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, 2001
Commission file number 0-25430
RIDGEWOOD ELECTRIC POWER TRUST IV
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3324608
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
c/o Ridgewood Power LLC, 947 Linwood Avenue, Ridgewood, New Jersey 07450
(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
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[
X ]
There is no market for the Shares. The aggregate capital contributions
made for the Registrant's voting Shares held by non-affiliates of the Registrant
at March 30, 2002 was $47,680,000.
Exhibit Index is located on page 40.
PART I
Item 1. Business.
Forward-looking statement advisory
This Annual Report on Form 10-K, as with some other statements made by
the Ridgewood Electric Power Trust IV (the "Trust") from time to time, includes
forward-looking statements. These statements discuss business trends, and other
matters relating to the Trust's future results and business. In order to make
these statements, the Trust has had to make assumptions as to the future. It has
also had to make estimates in some cases about events that have already
happened, and to rely on data that may be found to be inaccurate at a later
time. Because these forward-looking statements are based on assumptions,
estimates and changeable data, and because any attempt to predict the future is
subject to other errors, what happens to the Trust in the future may be
materially different from the Trust's statements here.
The Trust therefore warns readers of this document that they should not
rely on these forward-looking statements without considering all of the things
that could make them inaccurate. The Trust's other filings with the Securities
and Exchange Commission and its offering materials discuss many (but not all) of
the risks and uncertainties that might affect these forward-looking statements.
Some of these are changes in political and economic conditions, federal
or state regulatory structures, government taxation, spending and budgetary
policies, government mandates, demand for electricity and thermal energy, the
ability of customers to pay for energy received, supplies and prices of fuels,
operational status of plant, mechanical breakdowns, availability of labor and
the willingness of electric utilities to perform existing power purchase
agreements in good faith.
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.
The Trust was organized as a Delaware business trust on September 8,
1994 to participate in the development, construction and operation of
independent power generating facilities ("Independent Power Projects" or
"Projects"). Ridgewood Energy Holding Corporation ("Ridgewood Holding"), a
Delaware corporation, is the Corporate Trustee of the Trust.
The Trust sold whole and fractional shares of beneficial interest in
the Trust ("Investor Shares") pursuant to a private placement offering (the
"Offering"), which terminated on September 30, 1996. Net of Offering fees,
commissions and expenses, the Offering provided approximately $39.5 million of
net funds available for investments in the development and acquisition of
Projects. The Trust has 961 record holders of Investor Shares (the "Investors").
As described below in Item 1(c)(2), the Trust has invested substantially all of
its net funds in the Projects.
The Trust is organized similarly to a limited partnership. Ridgewood
Power LLC (the "Managing Shareholder"), a Delaware limited liability company, 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. The Managing Shareholder is
not regularly elected by the Investors.
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.
Robert E. Swanson and certain Swanson family trusts own 100% of the
equity of the following entities:
o Ridgewood Securities Corporation ("Ridgewood Securities")- Placement Agent;
o Ridgewood Power Management, LLC ("RPM") - Operates certain of
the Projects owned by the Trust and six other trusts organized
by the Managing Shareholder;
o Ridgewood Power LLC ("Ridgewood Power")- Managing Shareholder of the Trust
and six other trusts;
o Ridgewood Energy Holding Corporation - Corporate Trustee for
the Trust and six other trusts; and
o Ridgewood Capital Management LLC ("Ridgewood Capital") - marketing affiliate
and manager of seven venture capital funds.
Mr. Swanson has sole voting and investment power over the Swanson family trusts
and is the sole manager and chief executive officer of the above entities.
In addition, the Trust is affiliated with the following trusts
(collectively "Other Power Trusts"), which have been organized by the Managing
Shareholder:
o Ridgewood Electric Power Trust I ("Power I");
o Ridgewood Electric Power Trust II ("Power II");
o Ridgewood Electric Power Trust III ("Power III");
o Ridgewood Electric Power Trust V ("Power V");
o The Ridgewood Power Growth Fund (the "Growth Fund"); and
o Ridgewood/Egypt Fund ("Egypt Fund")
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 January 24, 1995, the Trust notified the Securities and Exchange Commission
of such election and registered the Investor Shares under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). On March 24, 1995 the
election and registration became effective. Effective October 3, 1996, the
Trust, with the approval of the Investors, withdrew its election to be a
business development company so that it could make investments together with
Other Power Trusts without requesting exemptive relief from the Securities and
Exchange Commission. However, in its filing to withdraw its election to be a
business development company, the Trust agreed to comply with most of the
substantive restrictions on business development companies, other than certain
transactions with affiliated persons.
On November 5, 2001, the Trust issued to the Investors a "Notice of
Solicitation of Consents," in which the Trust sought the consent of Investors to
amend the Trust's Amended and Restated Declaration of Trust ("Declaration") to
terminate the Trust's agreement to comply with the substantive restrictions of
the 1940 Act and to eliminate certain procedural requirements of the 1940 Act
that were originally included in the Declaration, including, but not limited to,
deleting the section of the Declaration requiring Independent Trustees. Consents
were tabulated at the close of business on December 27, 2001. A total of 476.8
Investor Shares were outstanding and entitled to be voted. Based on such
tabulation, a majority of Investor Shares consented to such withdrawal and
amendments.
(b) Financial Information about Industry Segments.
The Trust operates in only one industry segment: independent power
generation and similar facilities.
(c) Narrative Description of Business.
(1) General Description.
The Trust was formed to participate primarily in the development,
construction and operation of Projects that generate electricity for sale to
utilities and other users. The Trust was also authorized to invest in capital
projects or processing plants that were anticipated to earn cash flows similar
to those of Independent Power Projects.
(2) The Trust's Investments.
(i) The Providence Project
In April 1996, the Trust and Power III acquired all of the equity
interest in a landfill gas-fired electric generating facility, located on land
adjacent to the Central Landfill, near Providence, Rhode Island. Power III
invested $7.1 million in the Project and the Trust supplied the remainder of the
$20 million investment in the Providence Project. The Trust owns 64.3% of the
Providence Project and Power III owns the remaining 64.3%. The acquisition cost
was approximately $15.5 million (including a $3 million partial prepayment of
Project debt as a condition of obtaining the lenders' consents and transaction
costs) and the remainder of the investment by the programs represents funds
applied to operating reserves, working capital and reserves for capital
improvements and expansion. The Providence Project was encumbered by $5.4
million of debt maturing in installments through 2004.
The Providence Project burns methane gas generated by the decomposition
of garbage and other waste in the landfill as fuel for a 13.8 Megawatt capacity
electric generation plant. The facility has been in operation since 1990 and has
a Power Contract for 12.0 Megawatts with New England Power Company ("NEP")with a
19- year term remaining. The Providence Project is a QF under the Public
Utilities Regulatory Policies Act ("PURPA").
The Providence Project leases the right to use the landfill site from
the Rhode Island Resource Recovery Corporation, a Rhode Island state agency
("RIRRC"), for a royalty of 15% of net Project revenues (increasing from 15% to
18% in 2006) until 2020. The Project in turn subleases those rights to Central
Gas Limited Partnership ("Gasco"). Gasco, which is not affiliated with the
Trust, operates and maintains the landfill gas collection system and supplies
such gas to the Providence Project. Pursuant to a sublease with the Providence
Project, Gasco pays a fixed rent to the Providence Project computed on the basis
of the Providence Project's generating capacity. The Providence Project, in
turn, purchases landfill gas from Gasco at a formula price per kilowatt-hour
generated by the Providence Project.
As described in more detail in Item 3 - Legal Proceedings, the
Providence Project, RIRRC and Gasco were all named by the United States
Environmental ("EPA") Agency in certain Administrative Orders in which the EPA
alleged various violations of environmental law and regulations. The Providence
Project has entered into a Consent Decree with the EPA settling all alleged
claims against the Providence Project. Currently, RIRRC and Gasco are finalizing
a consent decree with the EPA that will settle the EPA's alleged claims against
RIRRC and Gasco and require that certain actions be taken and maintained in the
future to maintain the landfill and gas collection systems.
In addition, throughout the Trusts' ownership of the Providence
Project, situations have occurred at the landfill regarding Gasco's
operation and maintenance of the gas collection system, which has convinced the
Trust and Power III that the gas collection system could be operated and
maintained more efficiently and economically and could provide higher quality,
and greater quantities of, landfill gas. The resulting savings in costs and
increase in quantity and quality of methane gas will benefit the Providence
Project. In addition, RIRRC currently anticipates that the Central Landfill will
be capable of providing landfill gas from new phases that could fuel an
additional 12 MW.
Therefore, the Trust and Power III have formed Ridgewood Gas Services,
LLC, which is currently negotiating with RIRRC and Gasco to operate and maintain
the respective gas collection systems owned by RIRRC and Gasco. As part of the
overall transaction, a newly-formed entity named Ridgewood Rhode Island
Generation, LLC, also owned by the Trust and Power III, will obtain rights to
additional landfill gas from RIRRC and construct, develop and operate an
additional 7.5 MW landfill gas-fired electric generation facility. The
negotiations described herein are continuing and there is no guarantee that such
transaction will be negotiated and finalized.
See Item 3 - Legal Proceedings for information regarding certain
environmental matters involving the Project.
(ii) California Pumping Project
On December 31, 1995, the Trust purchased a package of irrigation
service engines (the "Pumping Project") located in Ventura County, California.
The purchase price was approximately and from 1996 to 1998 the Trust bought
additional engines from unaffiliated sellers. The Trust's total investment in
the Pumping Project was approximately $877,000. RPM operates and manages the
Pumping Project.
The Pumping Project has been operating since 1992 and uses 20
natural-gas-fired reciprocating engines with a rated equivalent capacity of 3
Megawatts to provide power for irrigation wells that furnish water for orchards
of lemon and other citrus trees. The power is purchased by local farmers and
farmers' co-operatives pursuant to electric services contracts. Presently, the
Pumping Project's rates are approximately 90% of Southern California Edison
Company's agricultural rate of 12.2 cents/kwh. Early in 2001, the Pumping
Project suspended the 10% discount from SCE's rates due to the extremely high
cost of natural gas (the fuel used by the Pumping Project's engines). In
addition, and also due to the high cost of natural gas, the Pumping Project
informed its customers that the cost of such gas would be passed-through and
paid by such customers. The Pumping Project did not lose any customers as a
result of these changes. However, in October of 2001, after natural gas prices
decreased, the Pumping Project reinstated a 10% discount from SCE's rates and
suspended the natural gas pass-through.
Recently, several of the Pumping Project's customers have indicated
that they would like to own the engines supplying them electricity and requested
proposals from the Pumping Project to buy out of their energy services contract
and purchase the engines. The Pumping Project has proposed to such customers a
transaction in which they would purchase the used engines from the Pumping
Project over a five (5) year term. During such term, the Pumping Project will
provide operation and maintenance services to the customers who opt to purchase
the engines. Such offer has been provided to certain customers, but no final
transaction has been negotiated or finalized.
Power II owns a package of similar engines located on different sites
and operated under identical terms. The engines operate independently of each
other and revenues and expenses for each Trust are segregated from those of the
other.
(iii) Maine Hydro Projects
On December 23, 1996, the Trust purchased from Consolidated Hydro, Inc.
a 50% interest in 14 small hydroelectric projects located in Maine. In order to
increase diversification of the Trust's investments, Power V purchased the
remaining 50% interest. Each Trust paid approximately $6,700,000 for its
interest. The jointly owned partnership that acquired the Project also assumed a
lease obligation in the amount of $1,005,000.
The 14 hydroelectric projects have an aggregate rated capacity of 11.3
megawatts. All electricity generated by the projects over and above their own
requirements is sold to either Central Maine Power Company ("Central Maine") or
Bangor Hydro-Electric Company ("Bangor Hydro")under long-term power purchase
contracts. Eleven of the contracts expire at the end of 2008 and the remaining
three expire in 2007, 2014 and 2017. The power contracts contain a provision
that enabled the price paid by Central Maine and Bangor to be re-determined by
the Maine Public Utilities Commission ("Maine PUC"). In 2001, the Maine PUC
reviewed the prices paid by Central Maine and Bangor and such prices were
lowered. However, the Trust believes that the overall impact of the lowered
price to the Maine Hydro Projects' revenue will not have a material impact on
the Trust. The Maine Hydro Projects are "run-of-river" facilities, which means
that the amount of water passing through the turbines is directly dependent upon
the fluctuating level of flow of the river or stream. Therefore, the amount of
the flow of the river or stream, along with other intangibles, has a much
greater impact on revenues.
The Maine Hydro Projects entered into a five year operating and
maintenance agreement with CHI Energy, Inc. under which a subsidiary of CHI
Energy manages and administers the projects for a fixed annual fee of $307,500
(adjusted upwards for inflation), plus an annual incentive fee equal to 50% of
the excess of aggregate net cash flow over a target amount of $1.875 million per
year. The maximum incentive fee is $112,500 per year; to the extent the annual
net cash flow exceeds $2.1 million, the excess will be carried forward to future
years; to the extent that the annual net cash flow is less than $1.875 million,
the deficit will be carried forward to future years. In addition, the operator
will be reimbursed for certain operating and maintenance expenses. The agreement
had an initial five-year term, which was extended for another five-year term on
June 30, 2001. The agreement can be extended for one additional five-year term
by mutual consent of the parties thereto.
(iv) Maine Biomass Projects
On July 1, 1997, the Trust and Power V purchased a preferred membership
interest in Indeck Maine Energy, L.L.C. ("Indeck Maine"), an Illinois limited
liability company that owns two electric power generating stations fueled by
waste wood at West Enfield and Jonesboro, Maine. The Trust and Power V purchased
the interest through a limited liability company owned equally by each. The
Trust's share of the purchase price was $7,298,000 and Power V provided an equal
amount of the total purchase price.
Indeck Energy Services, Inc. ("Indeck"), an entity unaffiliated with
the Trust, Power V or any of their affiliates, owns the junior membership
interest in Indeck Maine. The preferred membership interest entitles the Trust
and Power V to receive all net cash flow from operations each year until they
receive an 18% annual cumulative return on their capital contributions to Indeck
Maine. Any additional net operating cash flow in that year is paid to Indeck
until the total paid to it equals the amount of the 18% preferred return to the
Trust and Power V for that year, without cumulation. Any remaining net operating
cash flow for the year is payable 25% to the Trust and Power V together and 75%
to Indeck, unless the Trust and Power V have recovered their capital
contributions from proceeds of a capital event. Thereafter, these percentages
change to 50% each. All non-operating cash flow, such as proceeds of capital
events, is divided equally between (a) the Trust and Power V and (b) Indeck. RPM
operates the Projects and charges its expenses to Indeck Maine at its cost.
Each of the Projects has a 24.5 megawatt rated capacity and uses steam
turbines to generate electricity. The fuel is wood chips, bark, sawmill residue
and other forest related biomass. Both projects are QFs under PURPA. The Maine
Biomass Projects are members of the New England Power Pool ("NEPOOL"), an
association of New England generators, transmission utilities, distribution
utilities, power marketers and others. NEPOOL's control and market regulation
responsibilities are managed by ISO-New England, Inc. ("ISO"), an independent,
non-profit organization company.
Due to the high costs associated with their operation, if the Maine
Biomass Projects are not operating pursuant to a bilateral agreement with
another party, they are generally operated, if at all, as peak load plants on
those few days per year (typically during summer heat waves) when there are
power and reserve shortages in New England. During the rest of the year, the
Maine Biomass Projects are shut down but are capable of being restarted on
several days' advance notice. Because the Projects are capable of providing
electricity, they are entitled to sell their "installed capability," or "ICAP,"
a measurement of the rated ability of a generating plant to produce electric
power. Power plants are credited with installed capability whether or not they
run. A member of NEPOOL that serves load (i.e., electric consumers)must own or
purchase installed capability on a monthly basis that at least equals its
expected load for the month (the maximum amount of power that its customers may
demand) plus mandated reserves. Generating facilities may enter into contracts
to sell installed capability or were able to purchase it through ISO auction.
On November 28, 2000, Indeck Maine entered into a "Power Sales
Confirmation Agreement" with Constellation Power Source, Inc., ("Constellation")
pursuant to which Indeck Maine sold electric power to Constellation from the
West Enfield Facility for a period beginning June 1, 2001 through February 28,
2002. Upon expiration of the Constellation Contract, Indeck Maine entered into a
power sales agreement with Select Energy to sell the electric energy from the
West Enfield Plant for the month of March 2002. Select has the option of
extending such contract for four additional one-month extensions.
In 1997, the State of Massachusetts passed the Electric Restructuring
Act, which, among other things, required that the State encourage the
development and construction of renewable resources. The Act requires entities
that sell electricity to end-use retail customers in Massachusetts to have in
their electric portfolio a certain percentage of renewable resources. Such
resources are termed RPS Attributes. Failure to have the required amount of
renewable energy results in a payment to the state equal to $.005/kwh for every
kwh of the deficiency. The Massachusetts Division of Energy Resources ("DOER")
recently issued final regulations regarding the RPS Attributes ("RPS
Regulations"). The RPS Regulations require that renewable electric generation
facilities, such as the Maine Biomass Plants, qualify as such pursuant to and as
required by the RPS Regulations. The Trust believes that the electric output of
the Maine Biomass Plants will qualify for RPS Attributes. If the West Enfield
Facility obtains such qualification from the DOER, then, pursuant to the power
sales contract, Select Energy will also purchase and pay an additional amount
for the RPS Attributes associated with the electric energy it purchased from the
West Enfield Facility. While the agreement with Select Energy is only for a term
of possibly five months, given the market and proposed supply of renewable
resources that can qualify for the RPS Attributes, the Trust believes that the
Maine Biomass Plants will be able to sell their RPS Attributes pursuant to
longer-term contracts. However, no negotiations regarding such contracts have
taken place.
Finally, for 2001, Indeck Maine funded the approximately $1.0 million
difference between the Maine Biomass projects' revenues and operating expenses
by borrowing from its members. The Trust provided 25% of the loans, Power V also
provided an equal 25% and the remaining 50% was provided by Indeck, all on the
same terms. Indeck Maine issued demand promissory notes bearing interest at 5%
per year to evidence the indebtedness. Except for the joint ownership of Indeck
Maine, neither Indeck nor its affiliates are affiliated with or has any material
relationship with the Trust, Power V, their Managing Shareholder or their
affiliates, directors, officers or associates of their directors and officers.
(v) Santee River Rubber Company
The Trust and Power V purchased preferred membership interests in
Santee River Rubber Company, LLC, a South Carolina limited liability company
("Santee River"). Santee River built a waste tire and rubber processing facility
(the "Facility") located in Berkeley County, South Carolina. The Trust and Power
V purchased the interest through a limited liability company owned one-third by
the Trust and two-thirds by Power V. The Trust's share of the $13,470,000
purchase price for the membership interest in Santee River was $4,490,000 and
Power V provided the remaining $8,980,000. The remaining equity interest in
Santee River was owned by a wholly owned subsidiary of Environmental Processing
Systems, Inc. ("EPS") of Garden City, New York. EPS was the developer of the
Facility. EPS provided administrative services to Santee River during the
construction of the Facility at its cost (including direct and indirect costs
and allocable overhead). At the same time as it sold the Trust and Power V their
membership interest, Santee River borrowed $16,000,000 through tax-exempt
revenue bonds sold to institutional investors and another $16,000,000 through
taxable convertible bonds sold to qualified institutional purchasers
(collectively the "Debt"). It also obtained $4,500,000 of subordinated financing
from the general contractor for the Facility, which is only repayable if the
Facility meets specified construction and performance criteria.
The Facility was constructed by Bateman Engineering, Inc. (the
"Contractor") pursuant to a turnkey construction agreement between the
Contractor and Santee River for a fixed price of $30.5 million. The Facility was
designed to receive and process waste tires and other waste rubber products and
produce fine crumb rubber of various sizes. Due to a variety or reasons
including, the Trust believes, wasteful and possibly fraudulent practices of
EPS, as well as design and other technical problems, the Facility was unable to
perform as represented and never achieved commercial operation. On October 26,
2000, EPS, on behalf of Santee River, filed a Chapter 11 bankruptcy proceeding
in U.S. Bankruptcy Court for the District of South Carolina. In the third
quarter of 2000, the Trust wrote down its entire investment in Santee River to
zero. As previously reported, the Trust instituted litigation against EPS
alleging fraud, breach of contract and other claims. This litigation was
effectively stayed, then ultimately dismissed, as a result of the bankruptcy
proceeding.
The bankruptcy proceeding continued for all of 2001. The Santee River
Facility was sold for approximately $3,500,000; $2,400,000 in cash and
$1,000,000 in a note. A large part of the cash to be received from the sale
transaction will go to pay the administrative expenses of the bankruptcy
proceeding. The Trust believes that it was entitled to the first $457,000 of the
remaining cash to repay some earlier and additional loans provided by the Trust
to Santee River in order to fund the testing of the facility. As part of the
agreement to provide such loan, the Debt agreed to give the Trust a priority for
such amount in any liquidation. Upon the sale, however, the Debt was not
agreeable to re-paying the Trust the full amount of the $457,000 loan. The Trust
filed for a temporary restraining order to prevent the distribution of the
proceeds. The Trust and the Debt have agreed to settle the outstanding claim.
The Trust and Power V will receive a cash payment of $300,000 and the remaining
$157,000 will be allowed as an unsecured, non-priority claim against the
bankruptcy estate.
3) Project Operation.
(i) Providence and Maine Hydro Projects. The Providence and Maine
Hydro Projects are QFs under PURPA and have entered into long-term power
purchase agreements ("Power Contracts") with their local distribution utilities.
Under the Power Contracts for the Providence and Maine Hydro Projects, the local
utilities are obligated to purchase the contractual output of the Projects at
formula prices. No separate payments are made for capacity or capability and all
payments under the Power Contracts are made for energy supplied.
The Maine Hydro Projects are licensed or operated as "run-of-river"
facilities, which means that the amount of water passing through the turbines is
directly dependent upon the fluctuating level of flow of the river or stream.
The Projects have a very limited ability to store water during high flows for
use at low flow periods. Therefore, they produce electric energy and sell it as
generated at the fixed rates provided in the Power Contracts.
The Providence and Maine Hydro Projects are not subject to fuel price
changes or supply interruptions. Because the Maine Hydro Projects are
"run-of-river" hydroelectric plants, their output is dependent upon rainfall and
snowfall in the areas above the dams. Output is generally lowest in the summer
and winter months and highest in the spring and fall.
(ii) Maine Biomass plants
The Maine Biomass Projects burn whole-tree wood chips, as well as wood
from processing of raw wood at paper mills or sawmills. The price of wood waste
fluctuates from time to time and is a primary determinant of whether the
Projects can run profitably or not. The major causes of the fluctuation are
changes in woodcutting or wood processing volumes caused by general economic
conditions, increases in the use of wood waste by paper mills for their own
cogeneration plants, changes in demand from competing generating plants using
wood waste or paper mill refuse and weather conditions. The cost of wood waste
is currently significantly in excess of that anticipated at the time the Maine
Biomass Projects were purchased.
Although the Maine Biomass Projects are QFs, they do not have long-term
Power Contracts and sell their capacity and electric energy through bilateral
contracts with utilities and other entities that distribute electricity, such as
the contracts with Constellation and Select as described above. Generators may
sell directly to such entities on a bilateral basis, or they may sell to the
ISO. The ISO dispatches generating plants and takes their power in accordance
with offers and its estimate of the most economical means of providing
sufficient reliable electricity. It computes the clearing price for each
electrical product on an hourly basis, bills loads for their shares of the
products and is to pay generators in accordance with the generators' offers and
the market rules.
The Maine Biomass Projects are "renewable power" projects. "Renewable
power" (often called "green power") is a catchphrase that includes Projects
(such as solar, wind, small hydroelectric, biomass, geothermal and landfill-gas)
that do not use fossil fuels or nuclear fuels. Renewable power plants typically
have high capital costs and often have total costs that are well above current
total costs for new gas-turbine production. As described above, in
Massachusetts, RPS Attributes are required to be purchased by entities serving
end-use retail electric customers. RPS Attributes are obtained from renewable
resources, such as the Maine Biomass Projects. As a result of the RPS Attribute
program in Massachusetts, and similar programs in other states that have not yet
been finalized, the Maine Biomass Projects may be able to sell their electric
output and the renewable or "green" credits associated with such electric power
at a premium over current wholesale electric rates.
In 2000, Indeck Maine Energy reached an agreement with its transmission
provider, Bangor Hydro-Electric Company, to substantially reduce the rates
charged to transmit electricity from the company's two plants to the interstate
transmission grid. On February 26, 2001, the FERC issued an order approving the
Indeck Maine Energy discount, along with most provisions of the Bangor Hydro
rate case settlement, but modifying certain language in the settlement document.
Under the Indeck Maine discount, the utility agreed to give Indeck Maine
specific discounted transmission rates for a period of 5 years. Pursuant to the
settlement agreement, and only setting out the major terms, Indeck Maine will
pay Bangor Hydro $7/kw/year for firm transmission service. At Indeck Maine's
option it can also take firm transmission service on a monthly basis for
$7/kw/year for all months except June, July and August, when the rate will be
based on a $15/kw/year rate. After year three of the agreement, the transmission
rate can increase under certain limited circumstances, but even in such an event
Indeck Maine would only be required to meet the price offered by a competing
transmission customer to retain the service. In contrast to the discounted rate
agreed upon, it is estimated that a nondiscounted rate on Bangor Hydro would
have been over $30/kw/yr, a large multiple of the discounted rate agreed upon.
See, Item 3 "Legal Proceedings" for an update on the current litigation
that the Indeck Projects are pursuing against the ISO.
(iii) Santee River
The Santee River Project has been sold to a third party purchaser
pursuant to the Chapter 11 bankruptcy proceeding in U.S. Bankruptcy Court in
South Carolina. As indicated earlier, the Trust has written-off its entire
investment in Santee River.
(iv) General considerations
Customers of Projects that accounted for more than 10% of annual
revenues from operating sources to the Trust in each of the last three fiscal
years are:
Calendar year
2001 2000 1999
New England Power Company
(Providence Project) 85.5% 88.4% 89.4%
The financial statements of the Maine Hydro Projects, the Maine Biomass
Projects and Santee River are not consolidated with those of the Trust and,
accordingly, their revenues are not considered to be operating revenues.
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.
Electricity produced by a Project is typically delivered to the
purchaser through transmission lines which are built to interconnect with the
utility's existing power grid, or in the case of the Maine Biomass Projects, via
utility lines owned by Bangor Hydro to the ISO's transmission facilities. As
described above, Indeck Maine has negotiated a package of tariff amendments and
special facilities agreements with Bangor Hydro that would remove most of the
tariff disadvantages.
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 any Project. Generally, working capital requirements are not a
significant item in the independent power industry. The cost of maintaining
adequate supplies of fuel is usually the most significant factor in determining
working capital needs.
In order to commence operations, most Projects require a variety of
permits, including zoning and environmental permits. Inability to obtain such
permits will likely mean that a Project will not be able to commence operations,
and even if obtained, such permits must usually be kept in force in order for
the Project to continue its operations.
Compliance with environmental laws is also a material factor in the
independent power industry. The Trust believes that capital expenditures for,
and other costs of, environmental protection have not materially disadvantaged
its activities relative to other competitors and will not do so in the future.
Although the capital costs and other expenses of environmental protection may
constitute a significant portion of the costs of a Project, the Trust believes
that those costs as imposed by current laws and regulations have been and will
continue to be largely incorporated into the prices of its investments and that
it accordingly has adjusted its investment program so as to minimize material
adverse effects. 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.
Of the 14 Maine Hydro Projects, six operate under existing
hydroelectric project licenses from the Federal Energy Regulatory Commission
("FERC") and two have license applications that were filed last year but are
still pending. Changes to the six other, unlicensed Projects (which are
currently exempt from licensing) may trigger a requirement for FERC licensing.
FERC licensing requirements have become progressively more stringent and often
require that output of a Project that is being licensed or relicensed be
restricted in order to allow a more natural flow of water, that archaeological
and historical surveys be undertaken, that public access to waterways be
provided (sometimes requiring purchase of property rights by the hydroelectric
licensee) and that various site improvements be made. These requirements can
materially impair a project's profitability. See Item 1(c)(6) - Business -
Narrative Description of Business Regulatory Matters.
(4) Trends in the Electric Utility and Independent Power Industries
The Trust is somewhat insulated from recent deregulatory trends in the
electric industry because the Providence and Maine Hydro Projects are QFs with
long-term formula-price Power Contracts. Each Power Contract now provides 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.
However, in general, 2001 was an extremely volatile and unpredictable
year for the electric generation and independent electric power industry. In the
State of California the year began with the state experiencing severe
electricity shortages. As a result, California, particularly San Francisco,
experienced rolling blackouts, high wholesale electric prices, and subsequently,
retail electric rates soared, and the California investor owned electric
utilities ("IOUs") experienced severe and critical cash shortages due, in large
part, to the fact that for 2000 and part of 2001 their rates to retail consumers
were frozen such that increased wholesale prices could not be passed on to
consumers. PG&E thus declared bankruptcy in April 2001 and for much of the
summer and fall of 2001, it was not at all clear whether Southern California
Edison Company would be able to survive without declaring bankruptcy. Moreover,
other parts of the United States, particularly New England, experienced
wholesale price spikes and shortages and while there was speculation that such
areas would experience California type blackouts and shortages, such events
never materialized.
During most of 2001, as a result of the high wholesale prices in
California and other parts of the United States, independent power producers
naturally responded by either purchasing additional existing electric generation
or announcing plans to build additional new electric generation. There were
estimates that an additional 50,000 MWs would be constructed during the next
several years. While such purchasing and proposed construction began prior to
2001 and was not all in response to the California electric crisis, there is not
doubt that such crisis accelerated IPP purchasing and proposed construction.
However, as 2001 progressed the electric crisis appeared to fade and wholesale
prices fell significantly. Such change was due in large measure to the work of
various governmental agencies, extremely mild weather over much of the United
States, an increase electric conservation and a decrease in natural gas prices,
which fuel an overwhelming majority of the power plants.
In addition to the problems described above regarding California, on
December 2, 2001, Enron Corp. ("Enron") filed for protection under the U.S.
Bankruptcy Code in the largest bankruptcy filing in United States history. While
extremely complicated and still the subject of a large number of congressional
and regulatory agency investigations, it appears that the Enron bankruptcy
resulted in large measure from the restatement of earnings and reduction of
shareholders' equity that Enron announced due to accounting irregularities.
Because Enron is primarily a power marketer that relies heavily on an investment
grade credit to conduct its power marketing business, when the restatements were
announced, rating agencies, such as Moody's and Standard & Poor's, lowered
Enron's credit rating, which in turn caused Enron's trading partners to
liquidate power contracts and/or refuse to continue to conduct business with
Enron. Enron's bankruptcy soon resulted.
As a result of Enron's bankruptcy, many independent power producers
have seen their stock prices and credit rating plummet. In an attempt to reverse
such events, many have attempted to "clean-up" their balance sheets and reduce
debt by either selling (or attempting to sell) power facilities recently
purchased and have also cancelled proposed new construction. In addition to
Enron's bankruptcy, the extremely low wholesale prices, the erratic regulatory
framework and the act that many states, including California, have either
canceled deregulation or limited its scope and appeal, have all contributed to
decision to discontinue construction of new power plants. Although electric
supply is currently meeting demand nationwide due, in large measure, to mild
weather, low gas prices, new generation already online, and the economic
downturn, there is a possibility that should the economy turn around, gas prices
increase, conservation decrease and demand increase, shortages nationwide could
result. While such shortages could create social and political problems for
entities that own and operate electric generation facilities, such as the Trust,
electric shortages generally equate to higher wholesale electric prices.
In conclusion, the trend in the industry, as a result of the matters
detailed below, may be a retrenching and reversion to a more regulated electric
industry, with strict reporting requirements and cost of service regulation.
However, many of those charged with the responsibility of investigating the
Enron or the California problems have not disavowed deregulation. The Trust has
no direct exposure to Enron. The Trust's indirect exposure to Enron cannot yet
be determined.
(5) Competition
There are a large number of participants in the independent power industry.
Several large corporations specialize in developing, building and operating
independent power plants. Equipment manufacturers, including many of the largest
corporations in the world, provide equipment and planning services and provide
capital through finance affiliates. Many regulated utilities are preparing for a
competitive market, and a significant number of them already have organized
subsidiaries or affiliates to participate in unregulated activities such as
planning, development, construction and operating services or in owning exempt
wholesale generators or up to 50% of independent power plants. In addition,
there are many smaller firms whose businesses are conducted primarily on a
regional or local basis. Many of these companies focus on limited segments of
the cogeneration and independent power industry and do not provide a wide range
of products and services. There is significant competition among non-utility
producers, subsidiaries of utilities and utilities themselves in developing and
operating energy-producing projects and in marketing the power produced by such
projects.
The Trust is unable to accurately estimate the number of competitors but
believes that there are many competitors at all levels and in all sectors of the
industry. Many of those competitors, especially affiliates of utilities and
equipment manufacturers, are far better capitalized than the Trust.
Please also review the discussion of changes in the industry above at (4) -
Trends in the Electric Utility and Independent Power Industries.
(6) Regulatory Matters.
The 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.
(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. QFs 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, from state laws regarding rate or financial regulation. In order
to be a QF, 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 QFs if they meet regulations respecting
maximum size (in certain cases), primary energy source and utility ownership.
The exemptions from extensive federal and state regulation afforded by
PURPA to QFs are important to the Trust and its competitors. The Trust believes
that each of its Projects is a QF. If a Project loses its QF status, the utility
can reclaim payments it made for the Project's non-qualifying output to the
extent those payments are in excess of current avoided costs or the Project's
Power Contract can be terminated by the electric utility.
(B) The 1992 Energy Act. The Comprehensive Energy Policy Act of 1992
(the "1992 Energy Act") empowered FERC to require electric utilities to make
available their transmission facilities to, and wheel power for, Independent
Power Projects under certain conditions and created an exemption for electric
utilities, electric utility holding companies and other independent power
producers from certain restrictions imposed by the Holding Company Act. Although
the Trust believes that the exemptive provisions of the 1992 Energy Act will not
materially and adversely affect its business plan, the act may result in
increased competition in the sale of electricity.
(C) The Federal Power Act("FPA"). The FPA grants FERC exclusive rate-making
jurisdiction over wholesale sales of electricity in interstate commerce. The FPA
provides FERC with ongoing as well as initial jurisdiction, enabling FERC to
revoke or modify previously approved rates. Such rates may be based on a
cost-of-service approach or determined through competitive bidding or
negotiation. While Qualifying Facilities under PURPA are exempt from the
rate-making and certain other provisions of the FPA, non-QFs are subject to the
FPA and to FERC rate-making jurisdiction.
(D) Fuel Use Act. Projects that may be developed or acquired may also
be subject to the Fuel Use Act, which limits the ability of power producers to
burn natural gas in new generation facilities unless such facilities are also
coal-capable within the meaning of the Fuel Use Act.
(E) State Regulation. State public utility regulatory commissions have
broad jurisdiction over Independent Power Projects which are not QFs under
PURPA, and which are considered public utilities in many states. In addition,
states may assert jurisdiction over the siting and construction of
non-Qualifying Facilities and, among other things, issuance of securities,
related party transactions and sale and transfer of assets. The actual scope of
jurisdiction over non-QFs by state public utility regulatory commissions varies
from state to state.
(ii) Environmental Regulation.
The construction and 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 can
also include wetlands preservation and noise regulation. These laws and
regulations in many cases require a lengthy and complex process of renewing
licenses, permits and approvals from federal, state and local agencies.
Obtaining necessary approvals regarding the discharge of emissions into the air
is critical to the development of 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 Trust's Projects must comply with many federal and state laws and
regulations governing wastewater and storm water discharges from the Projects.
These are generally enforced by states under permits for point sources of
discharges and by storm water permits. Under the Clean Water Act, such permits
must be renewed every five years and permit limits can be reduced at that time
or under re-opener clauses at any time. The Projects have not had material
difficulty in complying with their permits or obtaining renewals. The Projects
use closed-loop engine cooling systems which do not require large discharges of
coolant except for periodic flushing to local sewer systems under permit and do
not make other material discharges.
The Providence Project operates filtration and condensation equipment for
the purpose of removing contaminants from the landfill gas supply. The
condensate is further treated and then discharged to a local treatment plant
under an applicable permit. The contaminants removed from the condensate are
incinerated at an approved facility. The Trust believes that these discharges
and contaminants are being disposed of in compliance with applicable
requirements.
The Trust's Projects are subject to the reporting requirements of the
Emergency Planning and Community Right-to-Know Act that require the Projects to
prepare toxic inventory release forms. These forms list all toxic substances on
site that are used in excess of threshold levels so as to allow governmental
agencies and the public to learn about the presence of those substances and to
assess potential hazards and hazard responses. The Trust does not anticipate
that this requirement will result in any material adverse effect on it.
The Managing Shareholder expects that environmental and land use
regulations may become more stringent. The Trust and the Managing Shareholder
have developed a certain expertise and experience in obtaining necessary
licenses, permits and approvals, but will nonetheless rely upon qualified
environmental consultants and environmental counsel retained by it to assist in
evaluating the status of Projects regarding such matters.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
The Trust has only invested in Projects in the United States and has no
foreign operations.
(e) Employees.
The Projects are operated by RPM and accordingly the Trust has no
employees. The persons described below at Item 10 - Directors and executive
officers of the Managing Shareholder and RPM 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)), 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 or limited liability
companies in which the Trust has an interest.
Approximate
Square
Ownership Ground Approximate Footage of Description
Interests Lease Acreage Project of
Projects Location in Land Expiration of Land (Actual Project
or Projected)
Provi- Providence,
dence Rhode Leased 2020 4 10,000 Landfill
Island gas-fired
generation
facility
Maine Hydro 14 sites
in Maine Owned n/a 24 n/a Hydro-
by joint electric
venture* facilities
Pumping Ventura License n/a n/a nominal Natural-
Project County, gas-fueled
California engines for
irrigation
pumps located
on various
farms
Maine West Enfield Owned n/a less 18,000 Wood waste-
Bio- and Jonesboro, by joint than fired genera-
mass Maine venture** 25 tion facility
*Joint venture equally owned by the Trust and Power V. ** Joint venture owned by
Indeck, the Trust and Power V.
Item 3. Legal Proceedings.
(i) Providence
In January 2000 and August 2000, the United States Environmental
Protection Agency ("EPA") issued "Administrative Orders" to the Providence
Project, the Rhode Island Resource Recovery Corporation ("RIRRC"), the owner and
operator of the Johnston, Rhode Island landfill, and Central Gas Corporation,
Central Gas LTD Partnership, LKD Central Limited Partnership and LKD Energy
Corporation (collectively "GASCO"), the owner and operator of a gas collection
system at the landfill which provides gas to the Providence Project. With
respect to the Providence Project, the EPA believed it to be in violation of
certain provisions of the Clean Air Act and certain federal regulations in
connection with the Providence Project's operations at the Johnston, Rhode
Island landfill. Although the Providence Project denied the EPA's claims, the
EPA and the Providence Project settled the EPA's claims against the Providence
Project through the mechanism of a Consent Agreement and Order that will fully
resolve the EPA's claims against the Providence Project in consideration and
paid an administrative penalty of approximately $25,000 in 2001.
In addition to the foregoing, the RIRRC and GASCO entities are being
pursued by the EPA for alleged violations of federal statutes and regulations
concerning their operations. RIRRC and GASCO may or may not settle those claims
with the EPA. Currently, RIRRC and GASCO have negotiated a draft consent decree
with the EPA which settles the EPA's claims, however, such consent decree has
not yet been finalized or the terms made public.
(ii) Indeck Maine
On June 2, 2000, Indeck Maine filed a "Complaint Requesting Fast Track
Processing And Request For Immediate Action" with FERC seeking FERC's removal of
bid restrictions placed on Indeck Maine's Projects. The Complaint asserted that
the actions of the ISO in setting bid caps and unilaterally mitigating Indeck
Maine's bids far exceeded its authority under the ISO's market rules. On July
26, 2000, FERC agreed with Indeck Maine and ruled that the ISO had no basis to
impose bid restrictions upon Indeck Maine but, concluded, that "[w]e will grant
Indeck's request to order ISO-NE to remove the bid caps on Indeck's units as of
the date of this order." Unfortunately, FERC failed to rule that the ISO bid
caps and other restrictions were improper from their inception. On August 25,
2000, Indeck Maine filed a motion with FERC seeking a clarification that the bid
restrictions were improper from inception or, in the alternative, a rehearing on
that issue. FERC has yet to rule on the matter.
In addition, as stated above, in early October 1999, the ISO informed
RPM that a scheduled transmission outage for October 16 and 17 required ISO to
activate all possible generation in Maine. The Maine Biomass Projects, which had
been shut down and which did not have full crews available, had a pre-existing
offer to supply electric energy at an high price, reflecting the costs of
restarting the plants, obtaining a crew on short notice and covering fixed
costs. The ISO accepted the offer subject to its market rules and conditions.
The Maine Biomass Plants operated as dispatched by the ISO on October 16 and, if
they were paid in accordance with their offer terms, would have received in
excess of $2.2 million. In November 1999, the ISO advised RPM that it would pay
a total of $5,000 for the energy the Projects produced on October 16. The ISO
has stated that, in its opinion, the Projects had monopoly-like market power on
October 16 and that under the existing market rules it was only obligated to pay
a rate based on variable costs unless the Projects could cost-justify a higher
rate.
As a result, on October 24, 2000, Indeck Maine filed a complaint
against the ISO in the Superior Court of Delaware alleging, among other things,
that the ISO's action in October 1999 resulted in a breach of an express or
implied contract, violated certain consumer protection laws and amounted to
fraud. As a result of various pre-trial motions filed by the parties, such
litigation, was filed as a complaint before FERC. In April 2002, FERC ruled on
this complaint in favor of the ISO. The Company has not determined whether it
will appeal or otherwise contest the ruling by FERC.
Item 4. Submission of Matters to a Vote of Security Holders.
On November 5, 2001, the Trust issued to the Investors a "Notice of
Solicitation of Consents," in which the Trust sought the consent of Investors to
amend the Trust's Amended and Restated Declaration of Trust ("Declaration") to
terminate the Trust's agreement to comply with the substantive restrictions of
the 1940 Act and to eliminate certain procedural requirements of the 1940 Act
that were originally included in the Declaration, including, but not limited to,
deleting the section of the Declaration requiring Independent Trustees. Consents
were tabulated at the close of business on December 27, 2001. A total of 476.9
Investor Shares were outstanding and entitled to be voted. Based on such
tabulation, a majority of Investor Shares consented to such withdrawal and
amendments.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information.
The Trust sold 476.9 Investor Shares of beneficial interest in the Trust in
its private placement offering, which concluded on September 30, 1996. There is
currently no established public trading market for the Investor Shares. 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.
Investor Shares are restricted as to transferability under the Declaration,
as well as under federal and state laws regulating securities. 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 has investigated the possibility and feasibility
of a combination of the six Trusts and the Egypt Fund into a publicly traded
entity. This would require the approval of the Investors in the Trust and the
other programs after proxy solicitations, complying with requirements of the
Securities and Exchange Commission, and a change in the federal income tax
status of the Trust from a partnership (which is not subject to tax) to a
corporation. The process of considering and effecting a combination, if the
decision is made to do so, will be very lengthy. There is no assurance that the
Managing Shareholder will recommend a combination, that the Investors of the
Trust or other programs will approve it, that economic conditions or the
business results of the participants will be favorable for a combination, that
the combination will be effected or that the economic results of a combination,
if effected, will be favorable to the Investors of the Trust or other programs.
After conducting investigations during 2001, the Managing Shareholder concluded,
and informed the Investors, that given current market conditions caused by,
among other things, the general U.S. economic down turn, the September 11th
terrorist attacks, the Enron bankruptcy and general volatility in the
independent power business, it is preferable to delay significant expenditures
pursuing any such combination until market conditions, as described above,
improve.
(b) Record Holders.
As of the date of this Form 10-K, there are 961 record holders of Investor
Shares.
(c) Dividends
The Trust made distributions as follows for the years ended December 31, 2001
and 2000:
Year ended December 31,
2001 2000
Total distributions to Investors $ -- $ 476,604
Distributions per Investor Share $ -- $ 999
Distributions to Managing Shareholder $ -- $ 4,814
The Trust suspended distributions beginning the second quarter of 2000
in order to conserve cash for future investments. The Trust's decision whether
to make future distributions to Investors and their timing will depend on, among
other things, the net cash flow of the Trust and retention of reasonable
reserves as determined by the Trust to cover its anticipated expenses. See Item
7 Management's Discussion and Analysis.
Occasionally, distributions may include funds derived from the release
of cash from operating or debt service reserves. Further, the Declaration
authorizes distributions to be made from cash flows rather than income, or from
cash reserves in some instances. For purposes of generally accepted accounting
principles, amounts of distributions in excess of accounting income may be
considered to be capital in nature. Investors should be aware that the trust is
organized to return net cash flow rather that accounting income to Investors.
Item 6. Selected Financial Data. (all amounts in $)
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
Supplemental Information Schedule
Selected Financial Data As of and for the years ended December 31,
2001 2000 1999 1998 1997
Revenues $8,101,624 $7,833,572 $7,548,229 $7,274,883 $7,179,911
Net income(loss) (1,964,120) (5,120,256) (743,977) (602,901) 402,777
(A)
Net assets
(shareholders'
equity) 20,815,494 22,779,614 28,381,288 31,003,923 35,023,361
Investments in
Plant and
Equipment (net
of depreciation) $12,116,141 12,912,980 13,831,689 14,285,467 13,880,923
Investment
in Power
Contract(net
of
amortization) 5,168,352 5,724,221 6,280,090 6,835,959 7,391,828
Total assets 30,382,545 33,254,452 39,455,324 43,060,184 47,964,823
Long-term
obligations 1,822,425 2,690,523 3,479,460 4,196,455 4,848,067
Per Share of
Trust Interest:
Total Revenues 16,989 16,426 15,828 15,258 15,059
Net income(loss) (4,119) (10,737) (1,560) (1,262) (845)
(A)
Net asset value 43,649 47,767 59,514 65,013 73,442
Distributions
to Investors -- 999 3,900 7,096 6,894
(A) Includes writedown of investment in Santee River of $4,062,413 ($8,519
per Investor Share).
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
The following discussion and analysis should be read in conjunction
with the Trust's financial statements and the notes thereto presented below.
Dollar amounts in this discussion are generally rounded to the nearest $1,000.
The consolidated financial statements include the accounts of the Trust
and the limited partnerships owning the Providence and Pumping Projects. The
Trust uses the equity method of accounting for its investments in the Maine
Hydro Projects, the Maine Biomass Projects and Santee River, which are owned 50%
or less by the Trust.
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 Providence
and Maine Hydro 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. The Providence contract expires in 2020
and eleven of the Maine Hydro contracts expire in 2008 and the remaining three
expire in 2007, 2014 and 2017. 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.
The Providence Project generates electricity from methane gas produced
at the Central Landfill in Johnston, Rhode Island. Gas reserves are estimated to
be in excess of the amount needed to generate the 12 Megawatt maximum under the
Power Contract with NEP. The price paid for the gas is a percentage (15% to 18%)
of net revenue from power sales. Accordingly, the Providence Project is not
affected by fuel cost price changes. The quality of the gas may vary from time
to time. Poor quality gas may cause operating problems, down time and unplanned
maintenance at the generating facility.
The Maine Hydro Projects have a limited ability to store water.
Accordingly, the amount of revenue from electricity generation from these
Projects is directly related to river water flows, which have fluctuated
significantly from year-to-year. It is not possible to accurately predict
revenues from the Maine Hydro Projects.
The Maine Biomass Projects sold electricity under short-term contracts
during 1997. The Projects were shutdown and had minimal operations in 1998, 1999
and 2000. One project resumed full time operations on June 1, 2001 and sold
electricity to Constellation Power Source, Inc. under a nine-month contract that
expired on February 28, 2001. It now sells electricity to Select Energy on a
month-to-month basis. The other project is currently shutdown and will not be
operated (except for required tests) unless sales arrangements are obtained
which would provide sufficient revenue to allow the Project to operate
profitably.
All power generation projects currently owned by the Trust produce
electricity from renewable energy sources, such as landfill gas, hydropower and
biomass ("green power"). In the State of Maine, as a condition of licensing,
competitive generation providers and power marketers will have to demonstrate
that at least 30% of their generation portfolio is green power sources. Other
States in the New England Power Pool have or are expected to have similar green
power licensing requirements, although the percentage of green power generation
may differ from State to State. These green power licensing requirements should
have a beneficial effect on the future profitability of the Maine Biomass
Projects. Although the Providence and Maine Hydro Projects also produce green
power, their output is committed under long-term Power Contracts at fixed
prices.
Santee River was designed to process waste tires and generate high
quality crumb rubber. Construction of the project began in 1998. In July 2000,
the manager of the project informed the Trust that the project had run out of
money. In October 2000, the project declared bankruptcy. The plant is shutdown
and is not manned. The Trust wrote down its investment in the project to zero in
the third quarter of 2000.
The Pumping Project owns irrigation well pumps in Ventura County,
California, which supply water to farmers. The demand for water pumped by the
project varies inversely with rainfall in the area.
Additional trends affecting the independent power industry generally
are described at Item 1 - Business.
Significant Accounting Policies
The Trust's plant and equipment is recorded at cost and is depreciated over its
estimated useful life. The estimate useful lives of the Trust's plant and
equipment range from 10 to 20 years. A significant decrease in the estimated
useful life of a material amount of plant and equipment could have a material
adverse impact on the Trust's operating results in the period in which the
estimate is revised and subsequent periods. The Trust evaluates the impairment
of its long-lived assets based on projections of undiscounted cash flows
whenever events or changes in circumstances indicate that the carrying amounts
of such assets may not be recoverable. Estimates of future cash flows used to
test the recoverability of specific long-lived assets are based on expected cash
flows from the use and eventual disposition of the assets. A significant
reduction in actual cash flows and estimated cash flows may have a material
adverse impact on the Trust's operating results and financial condition.
Results of Operations
The year ended December 31, 2001 compared to the year ended December 31, 2000.
Total revenues increased $268,000, or 3%, to $8,102,000 in 2001 from
$7,834,000 in 2000. The increase in revenues is due to higher sublease income
from the Providence Project and higher revenues from the Pumping Project due to
higher prices.
Gross profit, which represents total revenues reduced by cost of sales,
increased by $140,000, or 9%, to $1,682,000 in 2001 from $1,542,000 in 2000. The
increase in gross profit reflects the increase in revenues discussed above,
partially offset by higher maintenance costs at the Providence Project.
General and administrative expenses increased $298,000, or 34%, to
$1,179,000 in 2001 from $881,000 in 2000. The increase primarily reflects higher
administration costs relating to the Providence Project.
In 2000, the Trust recorded a writedown of $250,000 associated with
certain equipment held in storage. The Trust did not record any writedowns of
equipment in 2001.
The management fee paid to the Managing Shareholder increased by
$414,000, or 119%, to $762,000 in 2001 from $348,000 in 2000 reflecting that the
Managing Shareholder resumed charging 100% of the management fee it was entitled
to, rather than the 50% it charged in 2000.
The Trust recorded a loss from operations of $259,000 in 2001 compared
to income from operations of $62,000 in 2000, a change of $322,000. The change
reflects the increase in management fees and general and administrative expenses
in 2001 partially offset by the improvement in gross margin in 2001 and the
absence of the 2000 writedown of equipment.
The Trust recorded an equity loss of $363,000 from the Maine Hydro
Projects in 2001, a change of $615,000 from the equity income of $252,000
recorded in 2000. This decrease is due to extremely low rainfall and river flows
which caused a significant drop in revenue in 2001 compared to 2000.
The Trust's equity loss from the Maine Biomass Project increased
$264,000 or 41%, to $904,000 in 2001 from $640,000 in 2000 as a result of the
cost of starting up one of the facilities in 2001 and reduced revenue from
installed capacity in 2001 compared to 2000.
In 2000, the Trust recorded an equity loss of $180,000 from Santee
River. The project declared bankruptcy in 2000 and the Trust recorded a
writedown of its investment of $4,062,000 in 2000.
The Trust's net loss decreased $3,156,000, or 62%, to $1,964,000 in
2001 from $5,120,000 in 2000 primarily reflecting the absence of the writedown
of Santee River partially offset by the decrease in results from the Maine Hydro
Projects.
The year ended December 31, 2000 compared to the year ended December 31, 1999.
Total revenues increased $286,000, or 4%, to $7,834,000 in 2000 from
$7,548,000 in 1999 reflecting slightly higher energy production from the
Providence Project.
Gross profit, which represents total revenues reduced by cost of sales,
increased $342,000, or 29%, to $1,542,000 in 2000 from $1,200,000 in 1999. The
improvement reflects reduced costs of engine maintenance resulting from
revisions to the plant's maintenance program.
General and administrative expenses increased $171,000, or 24%, to
$881,000 in 2000 from $710,000 in 1999. The increase is due to legal expenses
associated with the Trust's investment in Santee River.
In 2000, the Trust recorded a writedown of $250,000 associated with
certain equipment held in storage compared to a writedown of $205,000 in 1999.
In both 2000 and 1999, the Managing Shareholder decided to waive 50% of
the fee to which it was entitled. The decrease in the management fee from
$467,000 in 1999 to $348,000 in 2000 reflects the lower net assets of the Trust.
The Trust recorded a loss from operations of $182,000 in 1999 compared
to income from operations of $63,000 in 2000, a change of $245,000, primarily
reflecting the improvement in the gross margin from the Providence Project.
The decrease in income from the Maine Hydro Projects from $849,000 in
1999 to $252,000 in 2000 reflects lower revenues and higher repair costs in 2000
compared to 1999. The decrease in revenues reflected lower-than-average
rainfall, which decreased water flow through the hydroelectric dams. The
increase in repair costs were primarily caused by damaged generating equipment
at one dam.
The decrease in the loss from the shutdown Maine Biomass Projects from
$1,007,000 in 1999 to $640,000 in 2000 reflects higher revenue related to the
installed capacity of the plant.
The Trust recorded a loss from Santee River in 2000 compared to income
in 1999, reflecting the Trust's share of the cost of staffing the plant in 2000
prior to the project's bankruptcy filing. In 1999, the plant was under
construction and was not fully staffed.
The Trust recorded a net loss of $5,120,000 in 2000 compared to
$744,000 in 1999, a change of $4,376,000. This increase is primarily the result
of the $4,062,000 writedown of Santee River in 2000.
Liquidity and Capital Resources
In 2001 and 2000 the Trust's operating activities generated $780,000
and $2,315,000 of cash, respectively. The higher level of cash from operations
in 1999 primarily reflects decreases in maintenance costs and working capital at
the Providence Project.
The Trust generated $105,000 of cash from investing activities compared
to using $214,000 in 2001. The change is primarily due to lower distributions
from the Maine Hydro Projects, which reflects the extremely low river flows in
2001.
Cash used in financing activities were $1,173,000 in 2001 compared to
$1,657,000 in 2000, a decrease of $484,000, or 29%, primarily attributable to
the absence of distributions to shareholders in 2001. The Trust ceased making
distributions to shareholders in the first quarter of 2001.
During 1997, the Trust and Fleet Bank, N.A. (the "Bank") entered into a
revolving line of credit agreement, whereby the Bank provides a three year
committed line of credit facility of $1,150,000. The credit line was extended
until July 31, 2002. Outstanding borrowings bear interest at the Bank's prime
rate or, at the Trust's choice, at LIBOR plus 2.5%. The credit agreement
requires the Trust to maintain a ratio of total debt to tangible net worth of no
more than 1 to 1 and a minimum debt service coverage ratio of 2 to 1. The credit
facility was obtained in order to allow the Trust to operate using a minimum
amount of cash, maximize the amount invested in Projects and maximize cash
distributions to shareholders. There were no borrowings under the line of credit
in 1999 or 2001. In 2000, the Trust borrowed $500,000 under the line of credit
to meet its working capital requirements. This amount was repaid in 2000. The
Trust has issued through its bank a standby letter of credit totaling $99,000 to
secure a power purchase agreement for one of the Maine Hydro Projects. The
standby letter of credit is collateralized by the line of credit and reduces the
amount that may be borrowed under the line of credit from $1,150,000 to
$1,051,000.
Obligations of the Trust are generally limited to payment of a management fee to
the Managing Shareholder and payments for certain administrative, accounting and
legal services to third persons. Accordingly, the Trust has not found it
necessary to retain a material amount of working capital. The Trust's
significant long-term obligation is limited to a letter of credit of $99,000
issued by the Maine Hydro Projects which is collateralized by the Trust's line
of credit facility. The letter of credit expires in December 2002 and the Maine
Hydro Projects and the Trust anticipate renewing them annually through 2008. The
letters of credit are required as security under one of the Maine Hydro
Project's Power Contracts
The Providence Project has secured long-term debt, without recourse to the
Trust, with scheduled principal payments as follows:
2002 $ 868,000
2003 955,000
2004 867,000
The Providence and Maine Hydro Projects have certain long-term obligations
relating to their Power Contracts and property leases and, in the case of the
Providence Project, with its gas supplier. These long-term obligations are not
guaranteed by the Trust. The Trust and its subsidiaries anticipate that during
2002 their cash flow from operations will be sufficient to meet their
obligations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Qualitative Information About Market Risk.
The Trust's investments in financial instruments are short-term
investments of working capital or excess cash. Those short-term investments are
limited by its Declaration of Trust to investments in United States government
and agency securities or to obligations of banks having at least $5 billion in
assets. Because the Trust invests only in short-term instruments for cash
management, its exposure to interest rate changes is low. The Trust has limited
exposure to trade accounts receivable and believes that their carrying amounts
approximate fair value.
The Trust's primary market risk exposure is limited interest rate risk
caused by fluctuations in short-term interest rates. The Trust does not
anticipate any changes in its primary market risk exposure or how it intends to
manage it. The Trust does not trade in market risk sensitive instruments.
Quantitative Information About Market Risk
This table provides information about the Trust's financial instruments that are
defined by the Securities and Exchange Commission as market risk sensitive
instruments. These include only short-term U.S. government and agency securities
and bank obligations. The table includes principal cash flows and related
weighted average interest rates by contractual maturity dates.
December 31, 2001
Expected Maturity Date
2001
(U.S. $)
Bank Deposits and Certificates of Deposit $ 1,051,000
Average interest rate 1.77%
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
2001 and 2000 F-3
Consolidated Statements of Operations for the
three years ended December 31, 2001 F-4
Consolidated Statements of Changes in Shareholders' Equity for the three years
ended December 31, 2001 F-5
Consolidated Statements of Cash Flows for the three
years ended December 31, 2001 F-6
Notes to Consolidated Financial Statements F-7 to F-10
Financial Statements for Maine Hydro Projects
Financial Statements for Indeck Maine Energy, LLC
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Neither the Trust nor the Managing Shareholder has had an independent
accountant resign or decline to continue providing services since their
respective inceptions and neither has dismissed an independent accountant during
that period. During that period of time no new independent accountant has been
engaged by the Trust or the Managing Shareholder, and the Managing Shareholder's
current accountants, PricewaterhouseCoopers LLP, have been engaged by the Trust.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholder of the Trust, Ridgewood Power LLC has direct
and exclusive discretion in management and control of the affairs of the Trust.
The Managing Shareholder will be entitled to resign as Managing Shareholder of
the Trust only (i) with cause (which cause does not include the fact or
determination that continued service would be unprofitable to the Managing
Shareholder) or (ii) without cause with the consent of a majority in interest of
the Investors. It may be removed from its capacity as Managing Shareholder as
provided in the Declaration.
Ridgewood Holding, which was incorporated in April 1992, is the
Corporate Trustee of the Trust.
Managing Shareholder.
Ridgewood Power Corporation was incorporated in February 1991 as a
Delaware corporation for the primary purpose of acting as a managing shareholder
of business trusts and as a managing general partner of limited partnerships
which are organized to participate in the development, construction and
ownership of Independent Power Projects. It organized the Trust and acted as
managing shareholder until April 1999. On or about April 21, 1999 it was merged
into the current Managing Shareholder, Ridgewood Power LLC. Ridgewood Power LLC
was organized in early April 1999 and has no business other than acting as the
successor to Ridgewood Power Corporation.
Robert E. Swanson has been the President, sole director and sole
stockholder of Ridgewood Power Corporation since its inception in February 1991
and is now the controlling member, sole manager and President of the Managing
Shareholder. All of the equity in the Managing Shareholder is or will be owned
by Mr. Swanson or by family trusts. Mr. Swanson has the power on behalf of those
trusts to vote or dispose of the membership equity interests owned by them.
The Managing Shareholder has also organized the Other Power Trusts, as
Delaware business trusts to participate in the independent power industry.
Ridgewood Power LLC is now also their managing shareholder. The business
objectives of these five trusts are similar to those of the Trust.
A number of other companies are affiliates of Mr. Swanson and the
Managing Shareholder. Each of these also was organized as a corporation that was
wholly-owned by Mr. Swanson. In April 1999, most of them were merged into
limited liability companies with similar names and Mr. Swanson became the sole
manager and controlling owner of each limited liability company. For
convenience, the remainder of this Memorandum will discuss each limited
liability company and its corporate predecessor as a single entity.
The Managing Shareholder is an affiliate of Ridgewood Energy
Corporation ("Ridgewood Energy"), which has organized and operated 48 limited
partnership funds and one business trust over the last 18 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 LLC
("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 Capital
Management LLC ("Ridgewood Capital"), which assists in offerings made by the
Managing Shareholder and which is the sponsor of four privately offered venture
capital funds (the Ridgewood Capital Venture Partners and Ridgewood Capital
Venture Partners II funds); Ridgewood Power VI LLC ("Power VI"), which is a
managing shareholder of the Growth Fund, and RPM. Each of these companies is
controlled by Robert E. Swanson, who is their sole director or manager.
Set forth below is certain information concerning Mr. Swanson and other
executive officers of the Managing Shareholder.
Robert E. Swanson, age 55, has also served as President of the Trust
since its inception in 1991 and as President of RPM, the Other Power Trusts
since their respective inceptions. Mr. Swanson has been President and registered
principal of Ridgewood Securities and became the Chairman of the Board of
Ridgewood Capital on its organization in 1998. He also is Chairman of the Board
of the Ridgewood Capital Venture Partners I and II venture capital funds. In
addition, he has been President and sole stockholder of Ridgewood Energy since
its inception in October 1982. Prior to forming Ridgewood Energy in 1982, Mr.
Swanson was a tax partner at the former New York and Los Angeles law firm of
Fulop & Hardee and an officer in the Trust and Investment Division of Morgan
Guaranty Trust Company. His specialty is in personal tax and financial planning,
including income, estate and gift tax. Mr. Swanson is a member of the New York
State and New Jersey bars, the Association of the Bar of the City of New York
and the New York State Bar Association. He is a graduate of Amherst College and
Fordham University Law School.
Robert L. Gold, age 43, has served as Executive Vice President of the
Managing Shareholder, RPM, the Trust, the Other Power Trusts since their
respective inceptions, with primary responsibility for marketing and
acquisitions. He has been President of Ridgewood Capital since its organization
in 1998. As such, he is President of the Ridgewood Capital Venture Partners I
and II funds. He has served as Vice President and General Counsel of Ridgewood
Securities Corporation since he joined the firm in December 1987. Mr. Gold has
also served as Executive Vice President of Ridgewood Energy since October 1990.
He served as Vice President of Ridgewood Energy from December 1987 through
September 1990. For the two years prior to joining Ridgewood Energy and
Ridgewood Securities 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.
Martin V. Quinn, age 55, has been the Executive Vice President and
Chief Operating Officer of Ridgewood Power since April 2000. Before that, he had
assumed the duties of Chief Financial Officer of Ridgewood Power in November
1996 under a consulting arrangement. In April 1997, he became a Senior Vice
President and Chief Financial Officer of Ridgewood Power and the Fund.
Mr. Quinn has over 30 years of experience in financial management and
corporate mergers and acquisitions, gained with major, publicly-traded companies
and an international accounting firm. He formerly served as Vice President of
Finance and Chief Financial Officer of NORSTAR Energy, an energy services
company, from February 1994 until June 1996. From 1991 to March 1993, Mr. Quinn
was employed by Brown-Forman Corporation, a diversified consumer products
company and distiller, where he was Vice President-Corporate Development. From
1981 to 1991, Mr. Quinn held various officer-level positions with NERCO, Inc., a
mining and natural resource company, including Vice President- Controller and
Chief Accounting Officer for his last six years and Vice President-Corporate
Development. Mr. Quinn's professional qualifications include his certified
public accountant qualification in New York State, membership in the American
Institute of Certified Public Accountants, six years of experience with the
international accounting firm of PricewaterhouseCoopers, LLP, and a Bachelor of
Science degree in Accounting and Finance from the University of Scranton (1969).
Daniel V. Gulino, age 41, has been Senior Vice President and General
Counsel of the Managing Shareholder since August 2000. He began his legal career
as an associate for Pitney, Hardin, Kipp & Szuch, a large New Jersey law firm,
where his experience included corporate acquisitions and transactions. Prior to
joining Ridgewood, Mr. Gulino was in-house counsel for several large electric
utilities, including GPU, Inc., Constellation Power Source, and PPL Resources,
Inc., where he specialized in non-utility generation projects, independent power
and power marketing transactions. Mr. Gulino also has experience with the
electric and natural gas purchasing of industrial organizations, having worked
as in-house counsel for Alumax, Inc. (now part of Alcoa) where he was
responsible for, among other things, Alumax's electric and natural gas
purchasing program. Mr. Gulino is a member of the New Jersey State Bar and
Pennsylvania State Bar. He is a graduate of Fairleigh Dickinson University and
Rutgers University School of Law - Newark.
Christopher I. Naunton, 37, has been the Vice President and Chief
Financial Officer of the Managing Shareholder since April 2000. From February
1998 to April 2000, he was Vice President of Finance of an affiliate of the
Managing Shareholder. Prior to that time, he was a senior manager at the
predecessor accounting firm of PricewaterhouseCoopers LLP. Mr. Naunton's
professional qualifications include his certified public accountant
qualification in Pennsylvania, membership in the American Institute of Certified
Public Accountants and a Bachelor of Science degree in Business Administration
from Bucknell University (1986).
Mary Lou Olin, age 49, has served as Vice President of the Managing
Shareholder, RPM, Ridgewood Capital, the Trust, the Other Power Trusts since
their respective inceptions. She has also served as Vice President of Ridgewood
Energy since October 1984, when she joined the firm. Her primary areas of
responsibility are investor relations, communications and administration. Prior
to her employment at Ridgewood Energy, Ms. Olin was a Regional Administrator at
McGraw-Hill Training Systems where she was employed for two years. Prior to
that, she was employed by RCA Corporation. Ms. Olin has a Bachelor of Arts
degree from Queens College.
(c) Management Agreement.
The Trust has entered into a Management Agreement with the Managing
Shareholder detailing how the Managing Shareholder will render management,
administrative and investment advisory services to the Trust. Specifically, the
Managing Shareholder will perform (or arrange for the performance of) the
management and administrative services required for the operation of the Trust.
Among other services, it will administer the accounts and handle relations with
the Investors, provide the Trust with office space, equipment and facilities and
other services necessary for its operation and conduct the Trust's relations
with custodians, depositories, accountants, attorneys, brokers and dealers,
corporate fiduciaries, insurers, banks and others, as required. The Managing
Shareholder will also be responsible for making investment and divestment
decisions, subject to the provisions of the Declaration.
The Managing Shareholder will be obligated to pay the compensation of
the personnel and 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.
Each Investor consented to the terms and conditions of the initial
Management Agreement by subscribing to acquire Investor Shares in the Trust. The
Management is subject to termination at any time on 60 days' prior notice by a
majority in interest of the Investors or the Managing Shareholder. The agreement
is subject to amendment by the parties with the approval of a majority in
interest of the Investors.
(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 executive officers of the Trust
are identical to those of the Managing Shareholder. The officers have the duties
and powers usually applicable to similar officers of a Delaware business
corporation in carrying out Trust business. Officers act under the supervision
and control of the Managing Shareholder, which is entitled to remove any officer
at any time. Unless otherwise specified by the Managing Shareholder, the
President of the Trust has full power to act on behalf of the Trust. The
Managing Shareholder expects that 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 will take most
actions taken in the name of the Trust.
(e) Corporate Trustee
The Corporate Trustee of the Trust is Ridgewood Holding. Legal title to
Trust property is now and in the future will be in the name of the Trust, if
possible, or Ridgewood Holding as trustee. Ridgewood Holding is also a trustee
of Other Power Trusts and of an oil and gas business trust sponsored by
Ridgewood and is expected to be a trustee of other similar entities that may be
organized by the Managing Shareholder and Ridgewood Energy. The President, sole
director and sole stockholder of Ridgewood Holding is Robert E. Swanson; its
other executive officers are identical to those of the Managing Shareholder. The
principal office of Ridgewood Holding is at 1105 North Market Street, Suite
1300, Wilmington, Delaware 19899.
The Trust has relied and will continue to rely on the Managing Shareholder
and engineering, legal, investment banking and other professional consultants
(as needed) and to monitor and report to the Trust concerning the operations of
Projects in which it invests, to review proposals for additional development or
financing, and to represent the Trust's interests. The Trust will rely on such
persons to review proposals to sell its interests in Projects in the future.
(f) Section 16(a) Beneficial Ownership Reporting Compliance
All individuals subject to the requirements of Section 16(a) have complied
with those reporting requirements during 1999.
(g) RPM.
As discussed above at Item 1 - Business, RPM assumed day-to-day management
responsibility for the Providence Project in 1996 and has done so for the
Pumping Projects in October 1998 and for the Maine Biomass Projects in March
1999. Like the Managing Shareholder, RPM is wholly owned by Robert E. Swanson.
It entered into an "Operation Agreement" with the Trust's subsidiary that owns
the Project under which RPM, under the supervision of the Managing Shareholder,
will provide the management, purchasing, engineering, planning and
administrative services for the Providence Project. RPM will charge the Trust at
its cost for these services and for the Trust's allocable amount of certain
overhead items. RPM shares space and facilities with the Managing Shareholder
and its affiliates. To the extent that common expenses can be reasonably
allocated to RPM, the Managing Shareholder may, but is not required to, charge
RPM at cost for the allocated amounts and such allocated amounts will be borne
by the Trust and other programs. Common expenses that are not so allocated will
be borne by the Managing Shareholder.
Initially, the Managing Shareholder does not anticipate charging RPM for
the full amount of rent, utility supplies and office expenses allocable to RPM.
As a result, both initially and on an ongoing basis the Managing Shareholder
believes that RPM's charges for its services to the Trust are likely to be
materially less than its economic costs and the costs of engaging comparable
third persons as managers. RPM will not receive any compensation in excess of
its costs.
Allocations of costs will be made either on the basis of identifiable
direct costs, time records or in proportion to each program's investments in
Projects managed by RPM; and allocations will be made in a manner consistent
with generally accepted accounting principles.
RPM will not provide any services related to the administration of the
Trust, such as investment, accounting, tax, investor communication or regulatory
services, nor will it participate in identifying, acquiring or disposing of
Projects. RPM will not have the power to act in the Trust's name or to bind the
Trust, which will be exercised by the Managing Shareholder or the Trust's
officers.
The Operation Agreement does not have a fixed term and is terminable by
RPM, by the Managing Shareholder or by vote of a majority in interest of
Investors, on 60 days' prior notice. The Operation Agreement may be amended by
agreement of the Managing Shareholder and RPM; however, no amendment that
materially increases the obligations of the Trust or that materially decreases
the obligations of RPM shall become effective until at least 45 days after
notice of the amendment, together with the text thereof, has been given to all
Investors.
The executive officers of RPM are Mr. Swanson (President), Mr. Gold
(Executive Vice President), Mr. Quinn (Executive Vice President and Chief
Operating Officer), Mr. Gulino (Senior Vice President and General Counsel), Mr.
Naunton (Vice President and Chief Financial Officer) and Ms. Olin (Vice
President.
Item 11. Executive Compensation.
The Managing Shareholder compensates its officers without additional
payments by the Trust. The Trust will reimburse RPM at cost for services
provided by RPM's employees. Information as to the fees payable to the Managing
Shareholder and certain affiliates is contained at Item 13 - Certain
Relationships and Related Transactions. 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 476.8875 Investor Shares (approximately $39.2 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 September 30, 1996. Further details concerning the offering
are set forth above at Item 1 -- Business.
The Managing Shareholder of the Trust, purchased for cash in the
offering 1 Investor Share, equal to .2 of 1% of the outstanding Investor Shares,
and Mr. Swanson purchased an additional 1 Investor Share. The total cost of the
2 Investor Shares was $133,000. 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 executive officers of the
Trust acquired Investor Shares in the Trust's offering.
The Managing Shareholder was issued one Management Share in the Trust
representing the beneficial interests and management rights of the Managing
Shareholder 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 the Managing Shareholder are described in further detail
above at Item 1 - Business and below 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 been distributed during the year an amount
equal to 14% of their total capital contributions (a "14% Priority
Distribution"), and thereafter all remaining distributions from the Trust during
the year, other than distributions of the revenues from dispositions of Trust
Property, are to be allocated 80% to 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 14% 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.
The Trust paid fees to the Managing Shareholder and its affiliates as follows:
2001 2000 1999 1998 1997
Managing
Shareholder $761,266 $348,202 $467,268 $1,050,700 $1,154,758
RPM Cost 5,167,250 5,685,821 5,496,826 4,787,310 5,027,506
Reimbursement
The management fee, payable monthly under the Management Agreement at the annual
rate of 3% of the Trust's net asset value, began on the date the first Project
was acquired 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 Providence and
California Pumping Projects. Beginning in 1996, these reimbursements were paid
to RPM. The reimbursements to RPM, which do not exceed its actual costs and
allocable overhead, are described at Item 10(g) - Directors and Executive
Officers of the Registrant -- RPM.
Other information in response to this item is reported in response to Item
11. Executive Compensation, which information is incorporated by reference into
this Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
See the Index to Consolidated Financial Statements in Item 8 hereof.
(b) Reports on Form 8-K.
The Registrant filed a Form 8-K with the Commission on December 27, 2001
reporting the results of the Notice of Solicitation of Consents.
(c) Exhibits
3A. Certificate of Trust of the Registrant is incorporated by reference to
Exhibit 3A of Registrant's Registration Statement filed with the Commission on
February 15, 1994.
3B. Declaration of Trust of the Registrant is incorporated by reference to
Exhibit 3B of Registrant's Registration Statement filed with the Commission on
February 19, 1994.
3C. Amendment No. 1 to Declaration of Trust is incorporated by reference to
Exhibit 3C of Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
10A. Asset Acquisition Agreement by and among Northeast Landfill Power
Joint Venture, Northeast Landfill Power Company, Johnson Natural Power
Corporation and Ridgewood Providence Power Partners, L.P. , is incorporated by
reference to Exhibit 2 of the Registrant's Current Report on Form 8-K filed with
the Commission on May 2, 1996.
10B. Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro, Inc.,
Ridgewood Maine Power Partners, L.P. and Ridgewood Maine Hydro Corporation.
Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on
Form 8-K filed with the Commission on January 8, 1997.
10C. Letter, dated November 15, 1996, amending Agreement of Merger.
Incorporated by reference to Exhibit 2.2 of Amendment No. 1 to the Registrant's
Current Report on Form 8-K filed with the Commission on January 9, 1997
10D. Letter, dated December 3, 1996, amending Agreement of Merger.
Incorporated by reference to Exhibit 2.3 of the Registrant's Current Report on
Form 8-K filed with the Commission on January 8, 1997.
10E. Operation, Maintenance and Administration Agreement, dated July 1,
1996, by and among Ridgewood Maine Hydro Partners, L.P., CHI Operations, Inc.
and Consolidated Hydro, Inc. Incorporated by reference to Exhibit 10 of the
Registrant's Current Report on Form 8-K filed with the Commission on January 8,
1997.
10F. Management Agreement between the Registrant and Ridgewood Power
Corporation. Incorporated by reference to Exhibit 10F of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996.
10G. Operation Agreement, dated as of April 16, 1996, among the Registrant,
Ridgewood Providence Corporation and Ridgewood Power Management Corporation.
Incorporated by reference to Exhibit 10G of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996
10H. Agreement to Purchase Membership Interests, dated as of June 11, 1997,
by and between Ridgewood Maine, L.L.C. and Indeck Maine Energy, L.L.C.
Incorporated by reference to Exhibit 2.A. of Amendment No. 1 to Registrant's
Current Report on Form 8-K dated July 1, 1997.
10I. Amended and Restated Operating Agreement of Indeck Maine Energy,
L.L.C., dated as of June 11, 1997. Incorporated by reference to Exhibit 2.B. of
Amendment No. 1 to Registrant's Current Report on Form 8-K dated July 1, 1997.
The Registrant agrees to furnish supplementally a copy of any omitted exhibit or
schedule to agreements filed as exhibits to the Commission upon request.
21. Subsidiaries of the Registrant Page
99. Listing of Statutory Provisions that the Trust Agrees to Comply with.
Incorporated by reference to Exhibit 99 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
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.
RIDGEWOOD ELECTRIC POWER TRUST IV (Registrant)
By:/s/ Robert E. Swanson President April 15, 2002
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 April 15, 2002
Robert E. Swanson
By:/s/ Christopher Naunton Vice President and April 15, 2002
Christopher Naunton Chief Financial Officer
RIDGEWOOD POWER LLC Managing Shareholder April 15, 2002
By:/s/ Robert E. Swanson President
Robert E. Swanson
Ridgewood Electric Power Trust IV
Consolidated Financial Statements
December 31, 2001, 2000 and 1999
Report of Independent Accountants
To the Shareholders of
Ridgewood Electric Power Trust IV:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Ridgewood Electric Power Trust IV and its subsidiaries (the "Trust")at December
31, 2001 and 2000, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
April 2, 2002
Ridgewood Electric Power Trust IV
Consolidated Balance Sheets
- -------------------------------------------------------------------------------
December 31,
----------------------------
2001 2000
------------ ------------
Assets:
Cash and cash equivalents ...................... $ 1,050,638 $ 1,656,861
Accounts receivable, trade ..................... 624,752 668,349
Due from affiliates ............................ 250,000 --
Other assets ................................... 53,661 60,399
------------ ------------
Total current assets ..................... 1,979,051 2,385,609
Investments:
Maine Hydro Projects ........................... 4,879,015 5,346,948
Maine Biomass Projects ......................... 4,830,991 5,485,287
Plant and equipment ............................ 16,890,129 16,821,058
Accumulated depreciation ....................... (4,773,988) (3,908,168)
------------ ------------
12,116,141 12,912,890
------------ ------------
Electric power sales contract .................. 8,338,040 8,338,040
Accumulated amortization ....................... (3,169,688) (2,613,819)
------------ ------------
5,168,352 5,724,221
------------ ------------
Spare parts inventory .......................... 670,769 688,984
Debt reserve fund .............................. 738,226 710,513
------------ ------------
Total assets ............................ $ 30,382,545 $ 33,254,452
------------ ------------
Liabilities and Shareholders' Equity:
Liabilities:
Current maturities of long-term debt ........... $ 868,098 $ 788,937
Accounts payable and accrued expenses .......... 383,503 390,824
Due to affiliates .............................. 1,015,131 916,418
------------ ------------
Total current liabilities ............... 2,266,732 2,096,179
Long-term debt, less current portion ........... 1,822,425 2,690,523
Minority interest in the Providence Project .... 5,477,894 5,688,136
Commitments and contingencies
Shareholders' Equity:
Shareholders' equity (476.8875 investor
shares issued and outstanding) ................ 21,012,406 22,956,885
Managing shareholder's accumulated deficit
(1 management share issued and outstanding) ... (196,912) (177,271)
------------ ------------
Total shareholders' equity ............... 20,815,494 22,779,614
------------ ------------
Total liabilities and shareholders' equity $ 30,382,545 $ 33,254,452
------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust IV
Consolidated Statements of Operations
- -------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Power generation revenue .......... $ 7,554,624 $ 7,464,572 $ 7,179,229
Sublease income ................... 547,000 369,000 369,000
----------- ----------- -----------
Total revenue ............ 8,101,624 7,833,572 7,548,229
Cost of sales, including
depreciation and amortization
of $1,421,689, $1,485,982 and
$1,439,980 in 2001, 2000 and
1999 .......................... 6,420,085 6,291,190 6,347,905
----------- ----------- -----------
Gross profit ...................... 1,681,539 1,542,382 1,200,324
General and administrative
expenses ......................... 1,179,010 881,613 709,722
Management fee paid to the
managing shareholder
761,266 348,202 467,268
Write down equipment held in
storage .......................... -- 250,000 205,182
----------- ----------- -----------
Total other operating expenses .. 1,940,276 1,479,815 1,382,172
----------- ----------- -----------
Income (loss) from operations ..... (258,737) 62,567 (181,848)
----------- ----------- -----------
Other income (expense):
Interest income ................ 63,715 108,230 83,350
Interest expense ............... (355,802) (437,857) (437,238)
Other income ................... -- -- 71,840
Loss from Maine Biomass
Projects ...................... (904,297) (639,984) (1,006,797)
(Loss) income from Maine Hydro
Projects ...................... (362,509) 252,250 849,456
(Loss) income from Santee River
Rubber ........................ -- (180,521) 49,244
Write down investment in Santee
River Rubber
-- (4,062,413) --
----------- ----------- -----------
Other income (expense), net .. (1,558,893) (4,960,295) (390,145)
----------- ----------- -----------
Loss before minority interest ..... (1,817,630) (4,897,728) (571,993)
Minority interest in the earnings
of the Providence Project ........ (146,490) (222,528) (171,984)
----------- ----------- -----------
Net loss .......................... $(1,964,120) $(5,120,256) $ (743,977)
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust IV
Consolidated Statements of Changes In Shareholders' Equity
For the Years Ended December 31, 2001, 2000 and 1999
- -------------------------------------------------------------------------------
Managing
Shareholders Shareholder Total
------------ ------------ ------------
Shareholders' equity,
January 1, 1999 .... $ 31,098,950 $ (95,027) $ 31,003,923
Cash distributions .. (1,859,871) (18,787) (1,878,658)
Net loss for the year (736,537) (7,440) (743,977)
------------ ------------ ------------
Shareholders' equity,
December 31, 1999 .. 28,502,542 (121,254) 28,381,288
Cash distributions .. (476,604) (4,814) (481,418)
Net loss for the year (5,069,053) (51,203) (5,120,256)
------------ ------------ ------------
Shareholders' equity,
December 31, 2000 .. 22,956,885 (177,271) 22,779,614
Net loss for the year (1,944,479) (19,641) (1,964,120)
------------ ------------ ------------
Shareholders' equity,
December 31, 2001 .. $ 21,012,406 $ (196,912) $ 20,815,494
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust IV
Consolidated Statements of Cash Flows
- -------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Cash flows from operating
activities:
Net loss ....................... $(1,964,120) $(5,120,256) $ (743,977)
Adjustments to reconcile net
loss to net cash flows from
operating activities:
Depreciation and amortization .. 1,421,689 1,485,982 1,439,980
Minority interest in earnings
of the Providence Project ..... 146,490 222,528 171,984
Write down equipment held in
storage ....................... -- 250,000 205,182
Write down investment in
Santee River Rubber Project.... -- 4,062,413 --
Loss from unconsolidated
Maine Biomass Projects ........ 904,297 639,984 1,006,797
Loss (income) from
unconsolidated Maine
Hydro Projects ............... 362,509 (252,250) (849,456)
Loss (income) from
unconsolidated Santee
River Rubber ................. -- 180,521 (49,244)
Changes in assets and
liabilities:
Decrease (increase) in
accounts receivable, trade .. 43,597 (55,347) 4,971
Decrease (increase) in
spare parts inventory ....... 18,215 149,158 (91,964)
(Decrease) increase in
accounts payable and
accrued expenses .......... (7,322) (220,926) 48,065
(Increase) decrease in due
to/from affiliates, net .... (151,287) 973,361 (383,333)
Decrease (increase) in
other assets ................ 6,738 464 (2,888)
---------- ----------- -----------
Total adjustments ........... 2,744,926 7,435,888 1,500,094
---------- ----------- -----------
Net cash provided by
operating activities ........ 780,806 2,315,632 756,117
---------- ----------- -----------
Cash flows from investing
activities:
Investment in Maine
Biomass Projects .............. (250,000) (300,000) (525,250)
Investment in Santee
River Rubber Project........... -- (152,333) --
Distributions from Maine
Hydro Projects ................ 105,424 568,807 1,403,240
Distributions from Santee
River Rubber Project........... -- -- 460,000
Capital expenditures ........... (69,071) (11,314) (430,333)
---------- ----------- -----------
Net cash provided by
(used in)investing
activities ................. (213,647) 105,160 907,657
---------- ----------- -----------
Cash flows from financing
activities:
Cash distributions to
shareholders .................. -- (481,418) (1,878,658)
Payments to reduce long-term
debt .......................... (788,937) (716,995) (651,613)
Increase in debt reserve
fund .......................... (27,713) (44,167) (29,238)
Borrowings under line of
credit facility ............... -- 500,000 --
Repayments under line of
credit facility ............... -- (500,000) --
Cash distributions to
minority interest ............. (356,732) (414,734) (232,050)
---------- ----------- -----------
Net cash used in financing
activities ................... (1,173,382) (1,657,314) (2,791,559)
----------- ----------- -----------
Net (decrease) increase in
cash and cash equivalents .......... (606,223) 763,478 (1,127,785)
Cash and cash equivalents,
beginning of year .................. 1,656,861 893,383 2,021,168
---------- ----------- -----------
Cash and cash equivalents,
end of year ........................ $ 1,050,638 $ 1,656,861 $ 893,383
----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust IV
Notes to the Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. Organization and Purpose
Nature of Business
Ridgewood Electric Power Trust IV (the "Trust") was formed as a Delaware
business trust in September 1994, by Ridgewood Energy Holding Corporation acting
as the Corporate Trustee. The managing shareholder of the Trust is Ridgewood
Power LLC (the "Managing Shareholder") formerly Ridgewood Power Corporation).
The Trust began offering shares on February 6, 1995 and discontinued its
offering of shares in March 1996. The Trust had no operations prior to the
commencement of the share offering.
The Trust has been organized to invest in independent power generation and other
capital facilities and in the development of these facilities. These independent
power generation facilities will include cogeneration facilities, which produce
both electricity and heat energy and other power plants that use various fuel
sources (except nuclear). The power plants will sell electricity and, in some
cases, heat energy to utilities and industrial users under long-term contracts.
Ridgewood Energy Holding Corporation, 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.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Trust and its
controlled subsidiaries. All material intercompany transactions have been
eliminated.
The Trust uses the equity method of accounting for its investments in affiliates
which are 50% or less owned if the Trust has the ability to exercise significant
influence over the operating and financial policies of the affiliates but does
not control the affiliate. The Trust's share of the earnings of the affiliates
is included in the Consolidated Statements of Operations.
Critical accounting policies and estimates
The preparation of consolidated financial statements requires the Trust to make
estimates and judgements that affect the reported amounts of assets,
liabilities, sales and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Trust evaluates its estimates, including
provision for bad debts, carrying value of investments,
amortization/depreciation of plant and equipment and intangible assets, and
recordable liabilities for litigation and other contingencies. The Trust bases
its estimates on historical experience, current and expected conditions and
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgements about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
New Accounting Standards and Disclosures
SFAS 141
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 141, Business Combinations, which
eliminates the pooling-of-interest method of accounting for business
combinations and requires the use of the purchase method. In addition, SFAS 141
requires the reassessment of intangible assets to determine if they are
appropriately classified either separately or within goodwill. SFAS 141 is
effective for business combinations initiated after June 30, 2001. The Trust
adopted SFAS 141 on July 1, 2001, with no material impact on the consolidated
financial statements.
SFAS 142
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which eliminates the amortization of goodwill and other acquired intangible
assets with indefinite economic useful lives. SFAS 142 requires an annual
impairment test of goodwill and other intangible assets that are not subject to
amortization. Other intangible assets with definite economic lives will continue
to be amortized over their useful lives. The Trust will adopt SFAS 142 effective
January 1, 2002 and is currently assessing the impact that this standard may
have on the Trust.
SFAS 143
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, on the accounting for obligations associated with the retirement of
long-lived assets. SFAS 143 requires a liability to be recognized in the
consolidated financial statements for retirement obligations meeting specific
criteria. Measurement of the initial obligation is to approximate fair value,
with an equivalent amount recorded as an increase in the value of the
capitalized asset. The asset will be depreciated in accordance with normal
depreciation policy and the liability will be increased for the time value of
money, with a charge to the income statement, until the obligation is settled.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Trust
will adopt SFAS 143 effective January 1, 2003 and is currently assessing the
impact that this standard may have on the Trust.
SFAS 144
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which replaces SFAS 121, Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed Of. For
long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS
121 to (a) recognize an impairment loss only if the carrying amount is not
recoverable from undiscounted cash flows and (b) measure an impairment loss as
the difference between the carrying amount and fair value of the asset. For
long-lived assets to be disposed of, SFAS 144 establishes a single accounting
model based on the framework established in SFAS 121. The accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations and replaces the provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of segments of a business. SFAS 144
also broadens the reporting of discontinued operations. The Trust will adopt
SFAS 144 effective January 1, 2002 and is currently assessing the impact that
this standard may have on the Trust.
Cash and cash equivalents
The Trust considers all highly liquid investments with maturities when purchased
of three months or less to be cash and cash equivalents. Cash and cash
equivalents consist of commercial paper and funds deposited in bank accounts.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets to be Disposed Of, the Trust evaluates long-lived assets,
such as fixed assets and specifically identifiable intangibles, when events or
changes in circumstances indicate that the carrying value of such assets may not
be recoverable. The determination of whether an impairment has occurred is made
by comparing the carrying value of an asset to the estimated undiscounted cash
flows attributable to that asset. If an impairment has occurred, the impairment
loss recognized is the amount by which the carrying value exceeds the discounted
cash flows attributable to the asset or the estimated fair value of the asset.
Plant and equipment
Plant and equipment, consisting principally of electrical generating equipment,
is stated at cost. Major renewals and betterments that increase the useful lives
of the assets are capitalized. Repair and maintenance expenditures that increase
the efficiency of the assets are expensed as incurred. The Trust periodically
assesses the recoverability of plant and equipment, and other long-term assets,
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
Depreciation is recorded using the straight-line method over the useful lives of
the assets, which are 10 to 20 years with a weighted average of 20 and 18 years
at December 31, 2001 and 2000, respectively. During 2001, 2000 and 1999, the
Trust recorded depreciation expense of $865,820, $930,113 and $884,111,
respectively.
Electric power sales contract
A portion of the purchase price of the Providence Project was assigned to the
Electric Power Sales Contract and is being amortized over the life of the
contract (15 years) on a straight-line basis. The electric power sales contract
is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. During each of the
years ended December 31, 2001, 2000 and 1999, the Trust recorded amortization
expense of $555,869.
Revenue recognition
Power generation revenue is recorded in the month of delivery, based on the
estimated volumes sold to customers at rates stipulated in the power sales
contract. Adjustments are made to reflect actual volumes delivered when the
actual information subsequently becomes available. Billings to customers for
power generation generally occurs during the month following delivery. Final
billings typically do not vary significantly from estimates. Interest income is
recorded when earned and dividend income is recorded when declared.
Supplemental cash flow information
Total interest paid during the years ended December 31, 2001, 2000 and 1999 was
$299,919, $371,861 and $437,243.
Significant Customers
During 2001, 2000 and 1999, the Trust's largest customer, New England Power
Corporation ("NEP"), accounted for 86%, 88% and 89%, respectively of total
revenues respectively.
Income taxes
No provision is made for income taxes in the accompanying consolidated 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 Trust.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Projects
Providence Project
In 1996, the Trust, through a subsidiary, Ridgewood Providence Power Partners,
L.P., purchased substantially all of the net assets of Northeastern Landfill
Power Joint Venture. The assets acquired include a 12.3 megawatt capacity
electrical generating station, located at the Central Landfill in Johnston,
Rhode Island (the "Providence Project"). In 1997, the capacity was increased to
13.8 megawatts. The Providence Project includes nine reciprocating electric
generator engines, which are fueled by methane gas produced by and collected
from the landfill. The electricity generated is sold to New England Power
Corporation under a long-term contract. The purchase price was $15,533,021 in
cash, including transaction costs. In addition, Providence Power assumed the
obligation to repay the remaining principal outstanding of $6,310,404 on the
senior collateralized non-recourse notes payable.
The Trust owns 64.3% of the Providence Project and the remaining 35.7% is owned
by Ridgewood Electric Power Trust III ("Trust III"). Ridgewood Power LLC is the
managing shareholder of both the Trust and Trust III.
The acquisition of the Providence Project was accounted for as a purchase and
the results of operations of the Providence Project have been included in the
Trust's consolidated financial statements since the acquisition date. The
purchase price was allocated to the net assets acquired, based on their
respective fair values. Of the purchase price, $8,338,040 was allocated to the
Electric Power Sales Contract and is being amortized over the life of the
contract (15 years).
California Pumping Project
In 1995, the Trust acquired a package of natural gas and diesel engines (the
"California Pumping Project"), which drive deep irrigation well pumps in Ventura
County, California. The engines' shaft horsepower-hours are sold to farmers at a
discount from the price of equivalent kilowatt hours of electricity. The
operator pays for fuel, maintenance, repair and replacement. The project has an
equivalent of 3 megawatts of power.
Electric Power Equipment Held for Resale
The Trust purchased, from an affiliated entity, various used electric power
generation equipment to be held for resale or for use in potential power
generation projects. The equipment was held in storage. At December 31, 1998,
the cost of such equipment was $455,182. In 1999, the Trust wrote down the
equipment to its estimated fair value of $250,000 and recorded a charge against
earnings of $205,182. In 2000, the Trust recorded an additional write down of
$250,000 to reduce the equipment to its estimated fair value of zero.
Maine Hydro Projects
In 1996, Ridgewood Maine Hydro Partners, L.P. ("Ridgewood Hydro L.P.") was
formed as a Delaware limited partnership and acquired 14 hydroelectric projects,
located in Maine (the "Maine Hydro Projects"), from a subsidiary of CHI Energy,
Inc. (formerly Consolidated Hydro, Inc.). The assets acquired include a total of
11.3 megawatts of electrical generating capacity. The electricity generated is
sold to Central Maine Power Company and Bangor Hydro Company under long-term
contracts. The purchase price was $13,628,395 cash, including transaction costs.
The Trust owns a 50% limited partnership interest in Ridgewood Hydro L.P. and
50% of the outstanding common stock of Ridgewood Maine Hydro Corporation, which
is the sole general partner of Ridgewood Hydro L.P. The remaining 50% is owned
by Ridgewood Electric Power Trust V ("Trust V"). Ridgewood Power LLC is the
managing partner of the Trust and Trust V.
The Trust's 50% investment in the Maine Hydro Projects is accounted for under
the equity method of accounting. The Trust's equity in the earnings of the Maine
Hydro Projects has been included in the financial statements since acquisition.
The Maine Hydro Projects are operated by a subsidiary of CHI Energy, Inc., under
an Operation, Maintenance and Administrative Agreement. The annual operator's
fee is adjusted on June 30th of each year for inflation, plus an annual
incentive fee equal to 50% of the net cash flow in excess of a target amount.
The Maine Hydro Projects recorded $343,704, $414,089 and $429,714 of expense
under this arrangement during the years ended December 31, 2001, 2000 and 1999,
respectively. The agreement has a five-year term, expiring on June 30, 2006, and
can be renewed for one additional five-year term by mutual consent.
Summarized financial information for the Maine Hydro Projects is as follows:
Balance Sheets
December 31, 2001 December 31, 2000
----------- -----------
Current assets ............. $ 632,298 $ 785,739
Non-current assets ......... 9,408,314 10,285,943
----------- -----------
Total assets ............... $10,040,612 $11,071,682
----------- -----------
Current liabilities ........ $ 282,582 $ 377,787
Partners' equity ........... 9,758,030 10,693,895
----------- -----------
Total liabilities and equity $10,040,612 $11,071,682
----------- -----------
Statements of Operations
For the Year Ended December 31,
-----------------------------------------
2001 2000 1999
------------ ----------- -----------
Revenue .............. $ 2,311,346 $ 3,750,095 $ 4,756,189
Operating expenses ... 3,049,927 3,271,902 3,002,245
Other income (expense) 13,563 26,307 (55,033)
----------- ----------- -----------
Net income (loss) .... $ (725,018) $ 504,500 $ 1,698,911
----------- ----------- -----------
The Maine Hydro Projects qualify as small power production facilities under the
Public Utility Regulatory Policies Act ("PURPA"). PURPA requires that each
electric utility company operating at the location of a small power production
facility, as defined, purchase the electricity generated by such facility at a
specified or negotiated price. The Maine Hydro Projects sell substantially all
of their electrical output to two public utility companies, Central Maine Power
Company ("CMP") and Bangor Hydro-Electric Company ("BHC"), under long-term power
purchase agreements. Eleven of the twelve power purchase agreements with CMP
expire in December 2008 and are renewable for an additional five-year period.
The twelfth power purchase agreement with CMP expires in December 2007 with CMP
having the option to extend the contract for three more five-year periods. The
two power purchase agreements with BHC expire December 2014 and February 2017.
Maine Biomass Projects
In 1997, through a subsidiary, the Trust acquired a 25% preferred membership
interest in Indeck Maine Energy, L.L.C. ("Maine Biomass Projects"), which owns
two electric power generating stations fueled by waste wood. The aggregate
purchase price was $7,297,971 including transaction costs. Each project has 24.5
megawatts of electrical generating capacity. The Penobscot project is located in
West Enfield, Maine and the Eastport project is located in Jonesboro, Maine. The
Eastport Project was shut down in January 1998. The facility currently sells
installed capacity and is periodically restarted for testing or for the sale of
energy during peak periods of demand. The cost of maintaining the idled facility
in good condition is approximately $100,000 per month. The Penobscot facility
resumed full time operation in June 2001.
The preferred membership interest entitles the Trust to receive an 18%
cumulative annual return on its $7,000,000 capital contribution to the Maine
Biomass Projects from the operating net cash flow from the projects. Trust V
also purchased an identical preferred membership interest in Indeck Maine. After
payments in full to the preferred membership interests, up to $2,520,000 of any
remaining operating net cash flow during the year is paid to the other Maine
Biomass Project members. Any remaining operating net cash flow is payable 25% to
the Trust and Trust V and 75% to the other Maine Biomass Project members.
In 2001, 2000 and 1999, the Trust loaned $250,000, $300,000 and $525,250,
respectively, to the Maine Biomass Projects. The loan is in the form of demand
notes that bear interest at 5% per annum. Trust V made identical loans to the
Maine Biomass Projects. The other Maine Biomass Project members also loaned
$500,000, $600,000 and $1,050,500 to the Maine Biomass Projects with the same
terms in 2001, 2000 and 1999, respectively.
The Trust's investment in the Maine Biomass Projects is accounted for under the
equity method of accounting. The Trust's equity in the loss of the Maine Biomass
Projects has been included in the statements of operations since acquisition.
The financials statements of the Maine Biomass Projects were not adjusted to
reflect the purchase of the membership interest by the Trust. The Trust's equity
in the net loss of the Maine Biomass Projects recorded in the Trust's
consolidated financial statements has been adjusted to reflect the purchase
price paid by the Trust for its membership interest.
The Penobscot and Eastport projects were operated by Indeck Operations, Inc., an
affiliate of the members of Indeck Maine. The annual operator's fee is $300,000,
of which $200,000 is payable contingent upon the Trusts receiving their
cumulative annual return. The management agreement had a term of one year and
automatically continued for successive one year terms, unless canceled by either
the Maine Biomass Projects or Indeck Operations, Inc. The Maine Biomass Projects
exercised their right to terminate the contract on March 1, 1999, because
certain preferred membership interest payments have not been made. Under an
Operating Agreement with the Trust, Ridgewood Power Management LLC ("Ridgewood
Management", formerly Ridgewood Power Management Corporation), an entity related
to the managing shareholder through common ownership, began providing
management, purchasing, engineering, planning and administrative services to the
Maine Biomass Projects. Ridgewood Management charges the projects 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, time records
or in proportion to amounts invested in projects.
From June through December 1999, the facilities periodically operated on
dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the
ISO to run at high prices during power emergencies. The facilities have claimed
the ISO owes them approximately $14 million for the electricity products they
provided in those periods and the ISO has claimed that no material revenues at
all are due to the projects. As a result, on October 24, 2000, Indeck Maine
filed a complaint against the ISO in the Superior Court of Delaware alleging,
among other things, that the ISO's actions resulted in a breach of an express or
implied contract, violated certain consumer protection laws and amounted to
fraud. The ISO removed the litigation to Federal District Court in Delaware. As
a result of various pre-trial motions filed by the parties, such litigation was
filed as a complaint by the Company before FERC. In April 2002, FERC ruled on
this complaint in favor of the ISO. The Company has not determined whether it
will appeal or otherwise contest the ruling by FERC.
Summarized financial information for the Maine Biomass Projects is as follows:
Balance Sheets
December 31,
--------------------------
2001 2000
----------- -----------
Current assets ............. $ 1,162,010 $ 1,117,357
Non-current assets ......... 3,359,795 2,970,042
----------- -----------
Total assets ............... $ 4,521,805 $ 4,087,399
----------- -----------
Current liabilities ........ $ 2,021,185 $ 703,279
Notes payable to members ... 5,801,000 4,801,000
Members' deficit ........... (3,300,380) (1,416,880)
----------- -----------
Total liabilities and equity $ 4,521,805 $ 4,087,399
----------- -----------
Statement of Operations
For the Year Ended December 31,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenue ...... $ 5,587,507 $ 2,017,481 $ 1,391,039
Cost of sales 6,913,336 2,646,770 3,330,090
Other expenses 557,671 650,680 253,610
----------- ----------- -----------
Net loss ..... $(1,883,500) $(1,279,969) $(2,192,661)
----------- ----------- -----------
Santee River Rubber
In August 1998, the Trust and an affiliate, Trust V, purchased preferred
membership interests in Santee River Rubber Company, LLC, a newly organized
South Carolina limited liability company ("Santee River Rubber"). Santee River
Rubber was building a waste tire and rubber processing facility located near
Charleston, South Carolina. The facility, which was expected to begin full scale
operations in 2000, was designed to receive and process waste tires and produce
fine crumb rubber of various sizes. The Trust and Trust V purchased the
interests through a limited liability company owned one-third by the Trust and
two-thirds by Trust V. The Trust's share of the purchase price was $4,489,819
and Trust V's share of the purchase price was $8,979,639.
Until January 2000, Santee River Rubber paid the Trust and Trust V interest at
12% per year on $11,000,000 of their investment. After operations began, the
Trusts were entitled to receive all cash flow after payment of debt and other
obligations until the Trusts received a cumulative 20% return on their total
investment. Thereafter, the Trusts were to receive 25% of any remaining cash
flow available for distribution. All cash distributions and tax allocations
received from Santee River Rubber were shared one-third by the Trust and
two-thirds by Trust V. The remaining equity interest was owned by a wholly-owned
subsidiary of Environmental Processing Systems, Inc. ("EPS"), the manager of the
project, a company not affiliated with the Trust.
At the same time as the Trusts purchased their membership interests, Santee
River Rubber borrowed $16,000,000 through tax exempt revenue bonds and another
$16,000,000 through taxable convertible bonds. It also obtained $4,500,000 of
subordinated financing from the general contractor of the facility.
In late May 2000, EPS informed the Trust that Santee River Rubber needed
substantial additional money to pay for its operating expenses while
modifications were completed and testing was performed. Intensive negotiations
then began between the Trust, Trust V, EPS, the facility's bondholders and
potential outside funding sources. While these negotiations continued, the
Project informed the Trust on July 30, 2000 that it had run out of money and
would be unable to make payroll. After further discussions, the Trust and Trust
V advanced $152,333 and $354,667, respectively, for that purpose. Negotiation
continued until October 26, 2000, when Santee River Rubber Company filed for
Chapter 11 bankruptcy in the U.S. District Court for South Carolina. On November
2, 2000, the U.S. Bankruptcy Court ordered that a trustee in bankruptcy be
appointed to manage Santee River. As a result, the Trust determined that it
would be unlikely to recover its investment in Santee River Rubber Company, and
for the year ended December 31, 2000 recorded a writedown of $4,062,413 to
reduce the estimated fair value of the investment to zero.
The Trust's investment in Santee River Rubber was accounted for under the equity
method of accounting. The Trust's equity in the income or loss of Santee River
Rubber had been included in the consolidated financial statements since
acquisition.
4. Long-Term Debt
Following is a summary of long-term debt at December 31, 2001 and 2000:
2001 2000
----------- -----------
Senior collateralized non-recourse notes payable $ 2,690,523 $ 3,479,460
Less - Current maturity ........................ (868,098) (788,937)
----------- -----------
Total long-term debt ........................... $ 1,822,425 $ 2,690,523
----------- -----------
The collateralized non-recourse notes are due in monthly installments of
$90,738, including interest at 9.6%. Final payment is due on October 15, 2004.
The notes also provide for additional interest equal to 5% of the annual net
cash flow of the Providence Project, as defined. No additional interest was due
for the years ended December 31, 2001, 2000 and 1999. The notes are
collateralized by a leasehold mortgage on Providence Power's landfill lease
agreements and substantially all of the assets of Providence Power. In addition
to the required monthly payments, mandatory prepayments may be required if
certain events occur. The loan agreement also provides for a cash funded debt
service reserve and maintenance reserve. At December 31, 2001 and 2000, the cash
balance in these reserve accounts was $738,226 and $710,513, respectively.
Additions and reductions to these reserve accounts are defined in the loan
agreement. The loan agreement contains various covenants, including the
maintenance of a specified debt service ratio.
Remaining scheduled repayments of long-term debt principal are as follows:
Year Ended
December 31, Repayment
2002 $ 868,098
2003 955,202
2004 867,223
During the fourth quarter of 1997, the Trust and its principal bank executed a
revolving line of credit agreement, whereby the bank will provide a three year
committed line of credit facility of $1,070,000 for borrowings or letters of
credit. The credit facility was extended until July 31, 2002. Outstanding
borrowings bear interest at the bank's prime rate or, at the Trust's choice, at
LIBOR plus 2.5% (4.376% and 9.07% at December 31, 2001 and 2000, respectively).
The credit agreement will require the Trust to maintain a ratio of total debt to
tangible net worth of no more than 1 to 1 and a minimum debt service coverage
ratio of 2 to 1. The Maine Hydro projects have an outstanding standby letter of
credit totaling $99,250 which is covered by the line of credit facility. In
January 2000, the Trust borrowed $500,000 under the line of credit facility
which was repaid in September 2000. At December 31, 2001 and 2000, there were no
borrowings outstanding under the credit facility.
5. Fair Value of Financial Instruments
At December 31, 2001 and 2000, the carrying value of the Trust's cash and cash
equivalents, accounts receivable, debt service reserve fund and accounts payable
and accrued expenses approximates their fair value. The fair value of the
long-term debt, calculated using current rates for loans with similar
maturities, does not differ materially from its carrying value. The fair value
of the letter of credit does not differ materially from its carrying value.
6. Electric Power Sales Contracts
Providence Power is committed to sell all of the electricity it produces to NEP
for prices as specified in the Power Purchase Agreement. The prices are adjusted
annually for changes in the Consumer Price Index, as defined. The NEP agreement
expires in the year 2020 and can be terminated by either party under certain
conditions in 2010. For the years ended December 31, 2001, 2000 and 1999, sales
revenue under the NEP Power Purchase Agreement amounted to $6,925,308,
$6,925,717, and $6,751,802 , respectively.
7. Landfill Lease and Sublease
Providence Power leases the Central Landfill, located in Johnston, Rhode Island
from Rhode Island Solid Waste Management Corporation ("RISWMC"). The lease
expires in 2020 and can be extended for an additional 10 years. This operating
lease requires Providence Power to pay a royalty equal to 15% of net revenues,
as defined, for the first 15 years of the lease. For subsequent years, the
royalty is 15% of net revenues for each month in which the average daily
kilowatt hour production is less than 180,000 and 18% of net revenues for each
month in which the average daily kilowatt hour production exceeds 180,000. For
the years ended December 31, 2001, 2000 and 1999 royalty expense relating to the
RISWMC lease amounted to $1,025,448, $1,015,398 and $996,399, respectively. The
royalty expense has been included in the cost of sales in the Consolidated
Statements of Operations.
Providence Power subleases the Central Landfill to Central Gas Limited
Partnership ("Gasco"). Gasco operates and maintains the landfill gas collection
system and supplies landfill gas to the Providence Project. The sublease
agreement is effective through December 31, 2010 and provides for the following:
Sublease Income - Gasco is to pay Providence Power an annual amount equal to the
product of $30,000 times the assumed output capacity of each engine generator
set in megawatts installed and operating by the joint venture. Income recorded
under the sublease amounted to $547,000 for the year ended December 31, 2001 and
$369,000 for the years ended December 31, 2000 and 1999.
Fuel Expense - Providence Power agreed to purchase all the landfill gas produced
by Gasco and pay on a monthly basis $.01183 per kilowatt hour for the first
4,000,000 kilowatt hours, $.005 per kilowatt hour for kilowatt hours in excess
of 4,000,000 and $.05 per million BTU's of excess landfill gas. The price is
adjusted annually for changes in the Consumer Price Index, as defined. Purchases
from Gasco for the years ended December 31, 2001, 2000 and 1999 amounted to
$937,731, $926,795 and $907,950, respectively.
8. Transactions With Managing Shareholder and Affiliates
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 3% of the net asset value of the
Trust payable monthly upon the closing of the Trust. For the years ended
December 31, 2001, 2000 and 1999, the Trust paid an annual management fees to
the managing shareholder of $761,266, $348,202 and $467,268, respectively. In
2000 and 1999, the managing shareholder waived approximately 50% of the
management fees to which it was entitled.
The Trust reimburses the managing shareholder and affiliates for expenses and
fees of unaffiliated persons engaged by the managing shareholder for fund
business. The managing shareholder or affiliates originally paid all project due
diligence costs, accounting and legal fees and other expenses shown in the
statement of operation and were reimbursed by the Trust.
Under the Declaration of Trust, the managing shareholder is entitled to receive
each year 1% of all distributions made by the Trust (other than those derived
from the disposition of Trust property) until the shareholders have been
distributed a cumulative amount equal to 14% per annum of their equity
contribution. Thereafter, the managing shareholder is entitled to receive 20% of
the distributions for the remainder of the year. The managing shareholder is
entitled to receive 1% of the proceeds from dispositions of Trust properties
until the shareholders have received cumulative distributions equal to their
original investment ("Payout"). After Payout, the managing shareholder is
entitled to receive 20% of all remaining distributions of the Trust.
Income is allocated to the managing shareholder until the cumulative profits
equal cumulative distributions to the managing shareholder. Then, income is
allocated to the investors, first among holders of Preferred Participation
Rights until such allocations equal distributions from those Preferred
Participation Rights, and then among Investors in proportion to their ownership
of investor shares. If the Trust has net losses for a fiscal period, the losses
are allocated 99% to the Investors and 1% to the managing shareholder.
Where permitted, in the event the managing shareholder or an affiliate performs
brokering services in respect of an investment acquisition or disposition
opportunity for the Trust, the managing shareholder or such affiliate may charge
the Trust a brokerage fee. Such fee may not exceed 2% of the gross proceeds of
any such acquisition or disposition. No such fees have been incurred through
December 31, 2001.
The corporate trustee of the Trust, Ridgewood Energy Holding Corporation, an
affiliate of the managing shareholder through common ownership, received no
compensation from the Fund.
The managing shareholder and affiliates own two investor shares with a cost of
$133,000. The Trust granted the managing shareholder a single Management Share
representing the managing shareholder's management rights and rights to
distributions of cash flow.
Under an Operating Agreement with the Trust, Ridgewood Management, an entity
related to the managing shareholder through common ownership, provides
management, purchasing, engineering, planning and administrative services to the
Trust's power generation projects. Ridgewood Management charges the projects 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, time
records or in proportion to amounts invested in projects managed by Ridgewood
Management. During the years ended December 31, 2001, 2000 and 1999, Ridgewood
Management charged Providence Power $538,262, $344,041 and $404,055,
respectively. During the year ended December 31, 2001, 2000 and 1999, Ridgewood
Management charged California Pumping Project $71,841, $65,333 and $69,262,
respectively. During the year ended December 31, 2001, 2000 and 1999, Ridgewood
Management charged the Maine Biomass projects $205,120, $203,191 and $197,825,
respectively. During the periods ended December 31, 2001, 2000 and 1999,
Ridgewood Management did not charge any amounts to the Maine Hydro projects or
Santee River Rubber project.
At December 31, 2001 and 2000, the Trust had outstanding payables and
receivables, with the following affiliates:
Due To Due From
------------------- ------------------
2001 2000 2001 2000
-------- -------- -------- ------
Ridgewood Management $201,269 $155,930 $ -- $ --
Trust III .......... 384,105 365,880 -- --
Trust V ............ 135,667 135,667 -- --
Ridgewood Power .... -- 212,860 -- --
Maine Hydro ........ 270,006 25,429 -- --
Maine Biomass ...... -- -- 250,000 --
Other affiliates ... 24,084 20,652 -- --
From time to time, the Trust records short-term payables and receivables from
other affiliates in the ordinary course of business. The amounts payable and
receivable with the other affiliates do not bear interest.
9. Administrative Proceeding at the Providence Project
In September 1998, the Region I office of the U.S. Environmental Protection
Agency ("EPA") filed an administrative proceeding against Providence Power
seeking to recover civil penalties of up to $190,000 for alleged violations of
operational recordkeeping and training requirements at the Providence Project.
In June 1999, Providence Power settled the administrative proceeding for
approximately $86,000 which is recorded in cost of sales in the consolidated
statement of operations.
Ridgewood Maine Hydro Partners, L.P.
Financial Statements
December 31, 2001, 2000 and 1999
Report of Independent Accountants
To the Partners of
Ridgewood Maine Hydro Partners, L.P.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in Partners' equity and cash flows present fairly, in all
material respects, the financial position of Ridgewood Maine Hydro Partners,
L.P. (the "Partnership") at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
April 2, 2002
Ridgewood Maine Hydro Partners, L.P.
Balance Sheets
- -------------------------------------------------------------------------------
December 31,
----------------------------
2001 2000
------------ ------------
Assets:
Cash and cash equivalents ................. $ 17,816 $ 135,441
Accounts receivable, trade ................ 71,768 602,342
Due from affiliates ....................... 501,038 25,429
Prepaid and other current assets .......... 41,676 22,527
------------ ------------
Total current assets ................. 632,298 785,739
Plant and equipment ....................... 2,013,963 1,838,408
Accumulated depreciation .................. (190,430) (140,422)
------------ ------------
Property, plant and equipment, net ... 1,823,533 1,697,986
------------ ------------
Electric power sales contracts ............ 12,815,510 12,815,510
Accumulated amortization .................. (5,230,729) (4,227,553)
------------ ------------
Electric power sales contracts, net .. 7,584,781 8,587,957
------------ ------------
Total assets ......................... $ 10,040,612 $ 11,071,682
------------ ------------
Liabilities and Partners' Equity:
Liabilities:
Accounts payable and accrued expenses ..... $ 118,160 $ 197,297
Due to affiliates ......................... 164,422 180,490
------------ ------------
Total current liabilities ............ 282,582 377,787
Commitments and contingencies
Partners' equity:
Limited partners .......................... 9,670,171 10,596,678
General partner ........................... 87,859 97,217
------------ ------------
Total partners' equity ............... 9,758,030 10,693,895
------------ ------------
Total liabilities and partners' equity $ 10,040,612 $ 11,071,682
------------ ------------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Statements of Operations
- -------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------
2001 2000 1999
----------- ----------- -----------
Power generation revenue ....... $ 2,311,346 $ 3,750,095 $ 4,756,189
----------- ----------- -----------
Operating expenses:
Depreciation and amortization 1,053,184 1,083,146 1,107,568
Labor ....................... 624,886 653,306 565,015
Insurance ................... 256,015 176,117 177,333
Property taxes .............. 266,437 255,274 252,611
Contract management ......... 343,704 414,089 323,003
Other expenses .............. 505,701 689,970 576,715
----------- ----------- -----------
3,049,927 3,271,902 3,002,245
----------- ----------- -----------
Income (loss) from operations .. (738,581) 478,193 1,753,944
----------- ----------- -----------
Other income (expense):
Interest income ................ 13,563 59,360 42,852
Interest expense ............... -- (33,053) (112,885)
Other income ................... -- -- 15,000
----------- ----------- -----------
Other income (expense), net 13,563 26,307 (55,033)
----------- ----------- -----------
Net income (loss) .............. $ (725,018) $ 504,500 $ 1,698,911
----------- ----------- -----------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Statements of Changes in Partners' Equity
For the Years Ended December 31, 2001, 2000 and 1999
- -------------------------------------------------------------------------------
Limited General
Partners Partner Total
------------ ------------ ------------
Partners' equity,
January 1, 1999 ...... 12,319,953 114,624 12,434,577
Cash distributions .... (2,778,414) (28,065) (2,806,479)
Net income for the year 1,681,922 16,989 1,698,911
------------ ------------ ------------
Partners' equity,
December 31, 1999 .... 11,223,461 103,548 11,327,009
Cash distributions .... (1,126,238) (11,376) (1,137,614)
Net income for the year 499,455 5,045 504,500
------------ ------------ ------------
Partners' equity,
December 31, 2000 .... 10,596,678 97,217 10,693,895
Cash distributions .... (208,739) (2,108) (210,847)
Net loss for the year . (717,768) (7,250) (725,018)
------------ ------------ ------------
Partners' equity,
December 31, 2001 .... $ 9,670,171 $ 87,859 $ 9,758,030
------------ ------------ ------------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Statements of Cash Flows
- -------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
2001 2000 1999
----------- ----------- -----------
Cash flows from operating
activities:
Net income (loss) ................. $ (725,018) $ 504,500 $ 1,698,911
Adjustments to reconcile net
income(loss) to net cash flows
from operating activities:
Depreciation and amortization ... 1,053,184 1,083,146 1,107,568
Changes in assets and
liabilities:
Decrease (increase) in
accounts receivable .......... 530,574 419,138 (447,458)
(Increase) decrease in prepaid
and other current assets .... (19,149) 120,335 (65,295)
(Increase) decrease in due
to/from affiliates, net ..... (491,677) (782,458) (1,019,205)
(Decrease) increase in accounts
payable and accrued
expenses ..................... (79,137) 159,012 (159,514)
----------- ----------- -----------
Total adjustments ............. 993,795 999,173 (583,904)
----------- ----------- -----------
Net cash provided by operating
activities ................... 268,777 1,503,673 1,115,007
----------- ----------- -----------
Cash flows from investing
activities:
Capital expenditures .............. (175,555) (489,384) (259,776)
----------- ----------- -----------
Net cash used in investing
activities ................... (175,555) (489,384) (259,776)
----------- ----------- -----------
Cash flows from financing
activities:
Cash distributions to partners .... (210,847) (1,000,000) (900,000)
Payments to reduce long-term
lease obligations ................ -- (287,683) (153,515)
----------- ----------- -----------
Net cash used in financing
activities ................... (210,847) (1,287,683) (1,053,515)
----------- ----------- -----------
Net decrease in cash
and cash equivalents ............. (117,625) (273,394) (198,284)
Cash and cash equivalents,
beginning of year ................ 135,441 408,835 607,119
----------- ----------- -----------
Cash and cash equivalents,
end of year ...................... $ 17,816 $ 135,441 $ 408,835
----------- ----------- -----------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Organization and Business Activity
On September 5, 1996, Ridgewood Maine Hydro Partners, L.P. was formed as a
Delaware limited partnership (the "Partnership"). Ridgewood Maine Hydro
Corporation, a Delaware Corporation ("RMHCorp"), is the sole general partner of
the Partnership and is owned equally by Ridgewood Electric Power Trust IV
("Trust IV") and Ridgewood Electric Power Trust V ("Trust V"), both Delaware
business trusts (collectively, the "Trusts"). The Trusts are equal limited
partners in the Partnership.
On December 23, 1996, in a merger transaction, the Partnership acquired 14
hydroelectric projects located in Maine (the "Maine Hydro Projects") from a
subsidiary of CHI Energy, Inc. (formerly Consolidated Hydro, Inc.). The assets
acquired include a total of 11.3 megawatts of electrical generating capacity.
The electricity generated is sold to Central Maine Power Company and Bangor
Hydro Company under long-term contracts.
2. Summary of Significant Accounting Policies
Critical accounting policies and estimates
The preparation of financial statements requires the Partnership to make
estimates and judgements that affect the reported amounts of assets,
liabilities, sales and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Partnership evaluates its estimates,
including provision for bad debts, recoverable value of fixed assets and
intangible assets and recordable liabilities for litigation and other
contingencies. The Partnership bases its estimates on historical experience,
current and expected conditions and various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis
for making judgements about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
New Accounting Standards and Disclosures
SFAS 141
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 141, Business Combinations, which
eliminates the pooling-of-interest method of accounting for business
combinations and requires the use of the purchase method. In addition, SFAS 141
requires the reassessment of intangible assets to determine if they are
appropriately classified either separately or within goodwill. SFAS 141 is
effective for business combinations initiated after June 30, 2001. The
Partnership adopted SFAS 141 on July 1, 2001, with no material impact on the
financial statements.
SFAS 142
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which eliminates the amortization of goodwill and other acquired intangible
assets with indefinite economic useful lives. SFAS 142 requires an annual
impairment test of goodwill and other intangible assets that are not subject to
amortization. The Partnership will adopt SFAS 142 effective January 1, 2002 and
is currently assessing the impact that this standard may have on the
Partnership.
SFAS 143
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, on the accounting for obligations associated with the retirement of
long-lived assets. SFAS 143 requires a liability to be recognized in the
financial statements for retirement obligations meeting specific criteria.
Measurement of the initial obligation is to approximate fair value, with an
equivalent amount recorded as an increase in the value of the capitalized asset.
The asset will be depreciated in accordance with normal depreciation policy and
the liability will be increased for the time value of money, with a charge to
the income statement, until the obligation is settled. SFAS 143 is effective for
fiscal years beginning after June 15, 2002. The Partnership will adopt SFAS 143
effective January 1, 2003 and is currently assessing the impact that this
standard may have on the Partnership.
SFAS 144
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which replaces SFAS 121, Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed Of. For
long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS
121 to (a) recognize an impairment loss only if the carrying amount is not
recoverable from undiscounted cash flows and (b) measure an impairment loss as
the difference between the carrying amount and fair value of the asset. For
long-lived assets to be disposed of, SFAS 144 establishes a single accounting
model based on the framework established in SFAS 121. The accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations and replaces the provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of segments of a business. SFAS 144
also broadens the reporting of discontinued operations. The Partnership will
adopt SFAS 144 effective January 1, 2002 and is currently assessing the impact
that this standard may have on the Partnership.
Cash and cash equivalents
The Partnership considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents.
Revenue recognition
Power generation revenue is recorded in the month of delivery, based on the
estimated volumes sold to customers at rates stipulated in the power sales
contract. Adjustments are made to reflect actual volumes delivered when the
actual volumetric information subsequently becomes available. Billings to
customers for power generation generally occurs during the month following
delivery. Final billings typically do not vary significantly from estimates.
Interest income is recorded when earned.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets to be Disposed Of, the Partnership evaluates long-lived
assets, such as fixed assets and specifically identifiable intangibles, when
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. The determination of whether an impairment has
occurred is made by comparing the carrying value of an asset to the estimated
undiscounted cash flows attributable to that asset. If an impairment has
occurred, the impairment loss recognized is the amount by which the carrying
value exceeds the discounted cash flows attributable to the asset or the
estimated fair value of the asset.
Plant and equipment
Machinery and equipment, consisting principally of electrical generating
equipment, is stated at cost. Renewals and betterments that increase the useful
lives of the assets are capitalized. Repair and maintenance expenditures that
increase the efficiency of the assets are expensed as incurred. At December 31,
2001 and 2000, the Partnership had construction in progress of $121,287 and
$482,436, respectively.
Depreciation is recorded using the straight-line method over the useful lives of
the assets, which vary from 3 to 50 years with a weighted average of 33 and 22
years at December 31, 2001 and 2000, respectively. During the years ended
December 31, 2001, 2000 and 1999, the Partnership recorded depreciation expense
of $50,008, $61,794, and $47,272, respectively.
Electric Power Sales Contracts
A portion of the purchase price of the Maine Hydro Projects was assigned to the
Electric Power Sales Contracts and is being amortized over the duration of the
contracts (11 to 21 years) on a straight-line basis.
As part of the purchase of the Maine Hydro Projects, the Partnership assumed a
hydroelectric facility leased pursuant to a long-term lease agreement dated July
16, 1979, and as amended (the "Agreement"). Upon proper notice, the Partnership
had the right to purchase all the equipment covered in the Agreement at Fair
Market Value (as defined) or elect to extend the terms of the Agreement for up
to three five-year periods at a rental equal to Fair Rental Value (as defined).
In addition, the Partnership also had the right to terminate the Agreement and
purchase the hydroelectric facility upon proper notice and payment of a
scheduled close-out amount, which was $750,000 at April 30, 2000. This lease was
accounted for as a capital lease and the scheduled close-out amount of $750,000
had been recorded as a lease obligation. On April 30, 2000, the Partnership
purchased the equipment at its Fair Market Value, which was $254,136. The
difference between the recorded lease obligation of $750,000 and the purchase
price of $254,136 is recorded as a reduction to the Electric Powers Sales
Contract in the accompanying balance sheet.
During each of the years ended December 31, 2001, 2000 and 1999, the Partnership
recorded amortization expense of $1,003,176, $1,021,352 and $1,060,296,
respectively.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or loss of the Partnership is passed through and included in the
tax returns of the individual partners.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Lease Commitments
The Partnership leases a parcel of land on the sites of two of its hydroelectric
projects under non-cancelable operating leases expiring in June 2078. Total
monthly payments in 2001 were the greater of $1,318 or a percentage of the
revenue from the hydroelectric project. At December 31, 2001, the future minimum
rental payments required under these leases was as follows:
2002 $ 15,816
2003 15,816
2004 15,816
2005 15,816
2006 15,816
Thereafter 1,130,844
------------------
$ 1,209,924
------------------
4. Electric Power Sale Contracts
The Partnership operates facilities which qualify as small power production
facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA
requires that each electric utility company, operating at the location of a
small power production facility, as defined, purchase the electricity generated
by such facility at a specified or negotiated price. The Partnership sells
substantially all of its electrical output to two public utility companies,
Central Maine Power Company ("CMP") and Bangor Hydro-Electric Company ("BHC"),
pursuant to long-term power purchase agreements. Eleven of the twelve power
purchase agreements with CMP expire in December 2008 and are renewable for an
additional five year period. The twelfth power purchase agreement with CMP
expires in December 2007 with CMP having the option to extend the contract for
three more five-year periods. The two power purchase agreements with BHC expire
December 2014 and February 2017. The Partnership is required to maintain a
standby letter of credit totaling $99,250 under the long-term power purchase
agreement, which is collateralized by Trust IV's line of credit facility.
5. Fair Value of Financial Instruments
At December 31, 2001 and 2000, the carrying value of the Partnership's cash and
cash equivalents, trade receivables, and accounts payable and accrued expenses
approximates their fair value. The fair value of the letter of credit does not
differ materially from its carrying value.
6. Management Agreement
The Maine Hydro Projects are operated by a subsidiary of CHI Energy, Inc. under
an Operation, Maintenance and Administrative Agreement. The annual operator's
fee is adjusted on June 30th of each year for inflation, plus an annual
incentive fee equal to 50% of the net cash flow in excess of a target amount.
The maximum incentive fee payable in a year is $112,500. The Partnership
recorded $343,704, $414,089, and $323,003 of expense under this arrangement
during the periods ended December 31, 2001, 2000 and 1999, respectively. The
agreement has a five-year term expiring on June 30, 2006 and can be renewed for
one additional five-year term by mutual consent.
7. Transactions with Affiliates
At December 31, 2001 and 2000, the Partnership had outstanding payables and
receivables, with the following affiliates:
As of December 31,
Due To Due From
------------------ --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Ridgewood Power Management, LLC $164,422 $111,522 $ -- $ --
Trust IV ...................... -- -- 270,066 25,429
Trust V ....................... -- 68,968 231,032 --
From time to time, the Partnership records short-term payables and receivables
from other affiliates in the ordinary course of business. The amounts payable
and receivable with the other affiliates do not bear interest.
Indeck Maine Energy, L.L.C.
Financial Statements
December 31, 2001, 2000 and 1999
Report of Independent Accountants
To the Members of
Indeck Maine Energy, L.C.C.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in members' (deficit)equity and cash flows present fairly,in
all material respects, the financial position of Indeck Maine Energy, L.L.C.(the
"Company") at December 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 4 to the financial statements, the Company has temporarily
suspended operations and is dependent on the continuing financial support of the
members.
PricewaterhouseCoopers LLP
Florham Park, NJ
April 2, 2002
Indeck Maine Energy, L.L.C.
Balance Sheets
- -------------------------------------------------------------------------------
December 31,
-----------
2001 2000
----------- -----------
Assets:
Cash and cash equivalents ................. $ 69,798 $ 689,533
Accounts receivable ....................... 606,089 147,912
Inventories ............................... 480,422 144,295
Prepaid expenses .......................... 5,701 135,617
----------- -----------
Total current assets ................... 1,162,010 1,117,357
----------- -----------
Property, plant and equipment:
Land ................................... 158,000 158,000
Power generation facilities ............ 3,795,639 3,203,217
Equipment and other .................... 60,009 56,646
----------- -----------
4,013,648 3,417,863
Accumulated depreciation ............... (800,108) (607,358)
----------- -----------
3,213,540 2,810,505
----------- -----------
Intangible assets ......................... 206,577 206,577
Accumulated amortization .................. (60,322) (47,040)
----------- -----------
146,255 159,537
----------- -----------
Total assets ......................... $ 4,521,805 $ 4,087,399
----------- -----------
Liabilities and Members' Deficit:
Liabilities:
Accounts payable and accrued expenses ..... $ 477,182 $ 86,858
Due to affiliates ......................... 1,244,003 416,421
Management fee payable .................... 300,000 200,000
Notes payable to members .................. 5,801,000 4,801,000
----------- -----------
Total current liabilities ............ 7,822,185 5,504,279
Commitments and contingencies
Total members' deficit .................... (3,300,380) (1,416,880)
----------- -----------
Total liabilities and members' deficit $ 4,521,805 $ 4,087,399
----------- -----------
See accompanying notes to the financial statements.
Indeck Maine Energy, L.L.C.
Statements of Operations
- -------------------------------------------------------------------------------
For the years ended December 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------
Power generation revenue ..... $ 5,587,507 $ 2,017,481 $ 1,391,039
Cost of sales, including
depreciation and amortization
of $206,032, $184,771 and
$184,771 in 2001, 2000 and
1999 .................... 6,913,336 2,646,770 3,330,090
----------- ----------- -----------
Gross loss ................... (1,325,829) (629,289) (1,939,051)
General and administrative
expenses .................... 300,112 478,696 148,752
----------- ----------- -----------
Loss from operations ...... (1,625,941) (1,107,985) (2,087,803)
Interest income .............. 11,657 11,857 4,098
Interest expense ............. (269,216) (183,841) (108,956)
----------- ----------- -----------
Net loss .................. $(1,883,500) $(1,279,969) $(2,192,661)
----------- ----------- -----------
See accompanying notes to the financial statements.
Indeck Maine Energy, L.L.C.
Statements of Changes in Members' (Deficit) Equity
For the Years Ended December 31, 2001, 2000 and 1999
- -------------------------------------------------------------------------------
Indeck Energy Ridgewood
Services, Inc. Maine, LLC Total
----------- ----------- -----------
Members' equity, January 1, 1999 .. $ 1,000 2,054,750 2,055,750
Net loss .......................... (1,000) (2,191,661) (2,192,661)
----------- ----------- -----------
Members' deficit, December 31, 1999 -- (136,911) (136,911)
Net loss .......................... -- (1,279,969) (1,279,969)
----------- ----------- -----------
Members' deficit, December 31, 2000 -- (1,416,880) (1,416,880)
Net loss .......................... -- (1,883,500) (1,883,500)
----------- ----------- -----------
Members' deficit, December 31, 2001 $ -- $(3,300,380) $(3,300,380)
----------- ----------- -----------
See accompanying notes to the financial statements.
Indeck Maine Energy, L.L.C.
Statements of Cash Flows
- -------------------------------------------------------------------------------
For the year ended December 31,
------------------------------------------
2001 2000 1999
----------- ----------- -----------
Cash flows from operating
activities:
Net loss ...................... $(1,883,500) $(1,279,969) $(2,192,661)
Adjustments to reconcile net
loss to net cash flows used
in operating activities
Depreciation and
amortization .............. 206,032 184,771 184,771
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable .... (458,177) 126,450 (88,554)
(Increase) decrease in
inventories ............ (336,127) 903 133,506
Decrease (increase) in
prepaid expenses ........ 129,916 (108,353) 82,704
Increase (decrease) in
accounts payable and
accrued expenses ....... 189,802 (182,526) (57,678)
Increase (decrease) in due
to affiliates ........... 827,582 (8,185) 424,606
Increase (decrease) in
management fee payable .. 100,000 100,000 (25,000)
----------- ----------- -----------
Total adjustments .......... 659,028 113,060 654,355
----------- ----------- -----------
Net cash used in operating
activities ................ (1,224,472) (1,166,909) (1,538,306)
----------- ----------- -----------
Cash flows from investing
activities:
Capital expenditures ............ (395,263) -- --
----------- ----------- -----------
Net cash used in
investing activities ....... (395,263) -- --
Cash flows from financing
activities
Issuance of notes payable ..... 1,000,000 1,200,000 2,101,000
----------- ----------- -----------
Net cash provided by
financing activities ....... 1,000,000 1,200,000 2,101,000
----------- ----------- -----------
Net (decrease) increase in cash
and cash equivalents ........... (619,735) 33,091 562,694
Cash and cash equivalents,
beginning of year ............ 689,533 656,442 93,748
----------- ----------- -----------
Cash and cash equivalents,
end of year .................. $ 69,798 $ 689,533 $ 656,442
----------- ----------- -----------
See accompanying notes to the financial statements.
Indeck Maine Energy, L.L.C.
Notes to Financial Statements
- -------------------------------------------------------------------------------
1. Description of Business
Indeck Maine Energy, L.L.C. (the "Company") is a limited liability company
formed on April 1, 1997 by Indeck Energy Services, Inc. ("IES") for the purpose
of acquiring, operating and managing two 24.5 megawatt wood-fired electric
generation facilities (the "Facilities") located in Maine. The Facilities
commenced operations on June 10, 1997. On June 11, 1997, Ridgewood Maine, LLC
("Ridgewood"), which is owned equally by Ridgewood Electric Power Trust IV and
Ridgewood Electric Power Trust V, purchased a 50% membership interest in the
Company from IES for $14,000,000. Of this purchase price, $4,857,015 was
contributed to the Company and the remainder was retained by the other members.
a. Ridgewood's Priority Return from Operations: Ridgewood's Priority Return
From Operations is an amount equal to 18% per annum of $14 million,
increased by the amount of any additional contribution made by Ridgewood
and reduced by the amount of distributions to Ridgewood of Net Cash Flow
From Capital Events, as defined.
b. Allocation of Profits and Losses: In accordance with the Operating
Agreement, profits and losses, as defined, are allocated as follows:
First, profits shall be allocated to each member, other than Ridgewood, until
the cumulative amount of profits allocated is equal to the amount of
distributions made or to be made to each member pursuant to the distributions
provisions of the Operating Agreement.
Second, all remaining profits and losses shall be allocated to Ridgewood. Also,
all depreciation shall be allocated to Ridgewood.
Losses and depreciation allocated to members in accordance with the Operating
Agreement may not exceed the amount that would cause such members to have an
Adjusted Capital account Deficit, as defined, at the end of such year. All
losses and depreciation in excess of this limitation shall be allocated to the
remaining members who will not be subject to this limitation, in proportion to
and to the extent of their positive Capital Account Balances, as defined.
Also, if in any fiscal year a member unexpectedly receives an adjustment,
allocation or distribution as described in the Operating Agreement, and such
allocation or distribution causes or increases an Adjusted Capital Account
Deficit for such fiscal year, such member shall be allocated items of income and
gain in an amount and manner sufficient to eliminate such Adjusted Capital
Account Deficit as quickly as possible.
c. Distributions of Net Cash Flows From Operations: For each Fiscal year, the
Company shall distribute Net Cash Flow From Operations, as defined, to the
members as follows:
First, the Company shall distribute to Ridgewood 100% of Net Cash Flow From
Operations until Ridgewood has received the full amount of any unpaid portion of
Ridgewood's Priority Return From Operations, as defined, for any preceding
fiscal year,
Second, the Company shall distribute to Ridgewood 100% of Net Cash Flow From
Operations until Ridgewood has received Ridgewood's Priority Return From
Operations for the current fiscal year.
Third, the Company shall distribute 100% of Net Cash Flow From Operations to the
members, other than Ridgewood, in accordance with the respective interests of
such members until such members have collectively received an amount equal to
the amount distributed to Ridgewood during the current fiscal year.
Fourth, the Company shall thereafter distribute any remaining balance of Net
Cash Flow From Operations 25% to Ridgewood and 75% to the remaining members, in
accordance with the respective interest of such members, until such time as
Ridgewood has received aggregate distributions equal to Ridgewood's Initial
Capital Contribution, as defined. At such time, the distribution percentages
shall be amended to 50% Ridgewood and 50% to the remaining members.
d. Distributions of Net Cash Flow From Capital Events: The Company shall
distribute Net Cash Flow From Capital Events, as defined, 50% to Ridgewood
and 50% to the remaining members, in accordance with the respective
interests of such members. Net Cash Flow from Capital Events is defined as
any cash received from any source other than Net Cash Flow From Operations.
2. Summary of Significant Accounting Policies
Critical accounting policies and estimates
The preparation of financial statements requires the Company to make estimates
and judgements that affect the reported amounts of assets, liabilities, sales
and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including bad debts,
recoverable value of fixed assets, intangible assets and recordable liabilities
for litigation and other contingencies. The Company bases its estimates on
historical experience, current and expected conditions and various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgements about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
New Accounting Standards and Disclosures
SFAS 141
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 141, Business Combinations, which
eliminates the pooling-of-interest method of accounting for business
combinations and requires the use of the purchase method. In addition, SFAS 141
requires the reassessment of intangible assets to determine if they are
appropriately classified either separately or within goodwill. SFAS 141 is
effective for business combinations initiated after June 30, 2001. The Company
adopted SFAS 141 on July 1, 2001, with no material impact on the financial
statements.
SFAS 142
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which eliminates the amortization of goodwill and other acquired intangible
assets with indefinite economic useful lives. SFAS 142 requires an annual
impairment test of goodwill and other intangible assets that are not subject to
amortization. The Company will adopt SFAS 142 effective January 1, 2002 and is
currently assessing the impact that this standard may have on the Company.
SFAS 143
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, on the accounting for obligations associated with the retirement of
long-lived assets. SFAS 143 requires a liability to be recognized in the
financial statements for retirement obligations meeting specific criteria.
Measurement of the initial obligation is to approximate fair value, with an
equivalent amount recorded as an increase in the value of the capitalized asset.
The asset will be depreciated in accordance with normal depreciation policy and
the liability will be increased for the time value of money, with a charge to
the income statement, until the obligation is settled. SFAS 143 is effective for
fiscal years beginning after June 15, 2002. The Company will adopt SFAS 143
effective January 1, 2003 and is currently assessing the impact that this
standard may have on the Company.
SFAS 144
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which replaces SFAS 121, Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed Of. For
long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS
121 to (a) recognize an impairment loss only if the carrying amount is not
recoverable from undiscounted cash flows and (b) measure an impairment loss as
the difference between the carrying amount and fair value of the asset. For
long-lived assets to be disposed of, SFAS 144 establishes a single accounting
model based on the framework established in SFAS 121. The accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations and replaces the provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of segments of a business. SFAS 144
also broadens the reporting of discontinued operations. The Company will adopt
SFAS 144 effective January 1, 2002 and is currently assessing the impact that
this standard may have on the Company.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents.
Revenue recognition
Power generation revenue is recorded in the month of delivery, based on the
estimated volumes sold to customers at rates stipulated in the power sales
contract. Adjustments are made to reflect actual volumes delivered when the
actual volumetric information subsequently becomes available. Billings to
customers for power generation generally occurs during the month following
delivery. Final billings typically do not vary significantly from estimates.
Interest income is recorded when earned.
Inventories
Inventories, consisting of wood and propane, are stated at cost, with cost being
determined on the first-in, first-out method.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 121, the Company evaluates
long-lived assets, such as fixed assets and specifically identifiable
intangibles, when events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. The determination of whether an
impairment has occurred is made by comparing the carrying value of an asset to
the estimated undiscounted cash flows attributable to that asset. If an
impairment has occurred, the impairment loss recognized is the amount by which
the carrying value exceeds the discounted cash flows attributable to the asset
or the estimated fair value of the asset.
Property, plant and equipment
Property, plant and equipment, consisting of land and machinery and equipment,
are stated at cost. Machinery and equipment, consists principally of electrical
generating equipment. Renewals and betterments that increase the useful lives of
the assets are capitalized. Repair and maintenance expenditures are expensed as
incurred.
Depreciation is recorded using the straight-line method over the estimated
useful life of the assets, ranging from 5 to 20 years with a weighted average of
19 and 20 years at December 31, 2001 and 2000, respectively. For the years ended
December 31, 2001, 2000 and 1999, the Company recorded depreciation expense of
$192,750, $171,489 and $171,489, respectively.
Intangible assets
Intangible assets are amortized over 5 to 20 years on a straight-line basis.
Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable During each of the years ended December 31, 2001, 2000 and 1999, the
Company recorded amortization expense of $13,282.
Significant Customers
During 2001, the Company's three largest customers accounted for 75%, 23% and 2%
of total revenues. During 2000, the Company's three largest customers accounted
for 55%, 33% and 12% of total revenues. During 1999, the Company's three largest
customers accounted for 41%, 22% and 19% of total revenues.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or loss of the Company is passed through and included in the tax
returns of the members.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Notes Payable
Notes payable consist of the following at December 31, 2001 and 2000:
2001 2000
--------- ---------
Note payable to IES (a member),
due on demand with interest at 5% ................ $2,900,500 $2,400,500
Note payable to Ridgewood (a member),
due on demand with interest at 5% ................. 2,900,500 2,400,500
---------- ----------
$5,801,000 $4,801,000
---------- ----------
4. Operating Status
One project has temporarily suspended its operations. It is management's intent
not to operate the facility, except during periods of peak demand, until a
profitable power sales contract can be negotiated. Based on forecasts related to
the operation of the Facilities, management believes that the Company will be
able to recover the carrying value of its long-lived assets and meet its
financial obligations. The members intend to continue providing the necessary
financial support to the Company for the foreseeable future and to not demand
payment, within the next twelve months, of the notes payable discussed in Note
3. During the first quarter of 2002, Ridgewood and IES each contributed $650,000
to the Company.
5. Related Party Transactions
The Company is required to pay certain members a fee for management services of
$100,000 per year. Additional management fees of up to $200,000 per year may be
payable contingent upon achieving Ridgewood's Priority Return from Operations,
as defined. No contingent management fee has been accrued as of December 31,
2001 or 2000. Amounts of $300,000 and $200,000 for 2001 and 2000, respectively,
are recorded in management fee payable in the Balance Sheets.
Under an Operating Agreement with Ridgewood Electric Power Trust IV and
Ridgewood Electric Power Trust V ("the Trusts"), Ridgewood Power Management LLC
(formerly Ridgewood Power Management Corporation, "Ridgewood Management"), an
entity related to the managing shareholder of the Trusts through common
ownership, provides management, purchasing, engineering, planning and
administrative services to the Company. Ridgewood Management charges the Company
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, time
records or in proportion to amounts invested in projects managed by Ridgewood
Management. During the years ended December 31, 2001, 2000 and 1999, Ridgewood
Management charged the Company $205,120, $203,191 and $197,825, respectively,
for overhead items allocated in proportion to the amount invested in projects
managed. Ridgewood Management also charged the Company for all of the remaining
direct operating and non-operating expenses incurred during the periods.
At December 31, 2001 and 2000, the Company had outstanding payables, totaling
$1,244,003 and $416,421, respectively, to the following affiliates. Such
outstanding payables are due upon demand and do not bear interest.
For the Year Ended December 31,
------------------------------
2001 2000
-------- --------
Ridgewood Electric Power Trust IV $402,436 $ 85,131
Ridgewood Electric Power Trust V 352,436 85,131
Ridgewood Management ............ 184,328 75,964
IES ............................. 304,803 170,195
6. Fair Value of Financial Instruments
At December 31, 2001 and 2000, the carrying value of the Company's cash and cash
equivalents, accounts receivable and accounts payable and accrued expenses
approximates their fair value. Due to the nature of the Company's relationship
with IES and Ridgewood, the fair value of the notes payable is not determinable.
7. Dispute with ISO
From June through December 1999, the Facilities periodically operated on
dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the
ISO to run at high prices during power emergencies. The Facilities have claimed
the ISO owes them approximately $14 million for the electricity products they
provided in those periods and the ISO has claimed that no material revenues at
all are due to the projects. As a result, on October 24, 2000, the Company filed
a complaint against the ISO in the Superior Court of Delaware alleging, among
other things, that the ISO's actions resulted in a breach of an express or
implied contract, violated certain consumer protection laws and amounted to
fraud. The ISO removed the litigation to Federal District Court in Delaware. As
a result of various pre-trial motions filed by the parties, such litigation was
filed as a complaint by the Company before FERC. In April 2002, FERC ruled on
this complaint in favor of the ISO. The Company has not determined whether it
will appeal or otherwise contest the ruling by FERC.