 1997, under which RPM, under the supervision of the Managing
Shareholder, will provide the management, purchasing, engineering, planning and
administrative services for the Olinda Project. RPM will charge the Trust at its
cost for these services and for the Trust's allocable amount of certain overhead
items. RPM shares space and facilities with the Managing Shareholder and its
affiliates. To the extent that common expenses can be reasonably allocated to
RPM, the Managing Shareholder may, but is not required to, charge RPM at cost
for the allocated amounts and such allocated amounts will be borne by the Trust
and other programs. Common expenses that are not so allocated will be borne by
the Managing Shareholder.
Initially, the Managing Shareholder does not anticipate charging RPM
for the full amount of rent, utilities, supplies and office expenses allocable
to RPM. As a result, both initially and on an ongoing basis the Managing
Shareholder believes that RPM's charges for its services to the Trust are likely
to be materially less than its economic costs and the costs of engaging
comparable third persons as managers. RPM will not receive any compensation in
excess of its costs.
Allocations of costs will be made either on the basis of identifiable
direct costs, time records or in proportion to each program's investments in
Projects managed by RPM; and allocations will be made in a manner consistent
with generally accepted accounting principles.
RPM will not provide any services related to the administration of the
Trust, such as investment, accounting, tax, investor communication or regulatory
services, nor will it participate in identifying, acquiring or disposing of
Projects. RPM will not have the power to act in the Trust's name or to bind the
Trust, which will be exercised by the Managing Shareholder or the Trust's
officers.
The Operation Agreement does not have a fixed term and is terminable by
RPM, by the Managing Shareholder or by vote of a majority in interest of
Investors, on 60 days' prior notice. The Operation Agreement may be amended by
agreement of the Managing Shareholder and RPM; however, no amendment that
materially increases the obligations of the Trust or that materially decreases
the obligations of RPM shall become effective until at least 45 days after
notice of the amendment, together with the text thereof, has been given to all
Investors.
The executive officers of RPM are Mr. Swanson (President), Mr. Gold
(Executive Vice President), Mr.Quinn Executive Vice President and Chief
Operating Officer). Mr. Gulino (Senior Vice President and General Counsel); Mr.
Naunton (Vice President and Chief Financial Officer) and Ms. Olin (Vice
President).
Item 11. Executive Compensation.
The Managing Shareholder compensates its officers without additional
payments by the Trust. The Trust will reimburse RPM at cost for services
provided by RPM's employees; no such reimbursement per employee exceeded $60,000
in 2000 and 1999. Information as to the fees payable to the Managing Shareholder
and certain affiliates is contained at Item 13 - Certain Relationships and
Related Transactions.
As compensation for services rendered to the Trust, pursuant to the
Declaration, each Independent Trustee is entitled to be paid by the Trust the
sum of $5,000 annually and to be reimbursed for all reasonable out-of-pocket
expenses relating to attendance at Board meetings or otherwise performing his
duties to the Trust. The Board of the Trust is entitled to review the
compensation payable to the Independent Trustees annually and increase or
decrease it as the Board sees reasonable. The Trust is not entitled to pay the
Independent Trustees compensation for consulting services rendered to the Trust
outside the scope of their duties to the Trust without prior Board approval.
Ridgewood Holding, the Corporate Trustee of the Trust, is not entitled
to compensation for serving in such capacity, but is entitled to be reimbursed
for Trust expenses incurred by it which are properly reimbursable under the
Declaration.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Trust sold 105.5 Investor Shares (approximately $10.5 million of
gross proceeds) of beneficial interest in the Trust pursuant to a private
placement offering under Rule 506 of Regulation D under the Securities Act. The
offering closed on March 31, 1992. Further details concerning the offering are
set forth above at Item 1--Business. No person beneficially owns 5% or more of
the Investor Shares.
Ridgewood Power, the Managing Shareholder of the Trust, purchased for
cash in the offering 1 Investor Share, equal to .9 of 1% of the outstanding
Investor Shares, and Mr. Swanson purchased an additional 2.1 Investor Shares. By
virtue of its purchase of that Investor Share, Ridgewood Power is entitled to
the same ratable interest in the Trust as all other purchasers of Investor
Shares. No other Trustees or executive officers of the Trust acquired Investor
Shares in the Trust's offering.
Ridgewood Power was issued one Management Share in the Trust
representing the beneficial interests and management rights of Ridgewood Power
in its capacity as the Managing Shareholder (excluding its interest in the Trust
attributable to Investor Shares it acquired in the offering). The management
rights of Ridgewood Power are described in further detail above at Item 1 -
Business and in Item 10 - Directors and Executive Officers of the Registrant.
Its beneficial interest in cash distributions of the Trust and its allocable
share of the Trust's net profits and net losses and other items attributable to
the Management Share are described in further detail below at Item 13. Certain
Relationships and Related Transactions.
Item 13. Certain Relationships and Related Transactions.
The Declaration provides that cash flow of the Trust, less reasonable
reserves which the Trust deems necessary to cover anticipated Trust expenses, is
to be distributed to the Investors and the Managing Shareholder (collectively,
the "Shareholders"), from time to time as the Trust deems appropriate. Prior to
Payout (the point at which Investors have received cumulative distributions
equal to the amount of their capital contributions), each year all distributions
from the Trust, other than distributions of the revenues from dispositions of
Trust Property, are to be allocated 99% to the Investors and 1% to the Managing
Shareholder until Investors have received annual distributions equal to 15% of
their Capital Contributions (a "15% Priority Distribution") and thereafter any
remaining distributions will be allocated 80% to the Investors and 20% to the
Managing Shareholder. Revenues from dispositions of Trust Property are to be
distributed 99% to Investors and 1% to the Managing Shareholder until Payout. In
all cases, after Payout, Investors are to be allocated 80% of all distributions
and the Managing Shareholder 20%.
For any fiscal period, the Trust's net profits, if any, other than
those derived from dispositions of Trust Property, are allocated 99% to the
Investors and 1% to the Managing Shareholder until the profits so allocated
offset (1) the aggregate 15% Priority Distribution to all Investors and (2) any
net losses from prior periods that had been allocated to the Shareholders. Any
remaining net profits, other than those derived from dispositions of Trust
Property, are allocated 80% to the Investors and 20% to the Managing
Shareholder. If the Trust realizes net losses for the period, the losses are
allocated 80% to the Investors and 20% to the Managing Shareholder until the
losses so allocated offset any net profits from prior periods allocated to the
Shareholders. Any remaining net losses are allocated 99% to the Investors and 1%
to the Managing Shareholder. Revenues from dispositions of Trust Property are
allocated in the same manner as distributions from such dispositions. Amounts
allocated to the Investors are apportioned among them in proportion to their
capital contributions.
On liquidation of the Trust, the remaining assets of the Trust after
discharge of its obligations, including any loans owed by the Trust to the
Shareholders, will be distributed, first, 99% to the Investors and the remaining
1% to the Managing Shareholder, until Payout, and any remainder will be
distributed to the Shareholders in proportion to their capital accounts.
In 2000 and 1999, the Trust made distributions to the Managing
Shareholder (which is a member of the Board of the Trust) as stated at Item 5 -
Market for Registrant's Common Equity and Related Stockholder Matters. In
addition, the Trust and its subsidiaries paid fees and reimbursements to the
Managing Shareholder and its affiliates as follows:
Paid to 2000 1999 1998 1997 1996
Managing
Shareholder $70,083 $76,331 $69,931 $67,483 $49,255
Cost
reimbursement
RPM $1,090,389 $1,912,474 1,771,554 1,853,994 1,098,910
These included all payroll, fuel and other expenses of operating the
South Boston and Olinda Projects and an allocable portion of RPM overhead. These
costs are paid by the Projects and do not appear in the Trust's financial
statements.
The management fee, payable monthly under the Management Agreement at
the annual rate of 1% of the Trust's net asset value (until June 1994, of the
Trust's total capital contributions), began on the closing of the offering and
compensates the Managing Shareholder for certain management, administrative and
advisory services for the Trust. In addition to the foregoing, the Trust
reimbursed the Managing Shareholder at cost for expenses and fees of
unaffiliated persons engaged by the Managing Shareholder for Trust business and
for payroll and other costs of operation of the Trust's Projects. The
reimbursements to RPM, which do not exceed its actual costs, are described at
Item 10(f) - Directors and Executive Officers of the Registrant -- RPM.
Other information in response to this item is reported in response to
Item 11 -- Executive Compensation, which information is incorporated by
reference into this Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
See the Index to Financial Statements in Item 8 hereof.
(b) Reports on Form 8-K.
No Forms 8-K were filed with the Commission by the Registrant during the
quarter ending December 31, 2000.
(c) Exhibits.
2A. Acquisition Agreement, by and between GSF Energy, L.L.C. and Olinda,
L.L.C., dated as of May 31, 1997. Incorporated by reference to Exhibit 2A in
Registrant's Amendment No. 1 to Current Report on Form 8-K dated June 1, 1997.
2B. Letter, dated as of May 31, 1997, supplementing Acquisition Agreement.
Incorporated by reference to Exhibit 2B in Registrant's Current Report on Form
8-K dated June 1, 1997.
3A. Certificate of Trust of the Registrant is incorporated by reference to
Exhibit 3A of Registrant's Registration Statement which was filed with the
Commission on May 26, 1994.
3B. Declaration of Trust of Registrant is incorporated by reference to
Exhibit 3B of Registrant's Registration Statement which was filed with the
Commission on May 26, 1994.
3C. Agreement of Limited Partnership of Ridgewood Energy Electric
Power,L.P. dated as of March 6, 1991 is incorporated by reference to Exhibit 3C
of Registrant's Registration Statement which was filed with the Commission on
May 26, 1994.
10A. Management Agreement between the Registrant and Ridgewood Power
Corporation is incorporated by reference to Exhibit 10A of Registrant's
Registration Statement which was filed with the Commission on May 26, 1994.
10B. Stillwater Hydro Partners L.P. Amended and Restated Agreement of
Limited Partnership dated as of July 29, 1991 and letter of amendment thereof
dated as of May 16, 1994 is incorporated by reference to Exhibit 10B of
Registrant's Registration Statement which was filed with the Commission on May
26, 1994.
10C. Power Purchase Agreement dated as of September 19, 1989 between
Stillwater Hydro Partners L.P. and Niagara Mohawk Power Corporation and
amendment thereof dated as of August 28, 1990 is incorporated by reference to
Exhibit 10C of Registrant's Registration Statement which was filed with the
Commission on May 26, 1994.
10D. RW Power Partners L.P. Agreement and Restated Agreement of Limited
Partnership dated as of October 1, 1992 among Ridgewood Energy Electric Power,
L.P., Ridgewood Power Corporation and WE GEN, Inc. is incorporated by reference
to Exhibit 10D of Registrant's Registration Statement which was filed with the
Commission on May 26, 1994.
10E. The Registrant has terminated the agreement designated 10E in its
prior Annual Reports on Form 10-K.]
10F. The Registrant has terminated the agreement designated 10F in its
prior Annual Reports on Form 10-K.
10G. Agreement of Limited Partnership of Brea Power Partners, L.P. dated as
of October 12, 1994 by and between Brea Power (I), Inc., GSF Energy Inc. and
Ridgewood Electric Power Trust I is incorporated by reference to Registrant's
Form 8-K filed with the Commission on October 27, 1994.
10H. Agreement, dated as of January 16, 1997, by and between RW Power
Partners, L.P. and Virginia Electric Power Company. Incorporated by reference to
Exhibit 10H in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.
10I. Amendment to Transaction Documents, dated as of May 31, 1997, by and
among GSF Energy, L.L.C., Brea Power Partners, L.P. and Ridgewood Electric Power
Trust I. Incorporated by reference to Exhibit 10I in Registrant's Amendment No.
1 to Current Report on Form 8-K dated June 1, 1997.
10J. Parallel Generation Agreement, by and between Southern California
Edison Company and GSF Energy, Inc. (Brea Power Partners, L.P., assignee), as
amended. Incorporated by reference to Exhibit 10J in Registrant's Amendment No.
1 to Current Report on Form 8-K dated June 1, 1997.
10K. Partial Assignment and Assumption Agreement, dated as of November 29,
1994, by and between GSF Energy, Inc. and Brea Power Partners, L.P. Incorporated
by reference to Exhibit 10K in Registrant's Amendment No. 1 to Current Report on
Form 8-K dated June 1, 1997.
10L. Amended and Restated Gas Lease Agreement, dated as of December 14,
1993, by and between the County of Orange, California and GSF Energy, Inc., as
modified. Incorporated by reference to Exhibit 10L in Registrant's Amendment No.
1 to Current Report on Form 8-K dated June 1, 1997.
10M. Gas Sale and Purchase Agreement, dated November 29, 1994 by and
between GSF Energy, Inc. and Brea Power Partners, L.P. Incorporated by reference
to Exhibit 10M in Registrant's Amendment No. 1 to Current Report on Form 8-K
dated June 1, 1997.
10N. Support Agreement, dated as of November 29, 1994, by and among Brea
Power Partners, L.P., the Trust and GSF Energy, Inc. Incorporated by reference
to Exhibit 10N in Registrant's Amendment No. 1 to Current Report on Form 8-K
dated June 1, 1997.
Exhibits and schedules to these exhibits are omitted, and lists of the omitted
documents are found in their tables of contents. The Registrant agrees to
furnish supplementally a copy of any omitted exhibit or schedule to these
exhibits to the Commission upon request.
21. Subsidiaries of the Registrant. Page
24. Powers of Attorney Page
27. Financial Data Schedule Page
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Signature Title Date
RIDGEWOOD ELECTRIC POWER TRUST I (Registrant)
By: /s/Robert E. Swanson President and Chief March 30, 2001
Robert E. Swanson Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/Robert E. Swanson President and Chief March 30, 2001
Robert E. Swanson Executive Officer
By: /s/Christopher I. Naunton Vice President and March 30, 2001
Christopher I. Naunton Chief Financial Officer
RIDGEWOOD POWER LLC Managing Shareholder
By: /s/Robert E. Swanson President March 30, 2001
Robert E. Swanson
/s/Robert E. Swanson * Independent Trustee March 30, 2001
John C. Belknap
/s/Robert E. Swanson * Independent Trustee March 30, 2001
Dr. Richard D. Propper
/s/Robert E. Swanson * Independent Trustee March 30, 2001
Seymour Robin
* As attorney-in-fact for the Independent Trustee
Ridgewood Electric Power Trust I
Financial Statements
December 31, 2000, 1999 and 1998
Report of Independent Accountants
To the Shareholders and Trustees of
Ridgewood Electric Power Trust I:
In our opinion, the accompanying balance sheets and the statements of
operations, changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Ridgewood Electric Power Trust
I (the "Trust") at December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As explained in Note 2, the financial statements include investments valued at
$6,630,024 and $6,583,781 (81% and 86% of shareholders' equity, respectively) as
of December 31, 2000 and 1999, respectively, whose values have been estimated by
management in the absence of readily ascertainable market values. We have
reviewed the procedures used by management in arriving at their estimate of
value and have inspected underlying documentation, and, in the circumstances, we
believe the procedures are reasonable and the documentation appropriate.
However, because of the inherent uncertainty of valuation, those estimated
values may differ significantly from the values that would have been used had a
ready market for those investments existed, and the differences could be
material to the financial statements.
PricewaterhouseCoopers LLP
New York, NY
March 23, 2001
Ridgewood Electric Power Trust I
Balance Sheet
- --------------------------------------------------------------------------------
December 31,
--------------------------
2000 1999
---------- -----------
Assets:
Investments in power generation projects .... $ 6,630,024 $ 6,583,781
Cash and cash equivalents ................... 1,710,744 1,142,009
Other assets ................................ 15,592 41,055
----------- -----------
Total assets ............................. $ 8,356,360 $ 7,766,845
----------- -----------
Liabilities and Shareholders' Equity:
Liabilities:
Accounts payable and accrued expenses ....... $ 52,772 $ 61,116
Due to affiliates ........................... 74,836 50,227
----------- -----------
Total liabilities ........................ 127,608 111,343
----------- -----------
Commitments and contingencies
Shareholders' equity:
Shareholders' equity (105.5 shares issued and
outstanding) ............................. 8,236,623 7,669,106
Managing shareholder's accumulated deficit .. (7,871) (13,604)
----------- -----------
Total shareholders' equity ............... 8,228,752 7,655,502
----------- -----------
Total liabilities and shareholders' equity $ 8,356,360 $ 7,766,845
----------- -----------
See accompanying notes to financial statements.
Ridgewood Electric Power Trust I
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Revenue:
Income from power
generation projects ........ $2,172,195 $1,850,230 $2,049,728
Interest income ............. 89,163 69,746 60,153
---------- ---------- ----------
Total revenue ............. 2,261,358 1,919,976 2,109,881
---------- ---------- ----------
Expenses:
Accounting and legal fees ... 84,547 43,141 41,176
Management fee .............. 70,083 76,331 69,931
Writedown of power generation
projects ................... -- 422,019 --
Miscellaneous ............... 40,758 45,024 35,559
---------- ---------- ----------
Total expenses ............ 195,388 586,515 146,666
---------- ---------- ----------
Net income ................ $2,065,970 $1,333,461 $1,963,215
---------- ---------- ----------
See accompanying notes to financial statements.
Ridgewood Electric Power Trust I
Statement of Changes in Shareholders' Equity
For the Years Ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
Managing
Shareholders Shareholder Total
----------- ----------- -----------
Shareholders' equity,
January 1, 1998 ...... $ 7,013,370 $ (20,227) $ 6,993,143
Cash distributions .... (1,310,319) (13,236) (1,323,555)
Net income for the year 1,943,583 19,632 1,963,215
----------- ----------- -----------
Shareholders' equity,
December 31, 1998 .... 7,646,634 (13,831) 7,632,803
Cash distributions .... (1,297,654) (13,108) (1,310,762)
Net income for the year 1,320,126 13,335 1,333,461
----------- ----------- -----------
Shareholders' equity,
December 31, 1999 .... 7,669,106 (13,604) 7,655,502
Cash distributions .... (1,477,793) (14,927) (1,492,720)
Net income for the year 2,045,310 20,660 2,065,970
----------- ----------- -----------
Shareholders' equity,
December 31, 2000 .... $ 8,236,623 $ (7,871) $ 8,228,752
----------- ----------- -----------
See accompanying notes to financial statements.
Ridgewood Electric Power Trust I
Statement of Cash Flows
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Cash flows from operating
activities:
Net income ....................... $ 2,065,970 $ 1,333,461 $ 1,963,215
----------- ----------- -----------
Adjustments to reconcile net
income to net cash flows from
operating activities:
Writedown of power generation
projects ........................ -- 422,019 --
Investments in power generation
projects ........................ (46,243) (445,184) (4,129)
Changes in assets and liabilities:
Decrease (increase) in due
from affiliates ................. -- 5,342 (5,342)
Increase in notes receivable
from the Lynchburg Project ...... -- -- (40,716)
Decrease (increase) in
other assets .................... 25,463 (34,233) 103,110
(Decrease) increase in
accounts payable
and accrued expenses ............ (8,344) 31,707 (645,719)
Increase in due to affiliates .... 24,609 1,557 48,670
----------- ----------- -----------
Total adjustments ................ (4,515) (18,792) (544,126)
----------- ----------- -----------
Net cash provided by
operating activities ............ 2,061,455 1,314,669 1,419,089
----------- ----------- -----------
Cash flows from financing
activities:
Cash distributions to
shareholders .................... (1,492,720) (1,310,762) (1,323,555)
----------- ----------- -----------
Net cash used in financing
activities ...................... (1,492,720) (1,310,762) (1,323,555)
----------- ----------- -----------
Net increase in cash
and cash equivalents ............ 568,735 3,907 95,534
----------- ----------- -----------
Cash and cash equivalents,
beginning of year ............... 1,142,009 1,138,102 1,042,568
----------- ----------- -----------
Cash and cash equivalents,
end of year ..................... $ 1,710,744 $ 1,142,009 $ 1,138,102
----------- ----------- -----------
See accompanying notes to financial statements.
Ridgewood Electric Power Trust I
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Purpose
Ridgewood Energy Electric Power, L.P. (the "Partnership") was formed as a
Delaware limited partnership on March 6, 1991, by Ridgewood Power LLC
(formerly Ridgewood Power Corporation) acting as the general partner. On
June 15, 1994, with the approval of the partners, the Partnership merged
all of its assets and liabilities into a newly formed trust, called
Ridgewood Electric Power Trust I (the "Trust"). Effective July 25, 1994,
the Trust elected to be treated as a "Business Development Company" ("BDC")
under the Investment Company Act of 1940 and registered its shares under
the Securities Act of 1934. In connection with this transaction, the Trust
issued 105.5 shares in exchange for outstanding Partnership units.
Ridgewood Power LLC is the sole managing shareholder.
The Trust invests in independent power generation facilities and other
power generation assets. These independent power generation facilities
include small power production facilities which produce electricity from
landfill gas and water.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the
estimates.
Investments in power generation projects
The Trust holds investments in power generation projects which are stated
at fair value. Due to the illiquid nature of the investments, the fair
values of the investments are assumed to equal cost, unless currently
available information provides a basis for adjusting the carrying value of
the investments.
Revenue recognition
Income from investments is recorded when distributions are declared.
Interest income is recorded as earned.
Cash and cash equivalents
The Trust considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents.
Income taxes
No provision is made for income taxes in the accompanying financial
statements as the income or losses of the Trust are passed through and
included in the tax returns of the individual shareholders of the Trusts.
3. Investments in Power Generation Projects
The Trust had the following investments in power generation projects:
Fair values as of December 31,
----------------------------------
2000 1999
---------------- ---------------
Brea Power Partners, L.P. $ 5,319,783 $ 5,273,540
Ridgewood Mobile Power I, LLC 710,241 710,241
Stillwater Hydro Partners, L.P. 600,000 600,000
---------------- ---------------
$ 6,630,024 $ 6,583,781
---------------- ---------------
The Trust's distribution income from the projects was as follows:
For the Year Ended December 31,
------------------------------------
2000 1999 1998
---------- ---------- ----------
Brea Power Partners, L.P. ... $2,031,489 $1,791,167 $2,049,728
Ridgewood Mobile Power I, LLC 140,706 59,063 --
---------- ---------- ----------
$2,172,195 $1,850,230 $2,049,728
---------- ---------- ----------
Brea Power Partners, L.P. (known as the Olinda project)
In October 1994, the Trust invested in a limited partnership ("Brea
Partnership"), which acquired a 5 megawatt gas-fired electric generating
facility and related landfill gas processing facility. At December 31, 2000
and 1999, The Trust's total investment in Brea was $5,319,783 and
$5,273,540, respectively. The Trust received distributions from Brea of
$2,031,489, $1,791,167 and $2,049,728 during the years ended December 31,
2000, 1999 and 1998, respectively, which have been recorded as income.
Ridgewood Mobile Power I, LLC
Effective August 1999, the Trust, through a subsidiary, acquired two
Caterpillar mobile power modules with a total capacity of 2.35 megawatts
for $710,241. These modules are rented to domestic and international
customers. The Trust pays Hawthorne Power Systems, a California company
that maintains a large fleet of similar rental modules, a fee of 20% of
gross rental revenues to arrange and administer the rental of the units.
For the year ended December 31, 2000 and 1999, the Trust recorded net
revenues from the units of $140,706 and $59,063, respectively.
RW Power Partners, L.P. (known as the Lynchburg project)
In October 1992, the Trust acquired a limited partnership interest in RW
Power Partners, L.P. ("RWPP") which provided construction funding of a 3
megawatt project using waste oil as its primary fuel source located in
South Boston, Virginia. Commercial operations began in June 1993.
On January 17, 1997, the Trust settled a pending lawsuit between RWPP, and
Virginia Electric Power Company ("VEPCO"). As a result of the operating
restrictions and cancellation of the power purchase contract included in
the VEPCO settlement, the operation of the Lynchburg Project facilities was
suspended in January 1997.
During the fourth quarter of 1997, the Trust sold the Lynchburg Project to
a privately-held, unaffiliated processor of waste oil for $700,000 in the
form of an 8%, seven-year, promissory note, secured by a mortgage on the
Project, and the right of the Trust to receive 2% of the Project's gross
revenues for an indefinite period. Due to the uncertainty surrounding the
Trust's ability to collect the note receivable, the fair value of the
Trust's investment was not adjusted from $290,983 during the first quarter
of 1997. From 1997 to 1999, the Trust provided loans totaling $125,000 to
finance additional capital improvements at the Project, secured by the
mortgage, which were included in the investment balance.
In 1999, the privately held unaffiliated processor ceased operations at the
Lynchburg Project. Operations are not expected to resume and the Trust is
not expected to recover its investment. As a result, in 1999, the Trust
wrote down its investment in the Project to its estimated fair value of
zero and recorded a loss of $422,019.
Stillwater Hydro Partners, L.P.
On October 31, 1991, the Trust acquired a 32.5% general partner's interest
in a limited partnership whose sole business is the construction, ownership
and operation of a 3.5 megawatt hydroelectric facility, located on the
Hudson River in Stillwater, New York (the "Stillwater Project"). At the
time of the investment, the project was under construction and commenced
operations in May 1993. Electricity generated by the Stillwater Project is
sold to Niagara Mohawk Power Corporation under a long-term Power Contract
that expires in 2028.
On May 16, 1994, the Trust, as stipulated in the limited partnership
agreement, elected to exchange its general partner interest for a limited
partnership interest and a priority distribution of available cash flow
from the project in the aggregate amount of $1,000,000. Such distribution
is payable from available cash flows in nine annual installments together
with interest at 12% per year, which were scheduled to begin in May 1995.
The ultimate ability of the project to meet its payment obligations to the
Trust is dependent on the actual operating performance of the Stillwater
Project, which, in turn, is largely dependent upon water levels in the
Hudson River. Since 1995, water levels in the Hudson River basin have
frequently been below normal. As a result of the low water levels, the
operating results of the project were insufficient to meet its debt
payments, and accordingly, no distributions were made to the Trust since
1994.
As a result, all available cash flow from the Stillwater Project is being
applied to meet debt service requirements. Until the current arrears in
debt servicing are paid, it appears likely that most, if not all, of the
payments due to the Trust will be carried forward, with interest, into
subsequent years.
At December 31, 2000 and 1999, the Trust's total investment in the
Stillwater Project was $600,000.
4. Transactions With Managing Shareholder and Affiliates
On June 15, 1994, the Trust entered into a management agreement with the
managing shareholder, under which the managing shareholder renders certain
management, administrative and advisory services and provides office space
and other facilities to the Trust. As compensation to the managing
shareholder, the Trust pays the managing shareholder an annual management
fee equal to 1% of the net assets of the Trust payable monthly. During
2000, 1999 and 1998, the Trust paid management fees to the managing
shareholder of $70,083, $76,331 and $69,931, respectively.
Under the Declaration of Trust, the managing shareholder is entitled to
receive each year 1% of all distributions made by the Trust (other than
those derived from the disposition of Trust property) until the
shareholders have been distributed a cumulative amount equal to 15% per
annum of their equity contribution. Thereafter, the managing shareholder is
entitled to receive 20% of the distributions for the remainder of the year.
The managing shareholder is entitled to receive 1% of the proceeds from
dispositions of Trust properties until the shareholders have received
cumulative distributions equal to their original investment ("Payout").
After Payout, the managing shareholder is entitled to receive 20% of all
remaining distributions of the Trust.
The managing shareholder and affiliates own, in the aggregate, 3.0 shares
of the Trust with a cost of $273,000.
Under an Operating Agreement with the Trust, Ridgewood Power Management LLC
("Ridgewood Management", formerly Ridgewood Power Management Corporation),
an entity related to the managing shareholder through common ownership,
provides management, purchasing, engineering, planning and administrative
services to the Olinda Project. Ridgewood Management charges the project at
its cost for these services and for the allocable amount of certain
overhead items. Allocations of costs are on the basis of identifiable
direct costs or in proportion to amounts invested in projects managed by
Ridgewood Management. During the year ended December 31, 2000, 1999 and
1998, Ridgewood Management charged the Olinda Project $118,169, $163,480
and $128,257, respectively, for overhead items allocated in proportion to
the amount invested in projects managed. Ridgewood Management also charged
the Olinda Project for all of the direct operating and non-operating
expenses incurred during the period.
5. Subsequent Event - Southern California Edison Company Financial Crisis
All energy generated by the Olinda project is sold to Southern California
Edison Company ("SCE") under a power contract. Currently, and as a result
of the deregulation of the California energy market, SCE has allegedly
suffered billions of dollars in losses during the later part of 2000 and to
date in 2001. On January 16, 2001, SCE sent the Olinda project a letter
informing them that it was temporarily suspending payments to the Olinda
project. SCE has not paid the Olinda project for energy and capacity
delivered to SCE for the months of November and December, 2000, January and
February 2001 and SCE has written in public documents that it will be
unable to pay the Olinda project, as well as other suppliers and creditors,
for the foreseeable future.
As a result of SCE's failure to pay, the Olinda project, on January 16,
2001, wrote to GSF Energy, the gas supplier to the Olinda project, and
informed it that the Olinda project was scheduling major maintenance and
thus output would be reduced while certain of the machines are off-line for
such maintenance. On January 18, 2001, DQE Financial responded on behalf of
GSF Energy to the Olinda project and asserted that the timing of such major
maintenance was an attempt by Olinda project to escape the minimum purchase
obligations of the Gas Sale and Purchase Agreement ("Gas Agreement") and it
retained all of its rights and remedies under the Gas Agreement. The Trust
believes that the Gas Agreement permits the Olinda project to schedule and
take the major maintenance but recognizes that GSF Energy disagrees with
that position. In addition, due to SCE's failure to pay the Olinda project,
it has not paid GSF Energy for the landfill gas supplied during the above
mentioned months and will not pay for such gas until SCE pays the Olinda
project. Therefore, unless payment is made or assurances of payment are
provided by SCE, GSF Energy could commence legal proceedings against the
Olinda project seeking damages for outstanding payments for gas delivered
and breach of contract. GSF Energy has not commenced any such proceedings.
In addition, the Trust has claims against SCE for breach of the Olinda
project's power contract and is currently reviewing its alternatives and
legal remedies, but has not at this time commenced proceedings against SCE.
However, on March 8, 2001, the managing shareholder, filed with the Federal
Energy Regulatory Commission ("FERC") a "Request For Emergency Relief and
Extension of Waiver of Qualifying Facility Regulations" in which the
managing shareholder seeks an order from FERC permitting Qualifying
Facilities to sell to third parties. If such order were issued by FERC, the
Olinda project would be able to sell its power, even if on a temporary
basis, to third party purchasers.
In an effort to resolve the California crisis, there have been numerous
proposals by the California Public Utilities Commission, as well as the
legislature, to adjust downward the prices paid by California utilities to
Qualifying Facilities. The Trust expects that any regulatory proceeding to
set an energy price applicable to Qualifying Facilities will be extremely
protracted and that a legislative solution, if one were to be enacted and
approved by the governor, is likely to be arbitrary and significantly below
the avoided cost of the energy to SCE. Current proposed legislation in
California regarding non gas-fired Qualifying Facilities under contract
with SCE, such as the Olinda project, is proposing an energy price of
approximately 7.9 cents for approximately a term of 5 years, to June 30,
2006. If such legislation were to be enacted and withstand legal challenge,
it would effective lower the price paid by SCE to Olinda for the 5-year
term. In addition, the legislation would require that SCE pay Qualifying
Facilities for all outstanding amounts owed. This proposed legislation is
but one of many solutions that must be enacted as a "global" solution to
the California crisis. The Trust believes that such proposed legislation,
as currently written, will fail to address the problem in that, among other
problems, it fails to address the issue of acceptable and necessary
creditworthiness of the utilities. In any event, the Trust cannot predict
whether this legislation, or any legislative or regulatory proposals, will
be enacted or adopted and, if so, provide any relief to the electricity
crises or assure that the Olinda project will ever be paid by SCE for the
energy and capacity delivered to SCE.
Until the Olinda project can restart profitably, it will remain shut down,
it will incur payroll and shutdown costs and it will not earn revenue. For
the reasons described above, the Trust cannot estimate when it will restart
the Olinda project or what its short-term and long-term prospects may be.
At this time, the Trust does not believe that a long-term impairment of the
Olinda project's value has occurred.
EXHIBIT 24 -- POWERS OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, John Belknap,
appoints Robert E. Swanson and Martin V. Quinn, and each of them, as his true
and lawful attorneys-in-fact with full power to act and do all things necessary,
advisable or appropriate, in their discretion, to execute on his behalf as an
Independent Trustee of Ridgewood Electric Power Trust I and of Ridgewood
Electric Power Trust IV, the Annual Reports on Form 10-K for the year ended
December 31, 2000 for each of the above-named trusts, and all amendments or
documents relating thereto.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 24th day of March, 2001, at Carlsbad, California.
/s/John Belknap
John Belknap
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, Seymour Robin,
appoints Robert E. Swanson and Martin V. Quinn, and each of them, as his true
and lawful attorneys-in-fact with full power to act and do all things necessary,
advisable or appropriate, in their discretion, to execute on his behalf as an
Independent Trustee of Ridgewood Electric Power Trust I and of Ridgewood
Electric Power Trust IV, the Annual Reports on Form 10-K for the year ended
December 31, 2000 for each of the above-named trusts, and all amendments or
documents relating thereto.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 24th day of March, 2001, at Carlsbad, California.
/s/Seymour Robin
Seymour Robin