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, 1997
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 Corporation, 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.[ ]
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 21, 1998 was $10,550,000.
Exhibit index is at page 45.
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
climate and are found, among other places, at Items 1(c)(2)(iv),
1(c)(3), 1(c)(4), 1(c)(6)(ii) and 7. 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 of fuel 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) - Developments affecting Power Contracts.
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 of 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 218 holders of record
of Investor Shares.
The Trust is organized similarly to a limited partnership.
Ridgewood Power Corporation (the "Managing Shareholder"), a
Delaware corporation, is the Managing Shareholder of the Trust.
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.
(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
that generate electricity for sale to utilities and other users.
The Trust owns the Olinda Project, a five megawatt capacity
electric generating plant fueled by methane gas from a local
landfill in Brea, Orange County, California. 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. In 1997, the Trust sold its South
Boston Project (previously designated as the "Lynchburg
Project"), a three megawatt capacity electric generating plant at
South Boston, Virginia that burns waste fuel oil prepared in part
by an on-site waste oil processing facility. It retained the
right to 2% of the gross revenues, if any, earned by that Project
in the future.
These Projects are Qualifying Facilities, which are
generally exempt from federal and state regulations which apply
to investor-owned electric utilities. As described below, under
current law, utilities are required to purchase electricity
generated by Qualifying Facilities under terms generally
favorable to the Qualifying Facilities. This essentially means
that the Projects are not subject to competition for the lives of
their current long-term power contracts with the electric utility
purchasers ("Power Contracts"). 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.
Historically, producers of electric power in the United
States consisted of regulated utilities and of 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"), requires utilities to purchase electric
power from "Qualifying Facilities" (as defined in PURPA),
including "cogeneration facilities" and "small power producers,"
and also exempts these Qualifying Facilities from most utility
regulatory requirements. Under PURPA, Projects that are
Qualifying Facilities are generally not subject to federal
regulation, including the Public Utility Holding Company Act of
1935, as amended, and state regulation. Furthermore, PURPA
generally requires electric utilities to purchase electricity
produced by Qualifying Facilities at 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).
The utility is not required to enter into a long-term Power
Contract and can buy the output from Qualifying Facilities on a
short-term basis at varying rates set by state regulators. In
the past, many utilities chose to enter into long-term Power
Contracts with rates set by contract formula. In many cases,
those contract formula rates are today much higher than
competitive rates. The Olinda and Stillwater Projects have
existing long-term Power Contracts with rates significantly above
current competitive rates. As described below, the long-term
Power Contract for the South Boston Project was cancelled in
exchange for a settlement payment.
The electricity produced by each Project is sold to the
local electric utility company under Power Contracts, or is used
in part on site to power equipment.
As discussed below, the Trust is a "business development
company" under the Investment Company Act of 1940. In accounting
for its Projects, it 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 cash
distributions are included, as revenue, when received.
Accordingly, the recognition of revenue from Projects by the
Trust is dependent upon the timing 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 a 5
megawatt landfill gas-fired electric generating plant known as
Olinda and located in Brea, California (the "Olinda Project"). A
landfill gas plant takes methane and other burnable gases created
by the decomposing of garbage in a landfill and uses them as
fuel, converting them to carbon dioxide, water and some residual
waste. Otherwise, those gases would escape to the atmosphere.
Among other problems, 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. The limited partnership interest was
entitled to 98% of all profits and losses of the Partnership and
of all distributions of cash flow up to a scheduled amount per
year ($342,000 for 1997); thereafter, it was entitled to 25% of
any excess cash available for distribution in that year. When
cumulative distributions to the Trust in respect of the limited
partnership interest, discounted to present value at 1.17% per
month, reached $3.1 million (which was expected to occur no later
than 2004), the Trust's annual interest in profits and losses
would be reduced to 5%.
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. DQE is a holding company
for Duquesne Light Company of Pittsburgh, Pennsylvania. 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 $2,814,000,
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. The total
original cost to the Trust of the entire equity interest in the
Project and additional investments is therefore $6,600,000, prior
to the returns of investment capital of $800,000.
Neither GSF Energy, LLC 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. The source of the
Trust's funds was cash reserves derived from the previously
reported settlement of litigation with Virginia Electric Power
Company relating to the South Boston Project, described below.
All electricity generated by the Project over and above its
own requirements is sold to Southern California Edison Company
under a long-term power purchase contract which may be terminated
by the purchaser no earlier than the end of 2004 on five years'
advance notice. The contract price is the greater of 5.8 cents
per kilowatt-hour or 85% of the utility's avoided cost.
Currently, avoided cost is computed under a formula prescribed by
the California Public Utility Commission consisting of a fixed
payment for the plant's capacity and a payment per unit of energy
delivered that is tied to the cost of natural gas, the fuel used
at the plant. The capacity payments vary seasonally and are
significantly higher during the summer peak season.
California is implementing a competitive power market
beginning on April 1, 1998 in which generators will eventually
auction capacity and energy output that is not committed for sale
under long-term contracts. It is expected that eventually the
California Public Utilities Commission will change the payment
formula for many long-term contracts (including the Olinda
Project's) to use the auction prices for capacity and energy
output. This would have effects on the Project's revenues that
are not predictable at this time but that might result in a
reduction in the prices paid by Southern California Edison
Company for off-peak periods.
The Project is liable to Southern California Edison Company
for liquidated damages of up to $3.8 million if it does not meet
defined performance and availability standards. Under current
conditions, the Trust does not believe that there will be any
material liability for failure to meet these requirements.
The Trust's purchase includes only the electric power
generating station located at the landfill. Ecogas Corporation
("Ecogas"), which is the corporate successor to GSF Energy, LLC
and which is an affiliate of DQE Corporation, has retained
ownership of the landfill gas collection system and the
processing units located outside the Project building and will
continue to supply the Project with landfill gas fuel under an
amended gas purchase and supply agreement. Under that agreement,
Ecogas will sell gas to the Project at a price of approximately
$.70 per million British Thermal Units of heat equivalent
(escalating at 3.7% per year) plus an additional fixed payment,
effective as of January 1, 1997, of $12,500 annually (escalated
at 3.7% per year). If the gas supplied is insufficient to
operate the generators at assumed levels, the Partnership may
take action to remedy the deficiency. Further, in that instance
Ecogas would be liable to the Partnership 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 Energy, Inc.
Congress has created a $3 per barrel of oil equivalent mcf
tax credit as an incentive for burning landfill gas (with
numerous exceptions and phase-outs). 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. The
profitability of the gas collection system to Ecogas and thus
possibly the supply of landfill gas to the Olinda Project is
dependent upon whether the credit continues and whether Ecogas
meets the credit's requirements. To date, the Project has not
incurred material detriment from a lack of performance by Ecogas.
An affiliate of DQE operated the Project under an operations
and maintenance agreement. For the first five months of 1997,
the base fees paid were $1,375,000 and incentive payments
totalled an additional $85,000. The operations and maintenance
agreement has been terminated and Ridgewood Power Management
Corporation, an affiliate of the Trust's Managing Shareholder,
operates the Project. It will be reimbursed by the Partnership
for its actual costs incurred and allocable overhead expenses but
will not otherwise be compensated.
Distributions from the Olinda Project to the Trust in 1997
totalled $1,720,000. Of that amount, $342,000 was attributable
to the limited partnership interest purchased by the Trust in
1995. See Item 7 - Management's Discussion and Analysis of
Results of Operation for a comparison with 1996 distributions.
Until June 1, 1997, substantially all of the Trust's rights to
distributions from its limited partnership interest in the Olinda
Project would terminate at the end of 2004. Therefore, until
June 1, 1997 the Trust treated distributions in respect of that
limited partnership interest in excess of the 15% annual return
target as returns of capital. Beginning June 1, 1997, the Trust
beneficially owns the entire interest in the Project, and all
distributions are being treated as revenues to the Trust.
(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 projections furnished by SHP to
CIT and the Trust indicated sufficient annual cash flow to permit
SHP to meet its payment obligations to CIT and 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 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 that CIT is entitled to. The Project's
revenues are dependent upon water levels in the Hudson River,
which have fluctuated significantly in the last four 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, 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 has reviewed the value of the
Stillwater Project 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
recorded an investment writedown of $400,000.
Electricity generated by the Stillwater Project is sold to
Niagara Mohawk Power Corporation under a long-term Power Contract
with a remaining term of 30 years. Although Niagara Mohawk has
entered into a settlement with a number of independent power
producers to buy out their Power Contracts, it has not made an
offer to SHP.
(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" or "Lynchburg 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. As of
December 31, 1997, the Trust had received approximately
$4,385,000 in distributions from the South Boston Project, which
includes $3.4 million of proceeds from the sale of the Power
Contract described below.
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. After negotiations with VEPCO to rescind the notice
proved unsuccessful, the Trust sued VEPCO in the Federal District
Court for the Eastern District of Virginia to compel VEPCO to
continue to honor the terms of the Power Contract. On September
15, 1995, the judge hearing the case entered an order in favor of
the Trust compelling VEPCO to continue to honor the terms of the
Power Contract. VEPCO appealed the judge's decision but made
payments under the Power Contract.
On January 17, 1997, the Trust and VEPCO settled the lawsuit
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 net proceeds from the settlement (after deduction of
shutdown and other costs for the Project) and the return of
security for a letter of credit were approximately $3.4 million,
substantially all of which was used to purchase the remaining
equity interest in the Olinda Project.
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 Fund also agreed to finance up to $125,000 of
improvements to the Project to enhance its ability to process
waste oil.
Additional information regarding the Projects is found in
the Notes to the Financial Statements.
(iv) Terminated Activities. The Trust also was a partner
in two project development and acquisition partnerships that were
unsuccessful in consummating any transactions. The Trust
terminated participation in both in late 1994 and wrote off a
total of $815,000 at that time.
(3) Project Operation
The success of a 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 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 major costs of a 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 Corporation ("RPMC") to provide operating management
for facilities operated by its investment programs, and has
assigned day-to-day management of the Olinda Project to RPMC.
Like the Managing Shareholder, RPMC is wholly owned by Robert E.
Swanson. It entered into an "Operation Agreement," effective
June 1, 1996, under which RPMC provides all management,
purchasing, engineering, planning and administrative services for
the Olinda Project. These services are charged to the Project at
RPMC's cost. See Item 10 - Directors and Executive Officers of
the Registrant and Item 13 - Certain Relationships and Related
Transactions for further information regarding the Operation
Agreement and RPMC and for the cost reimbursements received by
RPMC.
The Stillwater Project is managed by its remaining equity
partners and the Trust has no management responsibility for the
Project.
Electricity produced by a 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.
The technology involved in conventional power plant
construction and operations as well as electric and heat energy
transfers and sales is widely known throughout the world. There
are usually a variety of vendors seeking to supply the necessary
equipment for any Project. So far as the Trust is aware, there
are no limitations or restrictions on the availability of any of
the components which would be necessary to complete construction
and commence operations of either Project. Generally, working
capital requirements are not a significant item for the Trust.
See Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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. The
Trust is currently updating air, water and storm water discharge
permits for the Olinda Project and preparing a Title V
application under the Clean Air Act Amendments of 1990. 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) Developments Affecting Power Contracts.
The Trust is somewhat insulated from recent deregulatory
trends in the electric industry because the Olinda Project
andStillwater Projects are Qualifying Facilities with long-term
formula-price Power Contracts. Those Power Contracts now provide
for rates in excess of current short-term rates for purchased
power. There has been much speculation that in the course of
deregulating the electric power industry, federal or state
regulators or utilities would attempt to invalidate these power
purchase contracts as a means of throwing some of the costs of
deregulation on the owners of independent power plants.
To date, the Federal Energy Regulatory Commission and each
state regulator that has addressed the issue have ruled that
existing Power Contracts will not be affected by their
deregulation initiatives. The regulators have so far rejected
the requests of a few utilities to invalidate existing Power
Contracts. Instead, most state plans for deregulation of the
electric power industry treat the value of long-term Power
Contracts that are above current and anticipated market prices as
"stranded costs" of the utilities. The utilities are to be
allowed to recover those costs during a transition period. This
is typically done by imposing a transition fee or surcharge on
rates that is paid to the utility. This alternative, which is
being implemented in California, may reduce incentives to
invalidate the Olinda Project's Power Contract. In some states,
utilities are being encouraged or ordered to issue bonds or other
financial instruments to retire stranded cost assets or
contracts, supported by transition charges.
No action has yet been taken by federal or state legislators
to date to impair Independent Power Projects' existing power
sales contracts, and there are federal constitutional provisions
restricting actions to impair existing contracts. There can not
be any assurance, however, that the rapid changes occurring in
the industry and the economy as a whole would not cause
regulators or legislative bodies to attempt to change the
regulatory structure in ways harmful to Independent Power
Projects or to attempt to impair existing contracts. In
particular, some regulatory agencies have urged utilities to
construe Power Contracts strictly and to police Independent Power
Projects compliance with those Power Contracts vigorously.
Predicting the consequences of any legislative or regulatory
action is inherently speculative and the effects of any action
proposed or effected in the future may harm or help the Fund.
Because of the consistent position of the regulatory authorities
to date and the other factors discussed here, the Trust believes
that so long as the Projects perform their obligations under the
Power Contracts, it will be entitled to the benefits of those
contracts.
In recent years, many electric utilities have attempted to
exploit all possible means of terminating Power Contracts with
independent power projects, including requests to regulatory
agencies and alleging violations of even immaterial terms of the
Power Contracts as justification for terminating those contracts.
If such an attempt were to be made, the Trust might face material
costs in contesting those utility actions. As described above,
this occurred at the Trust's former South Boston Project.
Substantially all of the cost of litigation was voluntarily paid
by the Managing Shareholder, but the Managing Shareholder has not
agreed to pay litigation or dispute costs for any future dispute.
Other utilities have from time to time made offers to
purchase and terminate Power Contracts for lump sums. As
discussed above, Niagara Mohawk Power Corporation has done so for
some other Qualifying Facilities. No such offer has been
suggested or made to the Trust for either the Olinda or
Stillwater Project Power Contracts, although the Trust would
entertain such an offer.
Finally, the Power Contracts are subject to modification or
rejection in the event that the utility purchaser enters
bankruptcy. There can be no assurance that the utility
purchasers will stay out of bankruptcy.
After the Power Contracts expire (in 2004 for Olinda and
2028 for Stillwater) or terminate 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 agreements 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 significant competition to market its
capacity and energy output in the newly developing competitive
market in California and would face material cost pressures. 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.
(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. Recent federal legislation has eliminated the
maximum size requirement for solar, wind, waste and geothermal
small power production facilities (but not for hydroelectric or
biomass) for a fixed period of time.
In addition, PURPA requires electric utilities to purchase
electricity generated by Qualifying Facilities at a price equal
to the purchasing utility's full "avoided cost" and to sell back-
up power to Qualifying Facilities on a non-discriminatory basis.
Avoided costs are defined by PURPA as the "incremental costs to
the electric utility of electric energy or capacity or both
which, but for the purchase from the Qualifying Facility or
Qualifying Facilities, such utility would generate itself or
purchase from another source." While public utilities are not
required by PURPA to enter into long-term Power Contracts to meet
their obligations to purchase from Qualifying Facilities, PURPA
helped to create a regulatory environment in which it was more
common for such contracts to be negotiated until recent years.
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 (which are
generally substantially below the Power Contract rates) 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. The Trust's Projects will not be
directly affected by the 1992 Energy Act unless they were to
attempt to sell electricity to another customer rather than under
the Power Contracts. The Trust does not anticipate that that
would happen.
(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.
(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 extensive modifications to
existing Projects.
The Clean Air Act Amendments of 1990 contain provisions
which regulate the amount of sulfur dioxide and oxides of
nitrogen which may be emitted by the Olinda Project. The
Stillwater Project, which is a hydroelectric plant, does not burn
fuel. These emissions may be a cause of "acid rain." The Olinda
Project, which is fueled by landfill gas, does emit some sulfur
dioxide and nitrogen oxides, but to the extent its fuel is
methane, it is not expected to be materially burdened by the acid
rain provisions of the Clean Air Act Amendments.
In any case, Qualifying Facilities are currently exempt from
the acid rain control program of the Clean Air Act Amendments.
Non-Qualifying Facility Projects will require "allowances" to
emit sulfur dioxide after the year 2000. Under the Amendments,
these allowances may be purchased from utility companies then
entitled to emit sulfur dioxide or from the Environmental
Protection Agency ("EPA"). Further, an Independent Power Project
subject to the requirements has a priority over utilities in
obtaining allowances directly from the EPA if (a) it is a new
facility or unit used to generate electricity; (b) 80% or more of
its output is sold at wholesale; (c) it does not generate
electricity sold to affiliates (as determined under the Holding
Company Act) of the owner or operator (unless the affiliate
cannot provide allowances in certain cases) and (d) it is non-
recourse project-financed. The market price of an allowance
cannot be predicted with certainty at this time and there is no
assurance that a broad market for those allowances will develop
or continue, although efforts have been made by certain
commodities exchanges to create a market.
Title IV of the Clean Air Act Amendments requires
significant reductions in nitrogen oxide emissions from power
plants. The first set of standards became applicable in 1996 for
large-scale steam boilers and large coal and oil-fired plants.
The standards require reductions of 25% to 50% in nitrogen oxide
emissions. Standards for other large generating plants become
effective in 2000 and would require 40% to 50% reductions. States
are imposing additional restrictions. Nitrogen oxide emissions
can be particularly difficult or expensive to reduce because
nitrogen oxides are produced at higher operating temperatures,
while plant efficiencies tend to increase with operating
temperatures. Although engines of the size used at the Olinda
Project are currently not subject to the new Title IV
requirements, the Trust anticipates that eventually additional
nitrogen oxide regulations may be applied to the Olinda Project.
Those might materially increase the operating costs of generating
plants.
In July 1997 the Environmental Protection Agency adopted
more stringent standards for levels of ozone and small
particulate matter (particles less than 25 microns in diameter)
in geographic areas. These new standards may cause the area in
which the Olinda Project is located to be classified as a non-
attainment area. If so, California might be required to impose
additional requirements for industries to reduce emissions of
ozone-forming pollutants (in particular, nitrogen oxides) if its
existing requirements are inadequate. It is uncertain whether or
how any reductions would be applied to small facilities such as
the Olinda Project. If reductions were required, the Trust might
have to make significant capital investments to install new
control technology or might have to reduce operations. Nitrogen
oxide reductions can be difficult to achieve with add-on
equipment and often require decreases in operating efficiency,
both of which could cause material cost to the Trust. It is not
possible at this time to estimate whether or not any potential
regulatory changes would materially affect the Trust.
Title V of the Clean Air Act Amendments requires states to
create a new, ongoing licensing system for existing sources of
air emissions. The Trust is currently preparing an application
under Title V for the Olinda Project. The Title V requirements
are not currently materially different from the Project's
existing limitations but the process of preparing the application
is time-consuming and extremely technical.
The Clean Air Act Amendments empower states to impose annual
operating permit fees of at least $25 per ton of regulated
pollutants emitted up to $100,000 per pollutant.
To date, no state in which the Trust operates has done so. If a
state were to do so, such fees might have a material effect on
the Trust's costs of generation, in light of the relatively small
size of the Trust's facilities as opposed to large utility
generation plants that might benefit from the cap on fees.
The Trust's Projects must comply with many federal and state
laws and regulations governing wastewater and stormwater
discharges from the Projects. These are generally enforced by
states under "NPDES" permits for point sources of discharges and
by stormwater permits. The Olinda Project is currently revising
its stormwater discharge permit application but does not
anticipate material adverse action. 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.
In 1998, the Trust's Projects will become subject to 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 will 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.
Based on current trends, the Managing Shareholder expects
that environmental and land use regulation will become more
stringent. The Trust and the Managing Shareholder have developed
limited expertise and experience in obtaining necessary licenses,
permits and approvals. The Trust will 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. The Trust has no
intention to and will not permit the creation of any form of a
trading market in the Shares in connection with this
registration.
On May 26, 1994, the Trust notified the Securities and
Exchange Commission (the "Commission") of its election to be a
"business development company" and registered its Shares under
the 1934 Act. On June 25, 1994, the election and registration
became effective. 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 two individuals,
John C. Belknap and Dr. Richard D. Propper, who also serve as
independent trustees of Ridgewood Electric Power Trust IV, a
business development company 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 of the Registrant 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 RPMC,
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).
Approximate
Square
Ownership Ground Approximate Footage of Description
Interests Lease Acreage Project (Actual of
Project Location in Land Expiration of Land or Projected) Project
Olinda Olinda, Leased 2004 2 6,000 Landfill
California gas-fired
generating
facility
Still- Stillwater, Leased 2029 .75 N/A Hydro-
water New York and electric
Licensed plant
Item 3. Legal Proceedings.
The litigation between the Trust's subsidiary and VEPCO with
respect to the South Boston Project's long-term Power Contract,
and the January 1997 settlement of that litigation, are described
at Item 1(c)(2)(iii) -Business - Narrative Description of
Business - South Boston Project.
In December 1993, a subsidiary of the Trust engaged
Blackhawk Management Group, Incorporated, a North Carolina
corporation ("Blackhawk") whose sole owner and employee was the
original developer of the South Boston Project, to manage that
Project under contract. On June 9, 1994, the subsidiary
terminated the management contract for material breach and
inequitable conduct by Blackhawk, which then sued in the Circuit
Court of Halifax County, Virginia one year later on June 8, 1995.
The action claimed breach of contract by the Trust's subsidiary
and claimed compensatory damages of $3 million and punitive
damages of $1 million. The subsidiary removed the action to the
United States District Court for the Western District of
Virginia, Danville Division. In July 1997, the court granted
summary judgment to the Trust's subsidiary on all counts. The
decision was not appealed and is final.
From time to time, the Trust and its subsidiaries are
engaged in ordinary 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 1997.
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. There is currently no
established public trading market for the Investor Shares and the
Trust does not intend to allow a public trading market to
develop. 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 and are not expected to be
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 four subsequent investment programs
sponsored by the Managing Shareholder (Ridgewood Electric Power
Trusts II through V) 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, compliance with the
"rollup" rules of the Securities and Exchange Commission and
other regulations, 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 218 record
holders of Investor Shares.
(c) Dividends.
The Trust made distributions as follows for the years 1996
and 1997:
Year ended Year ended
December 31, December 31,
1997 1996
Total distributions to Investors $919,012 $800,512
Distributions per Investor Share 8,711 7,588
Total distributions to
Managing Shareholder 9,283 8,086
While the Trust expects to make monthly distributions, 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.
Subject to the other factors described in this Annual Report
on Form 10-K, the Trust's goal is to provide Investors with
annual distributions of net cash flow, as defined in the
Declaration of Trust, of 15% of their Capital Contributions to
the Trust. The Trust's cash flow comes 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. Nevertheless, because the Projects are not
consolidated with the Trust for accounting purposes, all funds
received from Projects after June 1, 1997 are considered to be
revenue to the Trust for accounting purposes. Distributions may
also include cash released from operating or debt service
reserves, or for periods before June 1, 1997 at the Olinda
Project, amounts treated as a return of investment capital.
Investors should be aware that the Trust is organized to return
net cash flow rather than accounting income to Investors.
Item 6. Selected Financial Data.
The following data is qualified in its entirety by the
financial statements presented elsewhere in this Annual Report on
Form 10-K.
Selected As of and As of and As of and As of and As of and
Financial for the year for the year for the year for the year for the year
Data ended ended ended ended ended
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1994 1993
Total Fund Information:
Net operating revenues $ 1,851,763 $609,537 $552,769 $1,014,963 $100,227
Net income (loss) 1,316,797 496,802 $ 418,417 ($46,821) ($367,179)
Net assets (share-
holders' equity) 6,993,143 6,604,641 $6,916,437 $7,352,807 $8,143,360
Investments in power
generation limited
partnerships 6,730,334 7,177,875 $7,207,846 $7,159,755 $4,643,752
Total assets $7,882,834 $7,505,197 $7,531,306 $7,469,945 $8,184,663
Per Investor Share
Revenues $18,398 $5,778 $5,240 $9,621 $941
Expenses 5,917 1,069 $1,273 $(10,064) $(4,386)
Net income (loss) 12,481 4,709 $3,966 $(443) $(3,446)
Net asset value 66,286 $62,832 $65,559 $69,695 $77,188
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 elsewhere herein. The Trust's
financial statements are prepared under generally accepted
accounting principles applicable to business development
companies. Accordingly, the Trust carries its investment in the
Projects it owns at fair value and does not consolidate its
financial statements with the financial statements of the
Projects. 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. Dollar amounts in this discussion are generally
rounded to the nearest $1,000.
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.
It is difficult to predict future revenues from the
Stillwater Project; however, it is unlikely that distributions to
the Trust will resume from the Project in 1998.
Additional trends affecting the independent power industry
generally are described at Item 1 - Business.
Results of Operations
Year ended December 31, 1997 compared to year ended December
31, 1996
The 1997 investment activity of the Trust resulted from RW
Power Partners, L.P.'s ("RWPP") receipt of $3,750,000 in cash for
the settlement of the litigation with Virginia Electric Power
Company ("VEPCO") involving the South Boston Project (described
at Part I - Item 3 - Legal Proceedings), the related shutdown of
the Project at the beginning of 1997 and the sale of the Project
at the end of 1997. The VEPCO settlement proceeds were used to
repay $391,000 of RWPP's intercompany payables and $3,237,000 was
distributed to the Trust. An additional $154,000 was distributed
to the Trust upon the return to RWPP of a deposit securing a
letter of credit and other revenues of RWPP. The Trust used a
substantial portion of the RWPP distribution to acquire
additional partnership interests in Brea Power Partners, L.P.
("Brea"), which owns the Olinda Project, a landfill gas-fueled
electric generating station, located in Orange County,
California. As a result of the acquisition, the Trust owns 100%
of Brea and is the operator of the Olinda Project.
Total revenue increased 218.2% to $1,941,000 in 1997 from
$610,000 in 1996, primarily due to a 331.1% increase in income
from the Olinda Project of $1,720,000 in 1997 from $399,000 in
1996. On June 1, 1997, the Trust increased its investment in the
Olinda Project from a 15% cumulative priority return on its
original investment of $3,103,000 to 100% ownership. The
investment was increased prior to the peak earnings period of
June through September when the Project generates approximately
45% of its annual cash flow from operations. The increase in
revenue from the Olinda Project was partially offset by a
decrease in revenue from the South Boston Project to $132,000 in
1997 as compared to $208,000 in 1996. Although the Trust
received distributions of $3,391,000 in 1997, primarily as a
result of the VEPCO settlement, $3,237,000 was recorded as a
reduction in the Trust's investment in South Boston.
The South Boston Project assets were sold in December 1997
for $782,000, which was received in the form of an 8%, seven year
promissory note, secured by the Project's assets. The sales
price was $491,000 in excess of the South Boston net book value
of $291,000. Due to uncertainty surrounding the collectability
of the note, no income will be recorded by the Trust until the
promissory note payments are collected and distributed to the
Trust. Interest and dividend income increased to $89,000 in 1997
as compared to $3,000 in 1996. The increase resulted from
investment interest on higher balances of cash and cash
equivalents in 1997 as compared to 1996.
Total expenses increased by $511,000 (452.2%) to $624,000 in
1997 from $113,000 in 1996. In the fourth quarter of 1997, the
Trust wrote down its $1,000,000 investment in the Stillwater
Project by $400,000 to its net realizable value of $600,000.
Project cash flows from operating activities at Stillwater have
been applied to service project debt which is senior to the
amount due to the Trust. Accounting and legal fees increased
$88,000 (183.3%) to $136,000 in 1997 from $48,000 in 1996 due to
legal fees relating to the VEPCO settlement. Management fee
expense increased $18,000 (36.7%) to $67,000 in 1997 from $49,000
in 1996 due to the Managing Shareholder's decision not to waive
any management fees in 1997. All other 1997 Trust expenses were
comparable to those of 1996.
Year ended December 31, 1996 compared to year ended December
31, 1995
Net income for 1996 was $497,000, a $78,000 (18.9%) increase from
the 1995 level. The improvement was caused primarily by a
$45,000 increase in distributions from the South Boston Project
and the waiver by the Managing Shareholder of a portion of its
management fees in 1996.
Total revenue for 1996 increased by $57,000 (10.3%), reflecting
increased distributions from the South Boston Project as demands
on cash flow for the construction and start-up of the waste oil
plant ended. Revenue from the Olinda Project decreased by
$20,000, reflecting the decline in the investment base used to
calculate the Trust's 15% preferred return from the Olinda
Project.
Expenses for 1996 were $21,000 (16.1%) less than in 1995
($113,000 vs. $134,000), primarily as the result of a decision by
the Managing Shareholder in April 1996 to waive a portion of its
annual management fee of 1% of net assets, which reduced that fee
by $38,000 from 1995 to 1996. During 1996, the Managing
Shareholder funded the legal costs of the VEPCO litigation
involving the South Boston Project, which are not included in the
Trust's expenses for 1996.
Liquidity and Capital Resources
In 1997, the average balance of cash and cash equivalents
significantly increased. Two transactions significantly affected
the Trust's cash position. In the first quarter of 1997, the
South Boston Project received $3,750,000 in the VEPCO litigation
settlement. The Trust received a cash distribution totalling
$3,391,000 from the South Boston Project and received repayment
of a $391,000 advance to the South Boston Project. The Trust
used $752,000 of the cash to repay amounts previously borrowed
from the Managing Shareholder and other affiliates. In the
second quarter of 1997, the Trust purchased additional
partnership interests in Brea. The purchase price was $2,814,000
and the Trust now owns 100% of the Olinda Project. In the second
half of 1997, the Trust invested an additional $662,000 in Brea
for working capital.
On June 6, 1997, Brea entered into a revolving credit agreement
with Fleet Bank, N.A. (the "Bank") whereby the Bank provided a
five year committed line of credit facility of $750,000 which
decreases by $100,000 on each anniversary of the facility.
Outstanding borrowings bear interest at the Bank's prime rate or,
at Brea's choice, at LIBOR plus 2.5%. At December 31, 1997,
there were no borrowings outstanding under the credit facility.
The credit agreement requires Brea to maintain a ratio of total
debt to tangible net worth of no more than 1 to 1. The Trust
guaranteed the obligations of Brea under the credit facility.
Other than investments of available cash in power generation
Projects, obligations of the Trust are generally limited to
making distributions to shareholders of available operating cash
flow generated by its investments, payment of the management fee
to the Managing Shareholder and payment of certain accounting and
legal services to third parties. The Trust's policy is to
distribute to shareholders as much cash as is prudent.
Accordingly, the Trust has not found it necessary to retain a
material amount of working capital.
Financial instruments
The Trust's investments in financial instruments are short-
term investments of working capital or excess cash. The Trust's
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.
Currently the Trust invests only in bank obligations of Fleet
Bank, N.A. Because the Trust invests only in short-term
instruments for cash management, its exposure to interest rate
changes is low.
Year 2000 Remediation.
The Managing Shareholder and its affiliates began year 2000
review and planning in early 1997. After initial remediation was
completed, a more intensive review discovered additional issues
and the Managing Shareholder began a formal remediation program
in mid 1997. The Managing Shareholder has assessed problems, has
a written plan for remediation and is implementing the plan on
schedule.
The accounting, network and financial packages for the
Ridgewood companies are basically off-the-shelf packages that
will be remediated, where necessary, by obtaining patches or
updated versions. The Managing Shareholder expects that updating
will be complete before the end of 1998 with ample time for
implementation, testing and custom changes to some modifications
made by Ridgewood to those programs.
The marketing and investor relations functions rely on
custom-written software and the Managing Shareholder has hired a
specialist to remedy that software. The year 2000 changes in the
distribution system, which is used to send checks to Investors,
have been completed and are being tested. The effort is on
schedule to complete remediation and testing by December 31, 1998
and the Managing Shareholder believes that all material systems
will be year 2000 compliant by early 1999. Some systems are
being remediated using the "sliding window" technique. Although
this will allow compliance for several years beyond the year
2000, eventually those systems will have to be rewritten again or
replaced.
The Managing Shareholder and its affiliates do not
significantly rely on computer input from suppliers and customers
and thus are not directly affected by other companies' year 2000
compliance. However, if customers' payment systems or suppliers'
systems were adversely affected by year 2000 problems, the Trust
could be affected. Because the Trust and the Managing
Shareholder are extremely small relative to the size of their
material customers and suppliers and are paid or supplied using
the same systems as larger companies, requests for written
assurances of compliance from those customers are not cost-
effective.
Although the total cost associated with year 2000 compliance
is not yet determined, the Trust does not believe that the costs
will be material to its financial position or results of
operation.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements
Report of Independent Accountants F-2
Balance Sheet at December 31, 1997 and 1996 F-3
Statement of Operations for the three years ended
December 31, 1997 F-4
Statement of Changes in Shareholders' Equity
for the three years ended December 31, 1997 F-5
Statement of Cash Flows for the three years
ended December 31, 1997 F-6
Notes to Financial Statements F-7 to F-14
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, Price Waterhouse 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
Corporation 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 Energy Holding Corporation ("Ridgewood Holding"),
a Delaware corporation incorporated in April 1992, is the
Corporate Trustee of the Trust.
(b) Managing Shareholder.
The Managing Shareholder 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.
The Managing Shareholder has also organized Ridgewood
Electric Power Trust II ("Ridgewood Power II"), Ridgewood
Electric Power Trust III ("Ridgewood Power III"), Ridgewood
Electric Power Trust IV ("Ridgewood Power IV"), Ridgewood
Electric Power Trust V ("Ridgewood Power V") and The Ridgewood
Power Growth Fund (the "Growth Fund") as Delaware business trusts
to participate in the independent power industry The business
objectives of the five other trusts (the "Prior Programs") are
similar to those of the Trust.
The Managing Shareholder is an affiliate of Ridgewood Energy
Corporation ("Ridgewood Energy") which has organized and operated
46 limited partnership funds and one business trust over the last
16 years (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 Corporation ("Ridgewood Securities"), an NASD member
which has been the placement agent for the private placement
offerings of the six trusts sponsored by the Managing Shareholder
and the funds sponsored by Ridgewood Energy; Ridgewood Power
Capital Corporation ("Ridgewood Capital"), organized in 1998,
which assists in offerings made by the Managing Shareholder; and
Ridgewood Power VI Corporation ("Power VI Corp."), which is a
managing shareholder of the Growth Fund and RPMC. Each of these
corporations is wholly owned by Robert E. Swanson, who is their
sole director.
Robert E. Swanson has been the President, sole director and
sole stockholder of the Managing Shareholder since its inception
in February 1991. Set forth below is certain information
concerning Mr. Swanson and the other executive officers of the
Managing Shareholder.
Robert E. Swanson, age 51, has also served as President of
the Trust since its inception in June 1992 and as President of
RPMC, and the Prior Programs since their inceptions. Mr. Swanson
has been President, registered principal, sole director and sole
stockholder of Ridgewood Securities Corporation, the Placement
Agent for the private placement offerings of the Trust and the
Prior Programs, since its inception in September 1983. In
addition, he has been President, sole director and sole
stockholder of Ridgewood Energy since its inception in October
1982. He is also chief executive officer of several affiliates
of the Managing Shareholder. 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 39, has also served as Executive Vice
President of the Managing Shareholder, the Trust, RPMC, and the
Prior Programs since their respective inceptions, with primary
responsibility for marketing and acquisitions. He has been
President of Ridgewood Power Capital Corporation since its
organization in February 1998. 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 Corporation, 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.
Thomas R. Brown, age 43, joined the Managing Shareholder in
November 1994 as Senior Vice President and holds the same
position with RPMC, the Trust and the Prior Programs. He became
Chief Operating Officer of the Trust, the Managing Shareholder,
RPMC and the Prior Programs in October 1996. Mr. Brown has over
20 years' experience in the development and operation of power
and industrial projects. From 1992 until joining Ridgewood Power
he was employed by Tampella Services, Inc., an affiliate of
Tampella, Inc., one of the world's largest manufacturers of
boilers and related equipment for the power industry. Mr. Brown
was Project Manager for Tampella's Piney Creek project, a $100
million bituminous waste coal fired circulating fluidized bed
power plant. Between 1990 and 1992 Mr. Brown was Deputy Project
Manager at Inter-Power of Pennsylvania, where he successfully
developed a 106 megawatt coal fired facility. Between 1982 and
1990 Mr. Brown was employed by Pennsylvania Electric Company, an
integrated utility, as a Senior Thermal Performance Engineer.
Prior to that, Mr. Brown was an Engineer with Bethlehem Steel
Corporation. He has an Bachelor of Science degree in Mechanical
Engineering from Pennsylvania State University and an MBA in
Finance from the University of Pennsylvania. Mr. Brown satisfied
all requirements to earn the Professional Engineer designation in
1985.
Martin V. Quinn, age 50, is the Senior Vice President and
Chief Financial Officer of the Managing Shareholder and the
Trust. He assumed the duties of Chief Financial Officer of the
Managing Shareholder, the Trust, the Prior Programs and RPMC in
November 1996. Under a consulting arrangement which concluded on
March 31, 1997, Mr. Quinn devoted a majority of his time to the
business of the Managing Shareholder and RPMC while continuing
his other activities. On April 1, 1997 he became a full-time
officer of the Managing Shareholder and RPMC.
Mr. Quinn has 29 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 Price
Waterhouse, and a Bachelor of Science degree in Accounting and
Finance from the University of Scranton (1969).
Mary Lou Olin, age 45, has served as Vice President of the
Managing Shareholder, RPMC, the Trust, and the Prior Programs
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, its 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 all 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 both initial 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 until January 4, 1999 and 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, with the addition
of Joseph A. Heyison, Senior Vice President and General Counsel
of the Trust. Mr. Heyison, age 43, joined RPMC in January 1996.
He was previously of counsel to the law firm of De Forest & Duer,
concentrating in corporate finance, banking, environmental law
and securities. He is a member of the bars of New Jersey, New
York and Ohio and was graduated from Princeton University in 1976
and from the University of Pennsylvania Law School in 1979.
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 corporation 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
and Dr. Richard D. Propper. Mr. Belknap and Dr. Propper 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 51, has been chief financial officer of
three national retail chains and their parent companies. Since
July 1997, he has been Executive Vice President and Chief
Financial Officer of Richfood Holdings, Inc., a Virginia-based
food manufacturer. 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 Zale Corporation, a
1,200 store jewelry retain 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 aso 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 January 1990 until February 1994, Mr. Belknap consulted
in a variety of strategic corporate transactions, including
mergers and acquisitions, divestitures and refinancing. One such
transaction involved the recapitalization and change of control
of Finlay in May 1993. From 1979 to 1985, Mr. Belknap served as
Chief Financial Officer of Kay Corporation ("Kay"), 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 and as
its Assistant Controller from 1973 to 1974. Between 1970 and
1973, 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 49, 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 post
doctoral 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.
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, Ridgewood Power III and
Ridgewood Power IV 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 1997.
(g) RPMC.
As discussed above at Item 1 - Business, RPMC assumed day-
to-day management responsibility for the Olinda Project,
effective June 1, 1997. Like the Managing Shareholder, RPMC 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 RPMC, under the supervision
of the Managing Shareholder, will provide the management,
purchasing, engineering, planning and administrative services for
the Olinda Project. RPMC will charge the Trust at its cost for
these services and for the Trust's allocable amount of certain
overhead items. RPMC shares space and facilities with the
Managing Shareholder and its affiliates. To the extent that
common expenses can be reasonably allocated to RPMC, the Managing
Shareholder may, but is not required to, charge RPMC 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 RPMC for the full amount of rent, utility supplies and
office expenses allocable to RPMC. As a result, both initially
and on an ongoing basis the Managing Shareholder believes that
RPMC'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. RPMC 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 RPMC; and
allocations will be made in a manner consistent with generally
accepted accounting principles.
RPMC 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.
RPMC 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 RPMC, 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 RPMC; however, no amendment that materially
increases the obligations of the Trust or that materially
decreases the obligations of RPMC 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 RPMC are Mr. Swanson (President),
Mr. Gold (Executive Vice President), Mr. Brown (Senior Vice
President and Chief Operating Officer), Mr. Quinn (Senior Vice
President and Chief Financial Officer), Ms. Olin (Vice President)
and Mr. Heyison, (Senior Vice President and General Counsel).
Douglas V. Liebschner, Vice President - Operations, is a key
employee.
Douglas V. Liebschner, age 50, joined RPMC in June 1996 as
Vice President of Operations. He has over 27 years of experience
in the operation and maintenance of power plants. From 1992
until joining RPMC, he was employed by Tampella Services, Inc.,
an affiliate of Tampella, Inc., one of the world's largest
manufacturers of boilers and related equipment for the power
industry. Mr. Liebschner was Operations Supervisor for
Tampella's Piney Creek project, a $100 million bituminous waste
coal fired circulating fluidized bed ("CFB") power plant. Between
1989 and 1992, he supervised operations of a waste to energy
plant in Poughkeepsie, N.Y. and an anthracite-waste-coal-burning
CFB in Frackville, Pa. From 1969 to 1989, Mr. Liebschner served
in the U.S. Navy, retiring with the rank of Lieutenant Commander.
While in the Navy, he served mainly in billets dealing with the
operation, maintenance and repair of ship propulsion plants,
twice serving as Chief Engineer on board U.S. Navy combatant
ships. He has a Bachelor of Science degree from the U.S. Naval
Academy, Annapolis, Md.
Item 11. Executive Compensation.
Through 1995, the executive officers of the Trust and the
Managing Shareholder were compensated by Ridgewood Energy. The
Trust was not charged for their compensation; the Managing
Shareholder remitted a portion of the fees paid to it by the
Trust to reimburse Ridgewood Energy for employment costs incurred
on Ridgewood Power's business. In 1996 and future years, the
Managing Shareholder compensates its officers without additional
payments by the Trust and will be reimbursed by Ridgewood Energy
for costs related to Ridgewood Energy's business. The Trust will
reimburse RPMC at cost for services provided by RPMC's employees;
no such reimbursement per employee exceeded $60,000 in 1996 and
1997. 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. Accordingly in January 1995 and following years the Trust
paid each Independent Trustee $5,000 for his services. 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 1997, 1996 and 1995, 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:
Fee Paid to 1997 1996 1995
Management fee Managing $67,483 $49,255 $86,510
Shareholder
Cost reimbursements* RPMC 1,853,994 1,098,910 0
* Prior to 1996, these costs were either paid by the Trust or by
the Project directly. These include all payroll, fuel and other
expenses of operating the South Boston and Olinda Projects and an
allocable portion of RPMC overhead. These costs are almost
exclusively 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 RPMC, which do not
exceed its actual costs, are described at Item 10(g) - Directors
and Executive Officers of the Registrant -- RPMC.
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 in years before 1996 for payroll and other
costs of operation of the South Boston Project. In 1996, these
reimbursements were paid to RPMC. The reimbursements to RPMC,
which do not exceed its actual costs, are described at Item 10(g)
- - Directors and Executive Officers of the Registrant -- RPMC.
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, 1997.
(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 63
24. Powers of Attorney Page 64
27. Financial Data Schedule Page 65
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 April 15, 1998
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 April 15, 1998
Robert E. Swanson Executive Officer
By: /s/Martin V. Quinn Senior Vice President and
Martin V. Quinn Chief Financial Officer April 15, 1998
By: /s/Kathleen P. McSherry Controller April 15, 1998
Kathleen P. McSherry
RIDGEWOOD POWER CORPORATION Managing Shareholder
By: /s/Robert E. Swanson President April 15, 1998
Robert E. Swanson
/s/Robert E. Swanson * Independent Trustee April 15, 1998
John C. Belknap
/s/Richard D. Propper, M.D. Independent Trustee April 15, 1998
Dr. Richard D. Propper
* As attorney-in-fact for the Independent Trustee
Ridgewood Electric Power Trust I
(formerly Ridgewood Energy Electric Power, L.P.)
Financial Statements
December 31, 1996, 1995 and 1994
-F1-
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
[Letterhead of Price Waterhouse LLP]
Report of Independent Accountants
April 2, 1998
To the Shareholders and Trustees of
Ridgewood Electric Power Trust I (formerly
Ridgewood Energy Electric Power, L.P.)
In our opinion, the accompanying balance sheet and the related
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 (formerly Ridgewood Energy Electric Power, L.P.) at
December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles. 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 generally accepted
auditing standards 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 the opinion expressed
above.
As explained in Note 3, the financial statements include
investments, valued at $6,730,334 and $6,810,208 (96% and 103% of
shareholders' equity, respectively) as of December 31, 1997 and
1996, 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, those estimated values may differ
significantly from the values that would have been used had a ready
market for the investments existed, and the differences could be
material to the financial statements.
/s/ Price Waterhouse LLP
-F2-
Ridgewood Electric Power Trust I
Balance Sheet
Year Ended December 31,
1997 1996
Assets:
Investments in power
generation projects $ 6,730,334 $ 6,810,208
Cash and cash equivalents 1,042,568 327,322
Advances to RW Power Partners, L.P. --- 367,667
Other assets 109,932 ---
Total assets $ 7,882,834 $ 7,505,197
Liabilities and Shareholders' Equity:
Accounts payable and accrued expenses $ 675,128 $ 71,149
Due to affiliates 214,563 829,407
Total liabilities 889,691 900,556
Commitments and contingencies:
Shareholders' equity:
Shareholders' equity
(105.5 shares issued
and outstanding) 7,013,370 6,628,753
Managing shareholder's
accumulated deficit (20,227)
(24,112)
Total shareholders' equity 6,993,143 6,604,641
Total liabilities and
shareholders' equity $ 7,882,834 $ 7,505,197
See accompanying notes to financial statements.
-F3-
Ridgewood Electric Power Trust I
Statement of Operations
Year Ended December 31,
1997 1996 1995
Revenue:
Income from power
generation projects $ 1,851,763 $ 606,863 $ 552,769
Interest income 89,312 2,674 ---
Total revenue 1,941,075 609,537 552,769
Expenses:
Accounting and legal
fees 136,347 47,500 34,092
Management fee 67,483 49,255 86,510
Writedown of power
generation limited
partnership investments 400,000 --- ---
Miscellaneous 20,448 15,980 13,750
Total expenses 624,278 112,735 134,352
Net income $ 1,316,797 $ 496,802 $ 418,417
See accompanying notes to financial statements.
-F4-
Ridgewood Electric Power Trust I
Statement of Changes in Shareholders' Equity
Managing
Shareholders Shareholder Total
Shareholders' equity,
January 1, 1995 $ 7,369,834 $ (17,027) $ 7,352,807
Cash distributions (846,636) (8,151)
(854,787)
Net income for the year 414,233 4,184 418,417
Shareholders' equity,
December 31, 1995 6,937,431 (20,994) 6,916,437
Cash distributions (800,512) (8,086)
(808,598)
Net income for the year 491,834 4,968 496,802
Shareholders' equity,
December 31, 1996 6,628,753 (24,112) 6,604,641
Cash distributions (919,012) (9,283)
(928,295)
Net income for the year 1,303,629 13,168 1,316,797
Shareholders' equity,
December 31, 1997 $ 7,013,370 $ (20,227) $ 6,993,143
See accompanying notes to financial statements.
-F5-
Ridgewood Electric Power Trust I
Statement of Cash Flows
Year Ended December 31,
1997 1996 1995
Cash flows from
operating activities:
Net income $ 1,316,797 $ 496,802 $
418,417
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Writedown of power
generation project
investments 400,000 --- -
- --
Purchase of investments in
power generation projects (3,475,000) ---
(489,007)
Return of investment in
power generation projects 3,236,940 397,638
440,916
Changes in assets and
liabilities:
Decrease (increase) in
advances and due
from affiliates 367,667 (49,850)
(317,817)
Increase in notes receivable (82,066) --- -
- --
Decrease (increase)
in other assets (109,932) ---
70,000
(Increase) decrease
in accounts payable and
accrued expenses 603,979 26,337
(72,326)
(Decrease) increase in due to
affiliates (614,844) 259,350
570,057
Total adjustments 326,744 633,475
201,823
Net cash provided by
operating activities 1,643,541 1,130,277
620,240
Cash flows from financing
activities:
Cash distributions to
shareholders (928,295) (808,598)
(854,787)
Net cash used in
financing activities (928,295) (808,598)
(854,787)
Net increase (decrease)
in cash and cash
equivalents 715,246 321,679
(234,547)
Cash and cash equivalents,
beginning of year 327,322 5,643
240,190
Cash and cash equivalents,
end of year $ 1,042,568 $ 327,322 $
5,643
See accompanying notes to financial statements.
-F6-
Ridgewood Electric Power Trust I
(formerly Ridgewood Energy Electric Power, L.P.)
Notes to Financial Statements
1. Organization and Purpose
Nature of business
Ridgewood Energy Electric Power, L.P. (the "Partnership") was
formed as a Delaware limited partnership on March 6, 1991, by
Ridgewood Power Corporation acting as the general partner. On April
30, 1991, Beale Lynch Power Partners Inc. was admitted as co-general
partner of the Partnership. The Partnership began offering limited
partnership units in the Partnership on May 1, 1991. The
Partnership commenced operations on September 16, 1991 and
discontinued its offering of units on March 31, 1992.
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 Corporation is the sole managing shareholder.
The Trust has been organized to invest in independent power
generation facilities and in the development of these facilities.
These independent power generation facilities include small power
production facilities which produce electricity from waste oil,
landfill gas and water. The power plants sell electricity to
utilities under long-term contracts.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the 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.
Offering costs
Costs associated with offering Trust shares (selling
commissions, distribution and offering costs) are reflected as a
reduction of the shareholders' capital contributions.
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.
Due diligence costs relating to potential power project
investments
Costs relating to the due diligence performed on potential
power project investments are initially deferred, until such time
as the Trust determines whether or not it will make an investment
in the project. Costs relating to completed projects are capitalized and
costs relating to rejected projects are expensed
at the time of rejection.
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 Project Development and Power Generation Limited
Partnerships
The Trust had the following investments in power generation
projects:
Fair values as of December
31,
1997 1996
Brea Power Partners, L.P. 5,757,285 2,282,285
RW Power Partners, L.P. 373,049 3,527,923
Stillwater Hydro Partners, L.P. 600,000 1,000,000
$ 6,730,334 $ 6,810,208
Brea Power Partners, L.P. (known as the Olinda project)
In October 1994, the Trust made a $3,103,479 limited partner
investment in a limited partnership ("Brea Partnership"), which
acquired a 5 megawatt gas-fired electric generating facility and
related landfill gas processing facility. The facility has been
in continuous operation for 10 years and is located in Olinda,
California.
In exchange for its investment, the Trust is entitled to
receive, in any year, the lesser of the preference amount (as
defined in the Partnership Agreement) or 98% of the annual
distribution, plus 25% of the excess of the annual distribution
over the preference amount of the Brea Partnership until the
Trust has received a cumulative 15% return on its original investment. After
such time, the amount the Trust would be
entitled to would decrease to 5% of net cash flows.
The Trust received distributions from Brea Partnership of
$162,938, $796,501, and $813,137 for the five months ended
May 31, 1997 and for the years ended December 31, 1996 and,
1995, respectively. Of the cash distributions, $397,638 and $423,556 has been
treated as a return of investment capital
during the years ended December 31, 1996 and 1995, respectively.
The Trust's investment balance for Olinda at December 31, 1996
amounted to $2,282,285.
On June 1, 1997, the Trust purchased the general and other limited
partnership interests in Brea and now owns 100% of the Olinda Project. The
purchase price of $2,813,400, included a cash payment to the sellers of
$2,256,500, the assumption of liabilities of $441,100 and acquisition costs of
$115,800. In the second half of 1997, the Trust invested an additional
$661,600 in Brea for working capital. At December 31, 1997, the Trust's total
investment in Brea was $5,757,285. The Trust received distributions from Brea
of $1,557,314 during the seven months ended December 31, 1997 which have been
recorded as income
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 was to provide
construction funding of a 3 megawatt project using waste oil its primary fuel
source. Commercial operations began in June 1993. Construction of a waste
oil processing facility began in 1994,
and was completed in 1996. As of December 31, 1996, the Trust
funded $3,527,923 of the total cost of the original project and
the waste oil facility, a portion of which was funded by the managing
shareholder. The Trust received distributions of
$208,000 and $163,188 from the limited partnership for the years ended
December 31, 1996 and 1995, respectively. The Trust's investment in and
advances to the limited partnership amounted to $3,895,590 at December 31,
1996.
In exchange for its investment, the Trust has the right to
receive annually the greater of either 70% of net profits, as
defined, from the limited partnership or a preferred minimum
return of 22.5% on its total investment. In the event that in
any given year all net profits from the limited partnership do
not equal the amount of the preferred minimum return, the amount
of such shortfall would be payable on a priority basis out of any net profits
in subsequent years.
On January 17, 1997, the Trust settled a pending lawsuit between RWPP,
and Virginia Electric Power Company ("VEPCO"). RWPP had sued VEPCO when VEPCO
attempted to cancel the power purchase contract under which VEPCO was required
to purchase electricty generated by RWPP at the Lynchburg project. Under the
settlement, VEPCO paid RWPP $3,750,000 in cash and waived a claim of
$1,800,000 for prepaid capacity payments.
After repayment of $390,836 of intercompany payables, the Trust received
total distributions of $3,390,664 from the Lynchburg Project during the first
quarter of 1997, of which $3,236,940 was recorded as a return of its
investment and $153,724 was recorded as income. RWPP surrendered the power
purchase contract to VEPCO and agreed to the entry of an order dismissing its
lawsuit against VEPCO. The settlement permits RWPP to continue operating the
generating station and the associated waste oil treatment plant, but RWPP may
not sell electricity to VEPCO, except at VEPCO's request, and RWPP may only
sell electricity to investor-owned electric utilities for resale or use
outside VEPCO's service area.
In addition, the facility may be operated for non-generating purposes
such as waste oil treatment and electricity may be generated for the
facility's needs. VEPCO may cut the interconnection of the facility with its
lines and reconnection is permitted only for electricity sales in compliance
with the settlement agreement. RWPP may remove and sell equipment. These
restrictions apply to any future owner of the Lynchburg facility.
As a result of the operating restrictins and cancellation of the power
purchase contract included 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 collectability
of the note receivable, the fair value of the Trust's investment was not
adjusted from the $290,983 determined during the first quarter of 1997.
The Trust also agreed to provide 8%, seven-year debt financing of up to
$125,000 to finance additional capital improvements at the Project, secured by
the mortgage. In 1997, $82,066 of financing was provided to the Project under
this arrangement.
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.
A distribution of $126,707 was received by the Trust in 1994.
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. In 1995, the
Hudson River basin experienced a severe drought, resulting in Hudson
River water levels substantially 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 in 1995. Although increased
precipitation in late 1995 and early 1996 brought flow levels back
toward the norm, high water flows damaged portions of the facility,
including the recently installed modifications for capturing
additional water flow.
As a result, all available cash flow from the Stillwater
Project is being applied to meet debt service requirements. Until
water flows return to expected levels, repairs are completed and 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.
Due to uncertainty surrounding the timing of payments to the Trust, in
1997 the Trust wrote down its investment in the Stillwater Project to the ned
present value of anticipated payments and recorded a loss of $400,000.
Electricity generated by the Stillwater Project is sold to
Niagara Mohawk Power Corporation under a long-term Power Contract
with a remaining term of 31 years. Niagara Mohawk has argued before
the New York Public Service Commission, the state agency that
regulates the electric utility industry, and the Federal Energy
Regulatory Commission ("FERC") that rates it pays to purchase
electricity under long-term Qualifying Facility contracts are
uneconomic and that it should be allowed to abrogate those
contracts. In April 1995, FERC rejected Niagara Mohawk's
application and the New York State Public Service Commission has
also refused the requested relief. There can be no assurance,
however, that Niagara Mohawk would not succeed in any future efforts
to abrogate Qualifying Facility contracts.
4. Transactions With Managing Shareholder and Affiliates
Prior to the BDC election, the Partnership also paid to the
general partners a distribution and offering fee in an amount up to
2.5% of each capital contribution made to the Partnership. This fee
was intended for legal, accounting, consulting, filing, printing,
distribution, selling, and closing costs for the offering of the Partnership.
These fees were recorded as a reduction in the
partners' capital contributions.
Prior to the BDC election in July 1994, the Partnership paid to
the general partners a management fee not to exceed 4.5% of each
capital contribution made to the Partnership. The fee was payable
to the general partners for their services in investigating and
evaluating investment opportunities and effecting transactions for
investing the capital of the Partnership.
Prior to the BDC election, the Partnership paid to the general
partners an annual administrative and overhead fee equal to 1% of
the aggregate capital contributions of the Partnership.
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 1.0% of the net assets
of the Trust payable monthly. In 1996, management fees of $43,255 were waived
by the managing shareholder. During 1997, 1996, and 1995, the Trust paid
management fees to the managing shareholder of $67,483, $49,255 and $86,510,
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 in that year
an amount equal to 15% 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.
In connection with the construction of the waste oil facility
at the Lynchburg Project, the managing shareholder advanced $570,057
in 1995 and $259,350 in 1996 to the Trust to fund a portion of the
Trust's investment in the waste oil facility. No interest was
charged on the advances. When the Trust received the settlement
proceeds described in Note 3- Investments in Power Generation Limited
Partnerships in January 1997, all of the outstanding advances were repaid to
the managing shareholder without
interest.
In 1996, under an Operating Agreement with the Trust, Ridgewood
Power Management Corporation ("Ridgewood Management"), an entity
related to the managing shareholder through common ownership,
provides management, purchasing, engineering, planning and
administrative services to the Lynchburg 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, 1997 and 1996, Ridgewood
Management charged the Lynchburg Project $78,275 and $33,948 for overhead
items allocated in proportion to the amount invested in projects managed, and
charged the Lynchburg Project for all of the remaining direct operating and
non-operating expenses incurred during the period. During the seven month
period ended December 31, 1997, Ridgewood Management charged the Olinda
Project $30,382 for overhead itmes allocated in proportion of the amount
invested in projects managed, and charged the Olinda Project for all of the
remaining direct operating and non-operating expenses incurred during the
period.
5. Revolving Line of Credit Facility
On June 6, 1997, the Brea Partnership entered into a revolving credit
agreement with its principal bank whereby the Bank provided a five year
committed line of credit facility of $750,000 which decreases by $100,000 on
each anniversary of the facility. The Trust guaranteed the obligations of the
Brea Partnership under the credit facility. Outstanding borrowings bear
interest at the Bank's prime rate or, at the Brea Partnership's choice, at
LIBOR plus 2.5%. At December 31, 1997, there were no borrowings outstanding
under the credit facility.
6. Contingencies
In December 1993, a subsidiary of the Trust engaged Blackhawk
Management Group, Incorporated ("Blackhawk"),a North Carolina
corporation whose sole owner and employee was the original developer
of the Lynchburg Project, to manage that Project under contract. On
June 9, 1994, the subsidiary terminated the management contract for
material breach and inequitable conduct by Blackhawk, which then
sued in the Circuit Court of Halifax County, Virginia on June 8,
1995. The action claimed breach of contract by the Trust's
subsidiary and claimed compensatory damages of $3 million and
punitive damages of $1 million. The subsidiary removed the action to the
United States District Court for the Western District
of Virginia, Danville Division. In July 1997, the court granted summary
judgment to the Trust's subsidiary on all counts. The decision was not
appealed and is final.