UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to Quarterly Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission file Number 0-24240
RIDGEWOOD ELECTRIC POWER TRUST I
(Exact name of registrant as specified in its charter.)
Delaware, U.S.A. 22-3105824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
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 [ ]
PART I
FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Dollar amounts in this discussion are rounded to the nearest $1,000.
Introduction
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 received from
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.
Results of Operations
Revenues
Nine Months Ended September 30, Quarter Ended September 30,
1998 1997 1998 1997
Olinda $ 1,228,000 $ 1,291,000 $484,000 $1,159,000
South Boston --- 132,000 --- ---
Interest income 43,000 76,000 13,000 16,000
Total $ 1,271,000 $ 1,530,000 $497,000 $1,175,000
Total revenue decreased 17% to $1,271,000 in the first nine
months of 1998 from $1,530,000 in the first nine months of
1997, primarily due to a $63,000 decrease in income from the
Olinda Project and a $132,000 decrease from the South Boston
Project (which was closed in January 1997 and sold in late
1997). In the third quarter of 1998, total revenue decreased
58% to $497,000 from $1,175,000 in the third quarter of 1997
due to a $675,000 decrease in income from the Olinda project.
This decrease in third quarter revenue from the Olinda project
is due to the failure of the project's gas supplier to provide
gas during most of August 1998. The supplier's gas compressors,
which are used to transport landfill gas to the Olinda Project,
malfunctioned and installation by the supplier of replacements
was delayed. The supplier has provided substitute compressors
and the Trust is seeking reimbursement of substantially all of
the lost revenues from the gas supplier in accordance with the
contract terms. The decrease in revenue from the first nine
months of 1997 to the comparable 1998 period was a result of
this gas compressor malfunction, partially offset by increased
revenues earlier in the year resulting from the Trust's purchase
on June 1, 1997 of the subordinated equity interest in the Project
owned by the Project's former operator and the elimination of the
management agreement with that operator.
Expenses
Total expenses of $120,000 in the first nine months of 1998
increased by $29,000 from the $91,000 incurred in the same period
in 1997. The increase reflects timing differences in recording
of fees and expenses and minor changes in accounting estimates.
The $7,000 increase in Trust expenses from the third quarter
of 1997 to the third quarter of 1998 was caused by the same factors.
Liquidity and Capital Resources
During the first nine months of 1998, the Trust's net income
decreased to $1,151,000 as compared to $1,439,000 for the same
period in 1997. The Trust had accumulated a significant amount
of cash ($1,043,000) at December 31, 1997 and decided to apply
approximately $252,000 of that cash for a complete overhaul of
the engines at the Olinda Project. As a result, cash flow
from operating activities for the first nine months of 1998 was
$835,000 as compared to $1,054,000 during the same period
in 1997. The Trust was nevertheless able to increase its
cash distributions to shareholders to $985,000 in the first
nine months of 1998 from $609,000 in the same period in
1997 because of the favorable operating results from the
Olinda Project and the accumulated cash. The Trust
anticipates that operating cash flow and remaining cash
balances from the Olinda Project will be adequate to fund
distributions at the current rate for at least the remainder
of 1998.
In 1997, the subsidiary owning the Olinda Project 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 the
borrower's choice, at LIBOR plus 2.5%. The credit agreement
requires the Olinda Project to maintain a ratio of total debt
to tangible net worth of no more than 1 to 1. The Trust
guaranteed the obligations under the credit facility. There
were no borrowings outstanding under this line of credit
facility in 1998.
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 late 1997. The Managing Shareholder has assessed problems,
has a written plan for remediation and is implementing the plan.
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 the first quarter of 1999 with ample time
for implementation, testing and custom changes to some modifications
made by Ridgewood to those programs. To a large extent, these software
packages would have been upgraded within a three to five year time frame,
even absent the Year 2000 problem. The Managing Shareholder estimates that
the Trust's allocable portion of the cost of upgrades that were accelerated
because of the Year 2000 problem is approximately $200.
The Managing Shareholder has identified two major systems affecting the
Trust that rely on custom-written software, the subscription/investor
relations and investor distribution systems, which maintain individual
investor records and effect disbursement of distributions to Investors. In
late 1998, the Managing Shareholder's outside computer consultant reviewed
the remediation completed for those systems and advised the Managing
Shareholder that material additional work was required for these systems to
work efficiently after 1999. The Managing Shareholder accordingly employed a
new specialist for Year 2000 remediation of those systems and other software
and for information systems support generally. The Managing Shareholder's
plan calls for completion of changes to the distribution system and testing
of that system by the end of the first quarter of 1999 and the Managing
Shareholder believes that this effort is ahead of schedule. The plan also
targets completion by the end of the second quarter of 1999 of minor changes
to the elements of the subscription/investor relations system that will allow
it to handle individual investors' records, and of all testing of those
modifications. Elements of that system used to generate internal sales
reports and other internal reports (but which do not affect investors'
records) will require major remediation. Remediation of the internal report
generating programs is expected to be completed by the end of the third
quarter of 1999 with testing and any additional modifications to be completed
no later than the end of 1999.
The Managing Shareholder is confident that all software systems
necessary to maintain investor records will be remediated and tested well
before the end of 1999. If the systems used to generate internal reports
from the subscription/investor relations system are not remediated by the end
of 1999, the Managing Shareholder is developing a contingency plan to use the
existing systems together with manual entry of data and checking of results
until remediation is complete. The Managing Shareholder has done this in the
past when system problems have occurred and it thus believes that there will
be no material or noticeable effect on the accuracy of its records or
generation of internal reports, although it may experience delays in
generating internal reports of a few days.
Some systems are being remediated using the "sliding window" technique,
in which two digit years less than a threshold number are assumed to be in
the 2000's and higher two digit numbers are assumed to be in the 1900's.
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 expects that the ordinary course of system upgrading
will eventually cure this problem.
The Trust's share of the incremental cost for Year 2000 remediation of
this custom written software and related items for 1998 and prior years is
estimated at $3,000 and is estimated to be approximately $2,800 for 1999.
The Olinda electric generating facilities will be reviewed during the
first and second quarters of 1999 by an outside consultant or by personnel
from Ridgewood Power Management Corporation to determine if its electronic
control systems contain software affected by the Year 2000 problem or contain
embedded components that contain Year 2000 flaws. The facility uses small
mechanical and analog systems, many of which are not expected to be
vulnerable to Year 2000 problems, and personal computers running packaged
software for routine recordkeeping and data logging, which have been upgraded
as described above. To date the Trust has discovered no systems having
a material impact on output, environmental compliance, recordkeeping or any
other material impact that have Year 2000 concerns. The Trust's share of the
estimated costs of the consultant's review and of any minor upgrades or
rehabilitation is estimated at less than $25,000.
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. For example, if the utility that
purchases the Trust's electricity output were unable to accept electricity
because of system malfunctions or transmission failures caused by Year 2000
non-compliance by it or other persons, the Trust would lose revenues that
could not be recouped at a later date. Similarly, if utility payment systems
were to malfunction, the Trust's revenues might be delayed. Based on
published reports the Trust believes that it is now very unlikely that
utilities will fail to accept electricity for more than a very short time
because of malfunctions caused by the Year 2000 problem. Although the Trust
also believes that utility payment problems are unlikely and, if they occur,
will not exceed a month or two, there can be no assurance that payments to
the Trust will not be interrupted. The Trust has established a line of
credit, described above at "Liquidity and Capital Resources," to cover this
contingency and others. Southern California Edison, the purchaser of the
Olinda facility's output, will be contacted during the first quarter of 1999.
The Trust anticipates that Southern California Edison will advise it that
they do not anticipate that their own Year 2000 problems, if any, will
interfere with taking or paying for the Trust's outputs of electricity.
However, the Trust expects that the utility will decline to give any assurance
that the utility will perform under the power purchase contract.
The Olinda plant burns landfill gas collected by GSF Energy, Inc. From
the Trust's observations GSF Energy, Inc. is unlikely to have Year 2000
compliance problems at the Olinda site that would be likely to interrupt the
supply of landfill gas. GSF Energy, Inc., like all other companies, is
exposed to the possibility that failures of other persons to remediate their
Year 2000 systems may adversely affect GSF Energy, Inc. and in that event the
supply of landfill gas to the Olinda Plant might be interrupted. In that
event the Olinda plant would not be able to operate. Availability of other
supplies such as spare parts and consumables may be affected by Year 2000
problems; the Trust purchases these items from many different sources, no
single one or group of which could have a material effect on the Trust if it
or they were not Year 2000 compliant.
Because the Trust and the Managing Shareholder are extremely small
relative to the size of most 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 or suppliers are not
cost-effective. Instead, the Managing Shareholder is monitoring industry
trends and compliance and is working to assure the Trust's continued
operations. Similarly, as described above, in most cases there are no cost-
effective contingency measures that can be taken against the major risks to
the Trust that utilities will fail to take or fail to pay for the Trust's
electricity output as the result of Year 2000 problems. The Trust believes
that in the event that any embedded components or other systems are found
to have Year 2000 problems at the Olinda facility it will be able to remediate
them promptly and before the end of 1999. It is preparing contingency plans
to operate the facility with manual or analog control systems if Year 2000
problems cannot be remediated. Because the facility is small and uses
simple technologies (diesel engines and conventional generators) that
are not dependent on computers or date-sensitive electronics, the Trust
believes that it is unlikely that it would be unable to operate because of
Year 2000 problems at the facility.
Based on its internal evaluations and the risks and contexts
identified by the Commission in its rules and interpretations, the Trust
believes that Year 2000 issues relating to its assets and remediation
program will not have a material effect on its facilities, financial position
or operations, and that the costs of addressing the Year 2000 issues will not
have a material effect on its future consolidated operating results,
financial condition or cash flows. However, this belief is based upon
current information, and there can be no assurance that unanticipated
problems will not occur or be discovered that would result in material
adverse effects on the Trust.
The Trust is unable to predict reliably what, if anything, will happen
after December 31, 1999 with regard to Year 2000 problems caused by the
inability of other businesses and government agencies to complete Year 2000
remediation. The Trust knows of no specific problems identified by customers
or suppliers that would have a material adverse effect on the Trust.
The reasonable worst case scenario anticipated by the Trust is that the
Olinda plant will be able to operate on and after January 1, 2000 but that
there may be some short-term inability of its utility purchaser to accept or
transmit electricity and that the utility purchaser may not be able to pay
promptly for the electricity it does accept. In that event, the Trust's
revenues could be materially reduced for a temporary period and it might
have to draw upon its credit line to fund operating expenses until the
utility makes up any payment arrears.
RIDGEWOOD ELECTRIC POWER TRUST I
SIGNATURES
Pursuant to the requirement of the Securities Exchange
Act of 1934, the registrant has duly cause this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
RIDGEWOOD ELECTRIC POWER TRUST I
Registrant
March 8, 1999 By /s/ Martin V. Quinn
Date Martin V. Quinn
Senior Vice President and
Chief Financial Officer
(signing on behalf of the
Registrant and as
principal financial
officer)