CONFORMED COPY WITH EXHIBIT
----------------------------
- -----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 33-83618
SELKIRK COGEN FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 51-0354675
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Bowdoin Square, Boston, Massachusetts 02114
(Address of principal executive offices, including zip code)
(617) 227-8080
(Registrant's telephone number, including area code)
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
--- ---
As of November 1, 1996 there were 10 shares of common stock of Selkirk
Cogen Funding Corporation, $1 par value, outstanding.
- -----------------------------------------------------------------------------
This document consists of 21 pages of which this page is page 1.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995......................................... 3
Condensed Consolidated Statements of Operations for
the three months and nine months ended September 30, 1996
and September 30, 1995........................................ 4
Condensed Consolidated Statements of Cash Flows for
the three months and nine months ended September 30, 1996
and September 30, 1995........................................ 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations......................................... 8
Liquidity and Capital Resources............................... 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................ 15
SIGNATURES.......................................................... 16
2
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
1996 1995
---------- -----------
ASSETS
- ------
Current assets:
Cash............................................ $ 1,546 $ 2,672
Restricted funds................................ 22,025 10,010
Accounts receivable............................. 14,422 17,317
Due from affiliates............................. 14 17
Fuel inventory and supplies..................... 4,190 3,573
Other current assets............................ 195 1,012
--------- ---------
Total current assets...................... 42,392 34,601
Plant and equipment, net........................ 337,395 346,285
Long-term restricted funds...................... 20,446 20,906
Deferred financing charges, net................. 13,408 14,288
--------- ---------
Total Assets $ 413,641 $ 416,080
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Current liabilities:
Accounts payable................................ $ 143 $ 372
Accrued bond interest payable................... 9,043 385
Accrued expenses................................ 11,581 12,863
Due to affiliates............................... 1,046 262
Advances from customer.......................... 17 153
Current portion of long-term bonds.............. 1,357 580
--------- ---------
Total current liabilities................. 23,187 14,615
Other long-term liabilities..................... 11,690 8,515
Long-term bonds, less current portion........... 390,359 391,420
General partners' capital....................... (92) 43
Limited partners' capital....................... (11,503) 1,487
--------- ---------
Total partners' capital................... (11,595) 1,530
--------- ---------
Total Liabilities and
Partners' Capital $ 413,641 $ 416,080
--------- ---------
--------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
3
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
For the For the
Three Months Ended Nine Months Ended
--------------------- --------------------
September30, September30, September30, September30,
1996 1995 1996 1995
--------- --------- --------- ---------
Operating revenues:
Electric and steam......... $ 36,128 $ 34,316 $ 109,837 $ 106,850
Gas resale................. 5,011 3,033 19,816 9,066
--------- --------- --------- ---------
Total operating
revenues.............. 41,139 37,349 129,653 115,916
Cost of revenue............. 29,570 27,723 89,236 85,879
--------- --------- --------- ---------
Gross Profit................ 11,569 9,626 40,417 30,037
Other operating expenses:
Administrative services -
affiliates............... 656 526 1,836 1,861
Other general and
administrative expenses.. 694 782 2,520 2,642
Amortization of deferred
financing charges........ 293 309 880 929
--------- --------- --------- ---------
Total other operating
expenses.............. 1,643 1,617 5,236 5,432
--------- --------- --------- ---------
Operating income............ 9,926 8,009 35,181 24,605
Net interest expense........ 8,210 8,002 24,699 24,243
--------- --------- --------- ---------
Net income (loss)........... $ 1,716 $ 7 $ 10,482 $ 362
--------- --------- --------- ---------
--------- --------- --------- ---------
Allocated to:
General partners.......... $ 17 $ --- $ 105 $ 28
Limited partners.......... 1,699 7 10,377 334
--------- --------- --------- ---------
Total................... $ 1,716 $ 7 $ 10,482 $ 362
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
4
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the For the
Three Months Ended Nine Months Ended
--------------------- --------------------
September30, September30, September30, September30,
1996 1995 1996 1995
--------- --------- --------- ---------
Net cash provided by
operating activities....... $ 16,506 $ 11,154 $ 35,058 $ 16,171
Cash flows provided by
(used in) investing
activities:
Plant and equipment
additions............... (99) (1,182) (602) (3,376)
Plant and equipment
additions - affiliates.. --- (9) --- (132)
Restricted funds......... (16,218) 6,116 (11,555) 12,450
--------- --------- --------- ---------
Net cash provided by
(used in) investing
activities............ (16,317) 4,925 (12,157) 8,942
Cash flows provided by
(used in) financing
activities:
Cash distributions....... --- (16,293) (23,607) (21,012)
Payments of principal on
long-term debt.......... --- --- (284) ---
Payments for cost of
financing............... --- --- --- (185)
Advances from a
customer................ --- --- (136) (5,299)
--------- --------- --------- ---------
Net cash used in
financing activities.. --- (16,293) (24,027) (26,496)
Net increase (decrease)
in cash.................... 189 (214) (1,126) (1,383)
Cash at beginning
of period.................. 1,357 2,567 2,672 3,736
--------- --------- --------- ---------
Cash at end of period....... $ 1,546 $ 2,353 $ 1,546 $ 2,353
--------- --------- --------- ---------
--------- --------- --------- ---------
Supplemental disclosures of
cash flow information:
Cash paid for interest.... $ --- $ 103 $ 17,620 $ 17,831
--------- --------- --------- ---------
--------- --------- --------- ---------
Items not affecting cash:
Preferred distribution
payable - in arrears.... $ --- $ (1,800) $ --- $ ---
--------- --------- --------- ---------
--------- --------- --------- ---------
--------- ---------
<FN>
See Notes to Condensed Consolidated Financial Statements.
5
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
consolidate Selkirk Cogen Partners, L.P. and its wholly-owned subsidiary,
Selkirk Cogen Funding Corporation, (collectively the "Partnership"). All
significant intercompany accounts and transactions have been eliminated.
The condensed consolidated financial statements for the interim periods
presented are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished in the condensed consolidated financial statements reflects all
normal recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of such financial statements. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to rules and regulations
applicable to interim financial statements.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements included in
the Partnership's December 31, 1995 Annual Report on Form 10-K.
Note 2. New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
establishes accounting standards for the impairment of long-lived assets and
requires that a loss be recognized for those assets if the sum of the
expected future cash flows from the use of the asset and its eventual
disposition (undiscounted) is less than the carrying amount of the asset.
The Partnership adopted SFAS No. 121 on January 1, 1996, and it did not have
a material impact on the Partnership's financial position or results of
operations.
6
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
Note 3. Contingency
In connection with transactions in 1994 involving the investment by
affiliates of Cogen Technology, Inc. in the Partnership and the purchase of
J. Makowski Company, Inc. by Beale Generating Company, the Partnership filed
New York State real estate transfer and gains tax returns with New York tax
authorities. The New York tax authorities have raised certain questions and
issues about such tax returns. Although the New York tax authorities have
assessed no additional tax against the Partnership or any other transferor at
this time, the issue currently is under consideration and it is possible that
the New York tax authorities will assert that additional tax is owed by the
Partnership or one or more of the other transferors in connection with these
transactions. The Partnership presently cannot predict the likelihood of the
New York tax authorities making such an assertion or, if made, the amount of
tax that might be asserted.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
Three and Nine Months Ended September 30, 1996 Compared to the Three and Nine
Months Ended September 30, 1995:
Net income for the quarter ended September 30, 1996, was approximately $1.7
million as compared to $7.0 thousand for the corresponding period in the
prior year. Net income for the nine months ended September 30, 1996, was
approximately $10.5 million as compared to $0.4 million for the corresponding
period in the prior year. The increase in net income for the quarter and
nine months ended September 30, 1996 is primarily due to increased revenues
and margins generated from gas resales and to a lesser extent electric
revenues from Consolidated Edison Company of New York, Inc. ("Con Edison")
when compared to the corresponding periods in the prior year.
Total revenues for the quarter and nine months ended September 30, 1996, were
approximately $41.1 million and $129.7 million as compared to $37.3 million
and $115.9 million for the corresponding periods in the prior year,
respectively.
Electric Revenues (dollars and kWh's in millions):
- --------------------------------------------------
For the Three Months Ended
September 30, 1996 September 30, 1995
------------------------ ------------------------
Dollars kWh's Dispatch Dollars kWh's Dispatch
------- ----- -------- ------- ----- --------
Niagara Mohawk 6.9 59.4 47.83% 7.0 79.1 49.10%
Con Edison 29.0 416.6 88.63% 27.0 429.6 85.30%
For the Nine Months Ended
September 30, 1996 September 30, 1995
------------------------ ----------------------
Dollars kWh's Dispatch Dollars kWh's Dispatch
------- ----- -------- ------- ----- --------
Niagara Mohawk 20.8 180.0 44.74% 20.9 229.0 47.20%
Con Edison 87.1 1,216.0 88.79% 84.1 1,469.1 90.30%
Revenues from Niagara Mohawk Power Corporation ("Niagara Mohawk") were
comparable for the quarter and nine months ended September 30, 1996 when
compared to the corresponding periods in the prior year, respectively.
Decreased production partially offset by higher energy prices was the primary
factor causing the revenues to remain comparable during the quarter and nine
months ended September 30, 1996 as compared to the corresponding periods in
the prior year. During the quarter ended September 30, 1996 energy delivered
to Niagara Mohawk was sold entirely at full contract rates, whereas for the
quarter ended September 30, 1995, the Partnership entered into special
dispatch arrangements with Niagara Mohawk which called for the pricing of
delivered energy at variable rates less than full contract rates. During the
nine months ended September 30, 1996, Niagara Mohawk dispatched Unit 1
on-line, at full contract rates for January, the majority of February, April,
May, June, July, August and September and off-line for the entire month of
March. Energy delivered to Niagara Mohawk during the nine months ended
September 30, 1996, was sold primarily at full contract rates and the
Partnership entered into few special dispatch arrangements, whereas during
the nine months ended September 30, 1995, the Partnership frequently entered
into special dispatch arrangements with Niagara Mohawk, at times when the
Unit would have otherwise been dispatched off line, which called for the
pricing of delivered energy at variable rates less than full contract rates.
8
Revenues from Con Edison increased $2.0 million and $3.0 million for the
quarter and nine months ended September 30, 1996, when compared to the
corresponding periods in the prior year, respectively. Higher contract
energy rates, resulting from higher index fuel prices, was the contributing
factor to the increase in revenues during the quarter ended September 30,
1996 as compared to the corresponding period in the prior year. Higher
contract energy rates resulting from higher index fuel prices partially
offset by decreased production, was the primary factor contributing to the
increase in revenues during the nine months ended September 30, 1996. During
the nine months ended September 30, 1996, energy delivered to Con Edison was
sold entirely at full contract rates, whereas for the majority of January
1995 and for a few days in February and April 1995, the Partnership entered
into special dispatch arrangements with Con Edison, at times when the Unit
would have otherwise been dispatched off line. These special dispatch
arrangements called for the pricing of delivered energy at variable rates
less than full contract rates.
Steam revenues for the quarter ended September 30, 1996, were approximately
$0.2 million on 357.164 million pounds of steam delivered as compared to
approximately $0.3 million on 373.747 million pounds of steam delivered for
the corresponding period in the prior year. Steam revenues for the nine
months ended September 30, 1996, were approximately $1.9 million on 1.378
billion pounds of steam delivered as compared to approximately $1.8 million
on 1.373 billion pounds delivered for the corresponding period in the prior
year. The decrease in steam revenues during the quarter ended September 30,
1996 was primarily due to lower steam demand. Higher index fuel pricing and
colder than normal winter months were the primary factors contributing to the
increase in steam revenues for the nine months ended September 30, 1996 as
compared to the corresponding period in the prior year. Additionally, steam
revenues for the nine months ended September 30, 1996 include an annual
true-up of $0.2 million in favor of the steam host.
Gas resale revenues for the quarter ended September 30, 1996, were
approximately $5.0 million on sales of approximately 2.2 million MMBtu's as
compared to $3.0 million on sales of approximately 1.8 million MMBtu's for
the corresponding period in the prior year. Gas resale revenues for the nine
months ended September 30, 1996, were approximately $19.8 million on sales of
approximately 6.4 million MMBtu's as compared to $9.1 million on sales of
approximately 5.1 million MMBtu's for the corresponding period in the prior
year. The $2.0 million increase in gas resale revenues during the quarter
ended September 30, 1996 as compared to the corresponding period in the prior
year is primarily due to an increase in average natural gas resale prices and
a reduction in Unit 1 production which resulted in greater volumes of natural
gas becoming available for resale. An increase in the average natural gas
resale price and a reduction in the production of Units 1 and 2 were the
factors contributing to the $10.8 million increase in gas resale revenues for
the nine months ended September 30, 1996 as compared to the corresponding
period in the prior year. The increase in average natural gas resale prices
generally resulted from the colder than normal temperatures this past winter
which caused an increase in demand for natural gas and resulted in lower than
normal gas storage levels. In preparation for the upcoming winter, companies
have been purchasing higher volumes of natural gas to accumulate storage
reserves.
9
Cost of revenues for the quarter and nine months ended September 30, 1996
were approximately $29.6 million on purchases of 7.1 million MMBtu's and
$89.2 million on purchases of 21.3 million MMBtu's as compared to $27.7
million on purchases of 7.3 million MMBtu's and $85.9 million on purchases of
22.6 million MMBtu's for the corresponding periods in the prior year,
respectively. The largest component of the increase in cost of revenues were
fuel purchases which increased $1.4 million and $2.6 million for the quarter
and nine months ended September 30, 1996 as compared to the corresponding
periods in the prior year, respectively. This increase in the cost of fuel
is primarily due to the fuel escalation clauses contained in the firm fuel
supply contracts.
Total other operating expenses for the quarter and nine months ended
September 30, 1996, of approximately $1.6 million and $5.2 million
respectively, were comparable to the corresponding periods in the prior year.
Net interest expense for the quarter and nine months ended September 30,
1996, of approximately $8.2 million and $24.7 million respectively, were
comparable to the corresponding periods in the prior year.
Liquidity and Capital Resources
Net cash flows provided by operating activities increased from approximately
$11.2 million for the quarter ended September 30, 1995 to $16.5 million for
the quarter ended September 30, 1996. Net cash flows provided by operating
activities increased from approximately $16.2 million for the nine months
ended September 30, 1995 to $35.1 million for the nine months ended September
30, 1996. The increases in net cash flows provided by operating activities
were primarily due to the $1.7 million and $10.1 million increases in net
income from operations during the quarter and nine months ended September 30,
1996, respectively. The remainder of the increases in net cash flows
provided by operating activities during the quarter and nine months ended
September 30, 1996 were due to normally recurring cash receipts and
disbursements within the Partnership's operating asset and liability
accounts.
10
Net cash flows used in investing activities for the quarter ended September
30, 1996 were approximately $16.3 million as compared to net cash flows
provided by investing activities of $4.9 million for the quarter ended
September 30, 1995. Net cash flows used in investing activities for the nine
months ended September 30, 1996 were approximately $12.2 million as compared
to net cash flows provided by investing activities of $8.9 million for the
nine months ended September 30, 1995. Net cash flows used in investing
activities primarily represent monies deposited into Funds pursuant the
Depositary and Disbursement Agreement, administered by Bankers Trust Company,
as depositary agent (the "Funds"). Net cash flows provided by investing
activities primarily represent monies withdrawn from the Funds. Monies
deposited into the Funds for the quarter ended September 30, 1996 primarily
represent monies set aside for interest and principal payments to Bondholders
scheduled for December 26, 1996. Monies withdrawn from the Funds for the
quarter ended September 30, 1995 primarily represent a distribution to the
Partners. Monies deposited into the Funds for the nine months ended
September 30, 1996 primarily represent monies set aside for interest and
principal payments to Bondholders on December 26, 1996 offset by
distributions to the Partners. Monies withdrawn from the Funds for the nine
months ended September 30, 1995 primarily represent a one-time payment to GE
Plastics and distributions to the Partners.
Net cash flows used in financing activities for the quarter ended September
30, 1995 consists of approximately $16.3 million in cash distributions to the
Partners. Net cash flows used in financing activities decreased from
approximately $26.5 million for the nine months ended September 30, 1995 to
$24.0 million for the nine months ended September 30, 1996. The decrease in
cash flows used in financing activities is primarily due to a $2.6 million
increase in cash distributions during the nine months ended September 30,
1996 offset by an approximate $5.3 million one-time payment to GE Plastics
during the nine months ended September 30, 1995.
Con Edison by a letter dated September 19, 1994, claimed the right to acquire
that portion of Unit 2's firm natural gas supply not used in operating Unit
2, when Unit 2 is dispatched off-line or at less than full capability. The
Con Edison Power Purchase Agreement contains no express language granting Con
Edison any rights with respect to such excess natural gas. Nevertheless, Con
Edison has argued that, since payments under the contract include fixed fuel
charges which are payable whether or not Unit 2 is dispatched on-line, Con
Edison is entitled to take delivery of any excess natural gas. The
Partnership vigorously disputes the position adopted by Con Edison, based
notably on the absence of any contractual provision according Con Edison the
claimed rights but also on the fact that the Partnership has assumed the risk
under the Con Edison Power Purchase Agreement that the fuel charges payable
by Con Edison are insufficient to cover the costs actually incurred by the
Partnership. By a letter dated May 23 , 1995, Con Edison indicated its
intention to pursue the claim asserted in the September 19, 1994, letter. In
the May 23, 1995 letter, Con Edison reserved the right to claim 100% of the
margins derived from the sales of Unit 2's firm natural gas supply not used
in operating Unit 2 (non-plant gas sales) and requested that the Partnership
reduce the monthly amount invoiced to Con Edison by 50% of a calculated value
of the non-plant gas sales. The Partnership strenuously objected to Con
Edison's contentions and, at a meeting between the Partnership and Con
Edison, Con Edison agreed to continue not to deduct any amount attributable
to non-plant gas sales from payments made upon monthly invoices but stated it
would do so under protest, pending further discussions between the parties.
Since the commencement of commercial operations of Unit 2, the Partnership
made and continues to make, from time to time, excess gas lay-off sales from
Unit 2's gas supply. The Partnership does not intend to adjust the monthly i
nvoices issued to Con Edison and continues to assert that Con Edison is not
entitled to any revenues or margins derived from non-plant gas sales. In the
event Con Edison were to pursue its asserted claim, the Partnership would
expect to pursue all available legal remedies, but there can be no certainty
that the outcome of such remedial action would be favorable to the
Partnership or, if favorable, would provide for the Partnership's full
recovery of its damages.
11
The Partnership's cash flows from the sale of electric output would be
materially and adversely affected if Con Edison were to prevail in its claim
to Unit 2's excess natural gas volumes and the related margins.
Niagara Mohawk PowerChoice Proposal
On October 6, 1995, Niagara Mohawk filed its "PowerChoice" proposal with the
New York State Public Service Commission ("NYPSC"). On October 12, 1995,
Niagara Mohawk filed a Report on Form 8-K with the Securities and Exchange
Commission explaining the PowerChoice proposal (the "October 12 Statement").
In the October 12 Statement, Niagara Mohawk describes a number of related
proposals to restructure the utility's business, including the reorganization
of its assets and the renegotiation of its contracts with generators which,
like the Partnership, are not regulated as utilities ("non-utility
generators"). Niagara Mohawk has proposed that, if it cannot renegotiate its
contracts with non-utility generators, it would take possession of such
independent power projects through the power of eminent domain and
subsequently sell such projects. In the October 12 Statement, Niagara Mohawk
states that it has not ruled out the ultimate possibility of a filing for
restructuring under Chapter 11 of the U.S. Bankruptcy Co de, should it not
achieve its objectives under PowerChoice and other measures fail as well.
The Partnership notes, however, Niagara Mohawk reported positive earnings
during the fourth quarter of 1995 and is seeking electric rate increases for
1996 and 1997 in a filing with the NYPSC. In January 1996, it was reported
that Niagara Mohawk's board of directors elected to eliminate its quarterly
cash dividend on its common stock. Niagara Mohawk last paid a quarterly
dividend on November 30, 1995. In April 1996, it was reported that Moody's
Investors Service ("Moody's") downgraded the long-term credit ratings of
Niagara Mohawk. Moody's reported that their action was based on the limited
progress made in achieving the goals identified in Niagara Mohawk's
PowerChoice proposal, among other financial concerns, which may ultimately
lead to a voluntary bankruptcy filing. Moody's also reported that they gave
Niagara Mohawk a "negative outlook" because of the level of uncertainty and
potential volatility of the situatio n. In May 1996, it was reported that
the NYPSC rejected Niagara Mohawk's filing request for an electric rate
increase for 1996. The NYPSC is scheduled to consider in early 1997 an
electric rate increase request filed by Niagara Mohawk for 1997. In
addition, it was reported that Niagara Mohawk had a loss during the third
quarter ended and September 30, 1996 and positive earnings during the nine
months ended September 30, 1996. The Partnership expresses no opinion with
respect to the likelihood that all or any part of Niagara Mohawk's
PowerChoice proposal (including its features relating to non-utility
generators) will eventually be adopted, in any form, by any or all of the
parties involved, nor does the Partnership express an opinion with respect to
the viability of Niagara Mohawk's proposed alternatives.
12
In furtherance of Niagara Mohawk's PowerChoice proposal, Niagara Mohawk
announced on August 1, 1996 its offer to buyout 44 independent power
contracts in a proposed transaction in which a combination of cash and
securities of a newly structured Niagara Mohawk would be paid in exchange for
cancellation of these contracts. On August 1, 1996, the Partnership received
a generic proposal from Niagara Mohawk with respect to the inclusion of the
Niagara Mohawk Power Purchase Agreement in this buyout offer. The
Partnership is currently evaluating the proposal, which has been conditioned
by Niagara Mohawk on a number of factors, the satisfaction of which is
uncertain. In response to Niagara Mohawk's proposal, advisors to each of
Niagara Mohawk and the independent power producers subject to the proposal
have met, but no agreements have been reached in these meetings. Any
settlement discussions with respect to the proposal will be governed by
strict confidentiality requirements imposed by Niagara Mohawk and management
expects that the substantive details of the buyout proposal would be subject
to negotiation and modification. Accordingly, due to the preliminary nature
and uncertainties of any such buyout discussions, the Partnership believes
that it would not be meaningful to comment on any details of the proposal.
As a result of Niagara Mohawk's PowerChoice proposal, Standard & Poor's and
Moody's have given the Bonds a "negative outlook". According to such rating
agencies, these actions were motivated, in part, by the uncertainties
surrounding the effects of the PowerChoice proposal on the Partnership, as
well as by questions concerning the future financial stability of Niagara
Mohawk.
For the quarter and nine months ended September 30, 1996 electric sales to
Niagara Mohawk accounted for approximately 16.8% and 16.0%, respectively, of
total project revenues. The contract with Niagara Mohawk includes provisions
which permit Niagara Mohawk to dispatch the Facility on the basis of
economic, as well as operational considerations. The Partnership continues
to believe that it has a valid and binding contract with Niagara Mohawk. The
Partnership cannot yet determine, however, what effect, if any, Niagara
Mohawk's activities regarding its PowerChoice proposal will have on the
Partnership, its business or net operating revenues.
13
Future operating results and cash flows from operations are dependent on,
among other things, the performance of equipment and processes as expected,
level of dispatch, fuel deliveries and price as contracted and the receipt of
certain capacity and other fixed payments. A significant change in any of
these factors could have a material adverse effect on the results for the
Partnership.
The Partnership believes that based on current conditions and circumstances
it will have sufficient liquidity available provided by cash flows from
operations to fund existing debt obligations and operating costs.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits
Exhibit No. Description Page No.
---------- ----------- -------
10.1 Third Amendment to Power Purchase 17
Agreement, dated as of September 13, 1996,
between Selkirk Cogen Partners, L.P.
(the "Partnership") and Consolidated Edison
Company of New York, Inc. ("Con Edison")
which allows the Partnership to sell
capacity and energy of the Plant in excess
of the maximum 265 megawatts Dependable
Maximum Net Capability committed to Con
Edison, subject to the right of first
refusal in favor of Con Edison.
27 Financial Data Schedule
(For electronic filing purposes only)
(B) Reports on Form 8-K
Not applicable.
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
15
SELKIRK COGEN FUNDING CORPORATION
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.
SELKIRK COGEN FUNDING
CORPORATION
Date: November 13, 1996 /s/ JOHN R. COOPER
--------------------------
Name: John R. Cooper
Title: Senior Vice President and
and Chief Financial Officer
16