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, 2003
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)
1314 King Street
Wilmington, DE 19801
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (302) 888-7444
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 ]
Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ___ No 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, 2004 was $47,680,000.
Exhibit Index is located on page 33.
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 and related and similar projects ("Independent Power
Projects" or "Projects"). Christiana Bank & Trust Company ("Christiana"), a
trust 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 1,050 record holders of Investor Shares (the
"Investors").
The Trust is organized similarly to a limited partnership. Ridgewood
Renewable 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 Investors do not
regularly elect the Managing Shareholder. As a result, the Trust does not have a
"board of directors" that oversees the day-to-day activities of the Trust and,
accordingly, the Trust does not have an audit committee or a nominating
committee and therefore, the Trust's Chief Executive Officer and Chief Financial
Officer effectively perform the functions that an audit committee would
otherwise perform.
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.
In addition, the Trust is affiliated with the following trusts organized by
the Managing Shareholder (collectively "Other Power Trusts"):
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");
o Ridgewood/Egypt Fund ("Egypt Fund"); and
o Ridgewood Power B Fund/Providence Expansion ("B Fund").
In addition, the Trust is affiliated with the following Delaware limited
liability companies ("Ridgewood LLCs"), which have been organized by the
Managing Shareholder:
o Ridgewood Renewable PowerBank LLC;
o Ridgewood Renewable PowerBank II LLC; and
o Ridgewood Renewable PowerBank III LLC.
With respect to the Ridgewood LLCs, the Managing Shareholder acts as the
LLCs' Manager.
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. 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 related 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 that at that time of such investment were expected to earn cash flows
similar to those of Independent Power Projects.
(2) The Trust's Investments.
(i) The Providence Project
The Trust and Power III acquired in April 1996 all of the equity interest
in an landfill gas-fired electric generating facility, located on land adjacent
to the Central Landfill, near Providence, Rhode Island. The Trust invested $12.9
million in the Providence Project and Power III supplied the remainder of the
$20 million investment in the Project. The Trust owns 64.3% of the Providence
Project and Power III owns the remaining 35.7%. 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 debt has been paid in
full as of February 2004.
The 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") that expires
in 2020.
The Project leases the right to use the landfill site from the Rhode Island
Resource Recovery Corporation, a 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, had operated and
maintained the piping system and other facilities to collect the methane gas
from the Landfill and supply it to the Project. Gasco pays a fixed rent,
computed on the basis of the Project's generating capacity, to the Project under
the sublease, and the Project in turn buys its fuel from Gasco at a formula
price per kilowatt-hour generated by the Project.
Throughout the Trusts' ownership of the Providence Project, certain
situations have occurred at the landfill regarding Gasco's operation and
maintenance of the gas collection system, which 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, on August 1, 2003, the Trust and Power IV concluded a transaction in
which the operation and maintenance of the gas collection systems was
transferred to Ridgewood Gas Services, LLC, ("RGS") which is owned by the Trust
and Power III in the same proportion to their ownership in the Providence
Project. RGS is a cost reimbursement company whose operations are funded both by
Gasco and the RIRRC. Pursuant to a Landfill Services Agreement with RGS, Gasco
pays RGS for its operation of the gas collection system that is owned by Gasco.
In addition, pursuant to a Landfill services Agreement with RIRRC, RGS operates
and maintains the gas collection system owned by RIRRC and RIRRC funds the
remainder of RGS' operations not funded by Gasco's payments. In addition, as
part of the transaction, Ridgewood Rhode Island Generation, LLC, owned by the
Trust's affiliate, the B Fund, has obtain rights to landfill gas from RIRRC and
develop an additional 7.5 MW landfill gas-fired electric generation facility,
which the B Fund estimates will be completed on or about June 1, 2004.
On January 17, 2003, the Providence Project received a "Statement of
Qualification" from the Massachusetts Division of Energy Resources ("DOER")
pursuant to the renewable portfolio standards ("RPS") adopted by Massachusetts.
In 1997, Massachusetts enacted the Electric Restructuring Act of 1997 (the
"Restructuring Act"). Among other things, the Restructuring Act requires that
all retail electricity suppliers in Massachusetts (i.e. those entities supplying
electric energy to retail end-use customers in Massachusetts) purchase a minimum
percentage of their electricity supplies from qualified new renewable generation
units powered by one of several renewable fuels, such as solar, biomass or
landfill. Beginning in 2003, each such retail supplier must obtain at least one
(1%) percent of its supply from qualified new renewable generation units. Each
year thereafter, the requirement increases one-half of one percentage point
until 2009, when the requirement equals four (4%) percent of each retail
supplier's sales in that year. Subsequent to 2009, the increase in the
percentage requirement will be determined and set by the DOER.
Now that the Providence Project has been qualified in Massachusetts, it may
sell to retail electric suppliers the RPS Attributes associated with its
electrical energy. Retail electric suppliers need to purchase RPS Attributes
associated with renewable energy and not necessarily the energy itself. Thus,
electrical energy and RPS Attributes are separable products and need not be sold
or purchased as a bundled product. Retail electric suppliers in Massachusetts
will then use the purchase of such RPS Attributes to demonstrate compliance with
the Restructuring Act and RPS Regulations. The Trust, along with Power III and
the B Fund, completed a transaction with a major power marketer that does
business in Massachusetts for the sale of the RPS Attributes generated by the
Providence Project, as well the RPS Attributes generated by Projects owned by
Power V and the B Fund. The transaction, which is confidential, provides such
power marketer with six separate annual options to purchase such output in each
year from 2004 through 2009. If the power marketer elects to not purchase the
RPS Attributes in any year, the Providence Project is free to sell to other
parties. Under the terms of the transaction, the prices to be received by the
Providence Project for the RPS Attributes, if the power marketer elects to
purchase, are very favorable.
However, only a portion of the Providence Project's output qualifies for
RPS Attributes in Massachusetts. Because the Providence Project was on operation
during the period 1995 through 1997, the average yearly generation produced
during those years does not qualify. Under the Massachusetts regulations, it is
defined as Providence Project's "Vintage Generation", amounts to approximately
86,000 MWhs per year, and the RPS Attributes associated with such annually
amount of generation do not qualify in Massachusetts. However, during 2004, the
Providence Project became qualified to sell RPS Attributes in Connecticut. The
Connecticut RPS program is different than the Massachusetts program in that it
has not "Vintage" prohibition. Thus, the Providence Project can sell the 86,000
MWhs that are ineligible in Massachusetts into the Connecticut market. In fact,
the Providence Project has entered into several short-term agreements with
various power marketers to sell the RPS Attributes associated with such "Vintage
Generation". The prices for the RPS Attributes in those agreements, although
lower than current market, are economic to the Providence 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 2.4
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.
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 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 overall impact of the lowered price to the Maine Hydro
Projects' revenue has not had 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 ("O&M Agreement") with CHI Energy, Inc. ("CHI") 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. To
date no incentive fee has been earned. 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 more additional five-year term
by mutual consent of the parties thereto.
In 2003, RPM noticed that the reimbursements to CHI Energy for certain
operating and maintenance expenses, such as labor, equipment and other items,
was significantly higher than otherwise would be expected, given the size and
operation of the Maine Hydro Projects. RPM initially noticed such higher
reimbursements to CHI Energy because, among other things, they were higher than
similar costs associated with RPM's operation of a group of hydroelectric
facilities purchased by Power V and the Growth Fund from Synergics, Inc. Upon
further investigation by RPM, along with outside counsel and other
investigators, RPM became convinced that CHI Energy was billing the Maine Hydro
Projects for labor not actually worked, over billing for time actually worked,
billing at incorrect rates, charging for services and items that were not
provided and charging for services and items not appropriately charged to the
Maine Hydro Projects. RPM, as well as the Trust and Power V, believe that such
action is in violation of the O&M Agreement. As a result, on January 28, 2004,
the Maine Hydro Projects filed a Verified Complaint for Equitable Relief against
CHI, its parent company, Enel, an Italian utility, and certain of its officers,
employees and affiliates in the Superior Court of Kennebec County, Maine. The
Maine Hydro Projects are seeking relief from the court related to a long-term
fraudulent scheme perpetrated by the defendants to (a) bill for time not worked,
(b) overbill for time actually worked, (c) bill at incorrect rates, (d) charge
for services and items that were not provided, and (e) charge for services and
items not appropriately charged to the Maine Hydro Projects. The Maine Hydro
Projects are seeking, among other things, for the court to preliminary and
permanently enjoin the defendants from operating or otherwise occupying or
possessing the Maine Hydro Projects, declaring that the OM&A Agreement is
rescinded by virtue of the defendants' wrongful acts and awarding the Maine
Hydro Projects their reasonable costs, expenses and fees in prosecuting the
action. At this time, it is too early to determine what, if any, recovery the
Maine Hydro Projects might have as a result of his suit.
One Maine Hydro Project, the Pittsfield Hydro Project, is a signatory to
the Kennebec Hydro Developers Group Agreement ("KHDG Agreement"), which was an
agreement among many diverse parties with similarly diverse interests regarding
development on the Kennebec and Sebasticook Rivers in the State of Maine.
Signatories include not only hydro-electric developers, such as the Pittsfield
Project, but also sate and federal government agencies as well as environmental
groups ("Resource agencies"). According to the KHDG Agreement, owners of certain
hydro-electric facilities, including the Pittsfield Project, are required by a
certain date to install a "fish passage", which would allow a given number of
certain species of fish adequate passage on the river and which must be approved
by certain federal and state agencies and other organizations. Fish passages
take several forms with varying degrees of expense to construct and maintain.
Alternatives include fish pumps, fish ladders and fish elevators. Depending on
the methodology used, the projected costs of a "fish passage" could be more than
the economic value of the Pittsfield Project. RPM has been working, and will
continue to work, with the Resource Agencies to develop a fish passage that will
satisfy both the KHDG Agreement and the economics of the Pittsfield Project.
However, no final plans for fish passage have been completed and submitted to
the Resource Agencies for final approval. In addition, another hydro-electric
owner with a fish passage obligation is seeking a postponement of one-year of
its fish passage requirement, which, if granted, would likewise postpone
Pittsfield's obligation for the same period of time.
(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, tree limbs and
tops 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.
Due to the high costs associated with their operation, the Maine Biomass
Projects prior to the year 2002 operated sporadically, 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. However, 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. Both Maine
Biomass Plants have qualified under the RPS Regulations. Because of the RPS
Regulations, the Maine Biomass Plants can not only sell their electric energy,
but also the RPS Attributes they generate as a result of their operations.
Consequently, the energy generated by Indeck's West Enfield facility during 2003
also enabled West Enfield to sell an equivalent amount of RPS Attributes related
to such energy generation. West Enfield sold its 2003 RPS Attributes pursuant to
the agreement to sell RPS Attributes described in Item 1(c)(2)(i).
Notwithstanding such agreement, the Indeck Jonesboro facility did not operate in
2003 because it needs both to have certain repairs made to it to and parts
replaced that were taken and used in Indeck's West Enfield facility. Such
repairs are being made and replacement parts purchased and the Trust and Power V
anticipate that the Indeck Jonesboro facility will be fully operation in May of
2004.
Despite the ability to produce and sell both energy and RPS Attributes, the
availability of fuel remains an issue for Indeck Maine. The fuel used by both
the West Enfield and Jonesboro facilities is essentially the by-products of the
forestry industry that generally does not use the tree limbs, tops and stumps
left after a tree has been harvested to use either as lumber or for paper. Trees
generally are not harvested only to be used as fuel in a biomass fueled electric
facility and, as a result, Indeck Maine's ability to obtain fuel depends to a
large degree on the activities of the pulp and paper industry in Maine and
whether they are actively harvesting trees and the nature of and need for their
supply of wood. As a result of the recent economics of the pulp and paper
industry, many paper producers let their inventory of wood deteriorate to very
low levels. In addition, entities that previously had "chipped" the tree tops
and limbs for use as biomass fuel have gone out of business or on to pursue
other things. However, recently, economics have seemingly improved and many
paper producers (who incidentally own the land upon which such trees are grown
and harvested) are not only harvesting as much wood as possible for their
operations but are also taking the parts of the trees that would otherwise go to
the Maine Biomass Projects. In addition, there is now a shortage of people to
"chip" the tree tops, limbs and stumps, although there is an abundance of trees
to Maine that can be used for not only the paper mills but also for biomass
fuel, if it could be harvested and chipped. In any event, RPM is continually
working to improve the supply of biomass fuel to the Maine Biomass Projects
including obtaining fuel from Canada and other places. In addition, RPM is
investigating the possibility of entering the "tree chipping" business and
procuring rights to a certain amount of acreage in an attempt to provide a more
secure and reliable flow of a percentage of the needed fuel supply. There is no
guarantee that RPM can accomplish this and the likelihood is that procuring
sufficient supplies of biomass fuel will continue to be, as it has been in the
past, a constant management issue.
(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 of 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 Santee River Facility was sold in bankruptcy for approximately
$3,500,000; $2,400,000 in cash and $1,000,000 in a note. A large part of the
proceeds from the sale transaction went to pay the administrative expenses of
the bankruptcy proceeding. Ultimately, the Trust received only $100,000 in 2002.
(3) Project Management and 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 electric 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 highest in the spring and fall.
(ii) Maine Biomass plants
The Maine Biomass Projects burn whole-tree wood chips. 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 or to
the ISO. 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 have been and may in the future 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.
(iii 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
2003 2002 2001
New England Power Company
(Providence Project) 79.6% 90.8% 85.5%
The financial statements of the Maine Hydro Projects and the Maine Biomass
Projects 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.
In order to operate, 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 but are still pending. Changes to the
six other, unlicensed Projects (which are currently exempt from licensing) may
trigger a requirement for FERC licensing.
(4) Trends in the Electric Utility and Independent Power Industries
The Trust is somewhat insulated from the recent turmoil that has enveloped
the electric energy industry during the past several years 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, the Trust Maine Biomass Plants are totally
at the mercy of the energy market, but have been provided some substantial
support as a result of the adopting of renewable portfolio regulations in
Massachusetts.
The adoption of the RPS Regulations in Massachusetts is indicative of the
significant activity and movement in the industry, as well as at state and
federal government, to increase the amount of renewable power that is supplied
to utilities and distribution companies that serve retail end-use customers in
various states. For example, and as described above, in Massachusetts,
legislation and regulations have been passed requiring such retail electric
suppliers to have in their electric portfolio one (1%) "new renewable power" for
2003. This renewable generation percentage requirement increases each year until
the renewable generation amount equals nine (9%) percent. In addition to
Massachusetts, New Jersey, Nevada, and California have passed similar renewable
portfolio standards ("RPS") and Connecticut is considering an RPS of its own.
Notwithstanding the development of a renewable energy market in many
states, the general trends in the electric power industry have continued to
reflect an attitude of caution and restraint. Throughout the United States,
memories of the California energy crises, Enron Corp.s bankruptcy, proceedings
before the Federal Energy Regulatory Commission ("FERC") regarding certain
questionable practices of other energy producers and marketers, as well as the
generally poor U.S. and world economy, have led many to call for a more
regulated electric industry, with strict reporting requirements and cost of
service regulation. However, many legislators, regulators and market
participants have not disavowed deregulation.
(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.
(6) Regulatory Matters.
Projects are subject to energy and environmental laws and regulations at
the federal, state and local levels in connection with development, ownership,
operation, geographical location, zoning and land use of a Project and emissions
and other substances produced by a Project. These energy and environmental laws
and regulations generally require that a wide variety of permits and other
approvals be obtained before the commencement of construction or operation of an
energy-producing facility and that the facility then operate in compliance with
such permits and approvals.
(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. 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 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.
(iii) Potential Legislation and Regulation.
All federal, state and local laws and regulations, including but not
limited to PURPA, the Holding Company Act, the 1992 Energy Act and the FPA, are
subject to amendment or repeal. Future legislation and regulation is uncertain,
and could have material effects on the Trust.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
The Trust has 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 2078 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.
On January 28, 2004, the Maine Hydro Projects filed a Verified Complaint
for Equitable Relief against CHI, its parent company, Enel, an Italian utility,
and certain of its officers, employees and affiliates in the Superior Court of
Kennebec County, Maine. The Maine Hydro Projects are seeking relief from the
court related to a long-term fraudulent scheme perpetrated by the defendants
See, above Item 1(c)(2)(iii).
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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.
(b) Record Holders.
As of the date of this Form 10-K, there are 1,050 record holders of
Investor Shares.
(c) Dividends
The Trust made distributions as follows for the years ended December 31, 2003
and 2002:
Year ended December 31,
2003 2002
Total distributions to Investors $1,430,404 $476,802
Distributions per Investor Share $ 3,000 $ 1,000
Distributions to Managing Shareholder $ 14,449 $ 4,816
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 than accounting income to Investors.
Item 6. Selected Financial Data.
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
Supplemental Information Schedule
Selected Financial Data As of and for the years ended December 31,
2003 2002 2001 2000 1999
Sales $9,073,524 $8,028,448 $8,101,624 $7,833,572 $7,548,229
Net loss (205,801)(1,374,325) (1,964,120) (5,120,256) (743,977)
(A)
Net assets
(shareholders'
equity) 17,308,897 18,959,551 20,815,494 22,779,614 28,381,288
Investments in
Plant and
Equipment (net
of depreciation) 10,444,035 11,304,567 12,116,141 12,912,980 13,831,689
Investment
in Power
Contract(net
of
amortization) 4,056,614 4,612,483 5,168,352 5,724,221 6,280,090
Total assets 26,030,774 27,633,401 30,382,545 33,254,452 39,455,324
Long-term
obligations -- 867,223 1,822,425 2,690,523 3,479,460
Per Share of
Trust Interest:
Total Revenues 19,027 16,835 16,989 16,426 15,828
Net loss (432) (2,882) (4,119) (10,737) (1,560)
(A)
Net asset value 36,296 39,757 43,649 47,767 59,514
Distributions
to Investors 3,000 1,000 -- 1,000 3,900
(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 sells
electricity to the New England ISO on a month-to-month basis.
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, 2003 compared to the year ended December 31, 2002.
Total revenue increased $1,046,000 or 13%, to $9,074,000 in 2003 compared
to $8,028,000 in 2002. The increase in revenue is a result of the failure of one
of the Providence Project's engines in 2002, partially offset by a decrease in
the 2003 revenues from the California Pumping projects due to the rainy weather
experienced in Southern California and the reduced rates charged to customers.
In addition, the Providence Project recorded revenue of $772,000 in 2003 for the
transfer of renewable energy credits.
Gross profit, which represents total revenues reduced by cost of sales,
increased by $932,000, or 59%, to $2,521,000 in 2003 from $1,589,000. The
increase in gross profit is the result of the $772,000 in renewable attribute
revenue received in 2003 and the increase in Providence power generation
revenue.
General and administrative expenses increased $92,000, or 10%, to
$1,013,000 in 2003 from $921,000 in 2002. The increase primarily reflects the
increase in professional fees incurred in 2003.
The decrease in the management fee from $624,000 in 2002 to $569,000 in
2003 reflects the lower net assets of the Trust.
The Trust recognized $197,000 of other operating income in 2002, as a
result of a business interruption insurance claim submitted by the Providence
Project. In 2003, the Trust recorded $163,000 of other operating income as a
result of the Providence Project submitting an insurance claim for the renewable
attributes revenues it lost while experiencing an engine failure in 2002.
The Trust recorded income from operations of $1,103,000 in 2003 compared to
$240,000 in 2002, an increase of $863,000. The increase is primarily due to the
increase in gross profit.
The Trust recorded equity income of $174,000 from the Maine Hydro Projects
in 2003, an increase of $298,000 from the equity loss of $124,000 recorded in
2002. The increase in income is attributable to the increase in rainfall and
river flows in 2003.
The Trust's equity loss from the Maine Biomass Projects in 2003 was
$727,000 compared to $1,259,000 in 2002. The decrease in equity loss is
attributable to the increase in renewable energy attributes revenue the Maine
Biomass Projects received in 2003.
The Trust received $216,000 of other operating income in 2002. The proceeds
are from the liquidation of the Santee River Rubber Company, which filed for
bankruptcy in 2000, and the sale of equipment in storage, which had been held
for resale.
The Trust's net loss decreased $1,168,000, or 85%, to $206,000 in 2003 from
$1,374,000 in 2002 primarily reflecting the increase in operating income, the
increase in equity income from the Maine Hydro Projects and the decrease in the
equity loss from the Maine Biomass Projects.
The year ended December 31, 2002 compared to the year ended December 31, 2001.
Total revenues of $8,028,000 in 2002 were comparable to 2001 total revenues
of $8,102,000.
Gross profit, which represents total revenues reduced by cost of sales,
decreased by $93,000, or 6%, to $1,589,000 in 2002 from $1,682,000 in 2001. The
decrease in gross profit reflects the slight decrease in revenues, partially
offset by higher maintenance costs at the Providence Project.
General and administrative expenses decreased $258,000, or 22%, to $921,000
in 2002 from $1,179,000 in 2001. The decrease primarily reflects the reduction
in professional fees incurred in 2002.
The decrease in the management fee from $761,000 in 2001 to $624,000 in
2002 reflects the lower net assets of the Trust.
The Trust recognized $197,000 of other operating income as a result of a
business interruption insurance claim submitted by the Providence Project.
The Trust recorded a loss from operations of $259,000 in 2001 compared to
income from operations of $240,000 in 2002, a change of $499,000. The change
reflects the higher management fees and general and administrative expenses in
2001, in addition to the other operating income received in 2002, partially
offset by the decrease in gross margin in 2002.
The Trust recorded an equity loss of $124,000 from the Maine Hydro Projects
in 2002, a decrease of $239,000 from the equity loss of $363,000 recorded in
2001. Although the Maine Hydro Projects experienced drought conditions
throughout much of 2002, resulting in the current year loss, rainfall and river
flows were greater than in 2001.
The Trust's equity loss from the Maine Biomass Projects in 2002 was
$1,259,000 compared $904,000 in 2001. The equity loss recognized in 2002 is
primarily due to the higher maintenance fees incurred as a result of the West
Enfield plant operating under a normal full time schedule, as well as lower
capacity revenues received by the West Enfield and Jonesboro plants. As an
offset to the higher maintenance fees and lower capacity revenues, the West
Enfield plant recorded $2,008,000 of renewable energy attributes revenue based
on its recent qualification under the RPS Regulations.
The Trust received $216,000 of other operating income in 2002. The proceeds
are from the liquidation of the Santee River Rubber Company, which filed for
bankruptcy in 2000, and the sale of equipment in storage, which had been held
for resale.
The Trust's net loss decreased $590,000, or 30%, to $1,374,000 in 2002 from
$1,964,000 in 2001 primarily reflecting the increase in operating income.
Liquidity and Capital Resources
In 2003 and 2002 the Trust's operating activities generated $3,503,000 and
$390,000 of cash, respectively. The increase in cash flow is primarily due to
the decrease in net loss and accounts receivable.
In 2003 the Trust's investing activities provided $298,000 compared to a
cash usage of $25,000 in 2002. The increase is primarily due to higher
distributions from the Maine Hydro Projects in 2003.
Cash used by financing activities were $3,084,000 in 2003 compared to
$1,361,000 in 2002, an increase of $1,723,000. The increase is primarily
attributable to the $676,000 of distributions to the minority interest in 2003
and the $1,445,000 of distributions paid to the shareholders in 2003. The Trust
made distributions of $482,000 to its shareholders in 2002. The Trust did not
make distributions to the minority interest in 2002.
On June 26, 2003, the Managing Shareholder of the Trust, entered into a
$5,000,0000 Revolving Credit and Security Agreement with Wachovia Bank, National
Association. The agreement allows the Managing Shareholder to obtain loans and
letters of credit for the benefit of the trusts and funds that it manages. The
agreement expires on June 30, 2004. On February 20, 2004, the Managing
Shareholder and Wachovia Bank amended the agreement increasing the amount to
$6,000,000 and extending the date of expiration to June 30, 2005. As part of the
agreement, the Trust agreed to limitations on its ability to incur indebtedness
and liens and make guarantees.
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 Managing
Shareholder's line of credit facility. The letter of credit expires in December
2004 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:
2004 $867,000
On February 13, 2004 the Providence Project made a payment of $813,257 to
pay off its remaining debt. The final payment consisted of cash and the transfer
of the balance in the Providence Projects' debt reserve fund at February 13,
2004.
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
2003 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, 2003
Expected Maturity Date
2004
(U.S. $)
Bank Deposits and Certificates of Deposit $ 772,000
Average interest rate 1.04%
Item 8. Financial Statements and Supplementary Data.
A. Index to Consolidated Financial Statements
Report of Independent Accountants F-2
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31,
2003 and 2002 F-4
Consolidated Statements of Operations for the
three years ended December 31, 2003 F-5
Consolidated Statements of Changes in Shareholders'
Equity for the three years ended December 31, 2003 F-6
Consolidated Statements of Cash Flows for the three
years ended December 31, 2003 F-7
Notes to Consolidated Financial Statements F-8 to F-19
Financial Statements for Maine Hydro Projects
Financial Statements for Maine Biomass Projects
Ridgewood Electric Power Trust IV
Consolidated Financial Statements
December 31, 2003, 2002 and 2001
Report of Independent Accountants
Managing Shareholder and Shareholders'
Ridgewood Electric Power Trust IV
We have audited the accompanying consolidated balance sheet of Ridgewood
Electric Power Trust IV and subsidiaries (the "Trust") as of December 31, 2003
and the related consolidated statement of operations, changes in shareholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ridgewood Electric
Power Trust IV and subsidiaries as of December 31, 2003, and the results of
their operations and their cash flows for the year ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Perelson Weiner, LLP
New York, NY
March 26, 2004
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, 2002, and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 2002, 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.
/s/ PricewaterhouseCoopers LLP
Florham Park, NJ
April 3, 2003
Ridgewood Electric Power Trust IV
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
----------------------------
2003 2002
------------ ------------
Assets:
Cash and cash equivalents ......... $ 771,561 $ 54,637
Debt reserve fund ................. 756,928 --
Accounts receivable ............... 939,603 1,268,293
Due from affiliates ............... 715,405 267,586
Insurance claim receivable ........ -- 258,900
Other assets ...................... 76,817 90,285
------------ ------------
Total current assets ....... 3,260,314 1,939,701
Investments:
Maine Hydro Projects .............. 3,976,612 4,405,278
Maine Biomass Projects ............ 3,469,735 3,896,576
Plant and equipment ............... 16,944,682 16,939,368
Accumulated depreciation .......... (6,500,647) (5,634,801)
------------ ------------
10,444,035 11,304,567
------------ ------------
Electric power sales contract ..... 8,338,040 8,338,040
Accumulated amortization .......... (4,281,426) (3,725,557)
------------ ------------
4,056,614 4,612,483
------------ ------------
Spare parts inventory ............. 823,464 724,615
Debt reserve fund ................. -- 749,821
------------ ------------
Total assets .............. $ 26,030,774 $ 27,633,041
------------ ------------
Liabilities and
Shareholders' Equity:
Liabilities:
Current maturities of
long-term debt .............. $ 867,223 $ 955,202
Accounts payable
and accrued expenses .......... 494,922 182,724
Accrued fuel expense .............. 83,948 163,665
Due to affiliates ................. 1,606,136 787,492
------------ ------------
Total current liabilities 3,052,229 2,089,083
Loan payable,
less current portion .......... -- 867,223
Minority interest in
the Providence Project ......... 5,669,648 5,717,184
Commitments and contingencies
Shareholders' Equity:
Shareholders' equity
(476.8875 investor shares
issued and outstanding) ........ 17,540,875 19,175,022
Managing shareholder's
accumulated deficit
(1 management share
issued and outstanding) ........ (231,978) (215,471)
------------ ------------
Total shareholders' equity 17,308,897 18,959,551
------------ ------------
Total liabilities and
shareholders' equity ... $ 26,030,774 $ 27,633,041
------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust IV
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------
2003 2002 2001
------------ ----------- -----------
Power generation revenue ..... $ 7,747,390 $ 7,476,004 $ 7,554,624
Renewable attribute revenue .. 772,370 --- ---
Sublease income .............. 553,764 552,444 547,000
------------ ----------- -----------
Total revenue ....... 9,073,524 8,028,448 8,101,624
Cost of sales, including
depreciation and
amortization of $1,421,715,
$1,416,682 and $1,421,689
in 2003, 2002 and 2001 ... 6,552,402 6,439,761 6,420,085
------------ ----------- -----------
Gross profit ................. 2,521,122 1,588,687 1,681,539
------------ ----------- -----------
General and
administrative expenses .... 1,012,787 921,354 1,179,010
Management fee paid
to the managing shareholder . 568,728 624,468 761,266
Other operating income ....... (162,991) (197,284) ---
------------ ----------- -----------
Total other
operating expenses .... 1,418,524 1,348,538 1,940,276
------------ ----------- -----------
Income (loss)
from operations ........... 1,102,598 240,149 (258,737)
------------ ----------- -----------
Other income (expense):
Interest income ........... 9,701 17,137 63,715
Interest expense .......... (129,829) (224,811) (355,802)
Other income
(expense), net ........... (6,780) 216,401 ---
Income (loss) from
Maine Hydro Projects .... 174,171 (124,496) (362,509)
Loss from Maine
Biomass Projects ........ (726,840) (1,259,415) (904,297)
------------ ----------- -----------
Total other income
(expense), net ....... (679,577) (1,375,184) (1,558,893)
------------ ----------- -----------
Income (loss)
before minority interest .. 423,021 (1,135,035) (1,817,630)
Minority interest
in the earnings of the
Providence Project ........ (628,822) (239,290) (146,490)
------------ ----------- -----------
Net loss ..................... $ (205,801) $(1,374,325) $(1,964,120)
------------ ----------- -----------
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, 2003, 2002 and 2001
- --------------------------------------------------------------------------------
Managing
Shareholders Shareholder Total
------------ ------------ ------------
Shareholders' equity
(deficit),
January 1, 2001 ... $ 22,956,885 $ (177,271) $ 22,779,614
Net loss
for the year .... (1,944,479) (19,641) (1,964,120)
------------ ------------ ------------
Shareholders' equity
(deficit),
December 31, 2001 . 21,012,406 (196,912) 20,815,494
Cash distributions . (476,802) (4,816) (481,618)
Net loss
for the year ..... (1,360,582) (13,743) (1,374,325)
------------ ------------ ------------
Shareholders' equity
(deficit),
December 31, 2002 . 19,175,022 (215,471) 18,959,551
Cash distributions . (1,430,404) (14,449) (1,444,853)
Net loss
for the year ...... (203,743) (2,058) (205,801)
------------ ------------ ------------
Shareholders' equity
(deficit),
December 31, 2003 . $ 17,540,875 $ (231,978) $ 17,308,897
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust IV
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------
Cash flows from
operating activities:
Net loss ................... $ (205,801) $(1,374,325) $(1,964,120)
----------- ----------- -----------
Adjustments to reconcile
net loss to net cash
flows from operating
activities:
Depreciation and
amortization ............ 1,421,715 1,416,682 1,421,689
Minority interest
in earnings of the
Providence Project ........ 628,822 239,290 146,490
Loss from unconsolidated
Maine Biomass
Projects ................ 726,840 1,259,415 904,297
(Income) loss from
unconsolidated Maine
Hydro Projects ......... (174,171) 124,496 362,509
Changes in assets
and liabilities:
Decrease (increase)
in accounts receivable,
trade ............... 328,690 (643,541) 43,597
(Increase) decrease
in spare parts
inventory ............ (98,849) (53,846) 18,215
Decrease (increase)
in insurance claim
receivable and
other assets ........... 272,368 (295,525) 6,738
Increase (decrease)
in accounts payable and
accrued expenses ...... 312,198 (39,809) (16,420)
(Decrease) increase
in accrued fuel expense .. (79,717) 2,695 9,098
(Increase) decrease
in due to/from
affiliates, net ....... 370,825 (245,225) (151,287)
----------- ----------- -----------
Total adjustments ...... 3,708,721 1,764,632 2,744,926
----------- ----------- -----------
Net cash provided
by operating
activities ........... 3,502,920 390,307 780,806
----------- ----------- -----------
Cash flows from
investing activities:
Investment in
Maine Biomass Projects ... (300,000) (325,000) (250,000)
Distributions from
Maine Hydro Projects ..... 602,837 349,242 105,424
Capital expenditures ....... (5,314) (49,239) (69,071)
----------- ----------- -----------
Net cash provided by
(used in) investing
activities ........... 297,523 (24,997) (213,647)
----------- ----------- -----------
Cash flows from
financing activities:
Cash distributions
to shareholders .......... (1,444,853) (481,618) --
Payments to reduce
long-term debt .......... (955,202) (868,098) (788,937)
Increase in
debt reserve fund ........ (7,107) (11,595) (27,713)
Cash distributions
to minority interest ..... (676,357) -- (356,732)
----------- ----------- -----------
Net cash used in
financing activities .. (3,083,519) (1,361,311) (1,173,382)
----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents ................ 716,924 (996,001) (606,223)
Cash and cash equivalents,
beginning of year ......... 54,637 1,050,638 1,656,861
----------- ----------- -----------
Cash and cash equivalents,
end of year ............... $ 771,561 $ 54,637 $ 1,050,638
----------- ----------- -----------
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. The managing shareholder of the Trust is
Ridgewood Renewable Power LLC, 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 include cogeneration facilities, which produce both
electricity and heat energy and other power plants that use various fuel sources
(except nuclear). The power plants sell electricity and, in some cases, heat
energy to utilities and industrial users under long-term contracts.
Christiana Bank & Trust Company, a Delaware trust company, 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 operating results of the
affiliates is included in the Consolidated Statements of Operations.
Use of estimates
The preparation of consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America,
requires the Trust to make estimates and judgments 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 judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
New Accounting Standards and Disclosures
SFAS 143
In June 2001, the Financial Accounting Standards Board ("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 adopted SFAS 143 effective January 1,
2003, with no material impact on the consolidated financial statements.
SFAS 145
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction.
SFAS No. 145 eliminates extraordinary accounting treatment for reporting gain or
loss on debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Trust adopted SFAS
145 effective January 1, 2003, with no material impact on the consolidated
financial statements.
SFAS 146
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires recording costs associated
with exit or disposal activities at their fair values when a liability has been
incurred. The Trust adopted SFAS 146 effective January 1, 2003, with no material
impact on the consolidated financial statements.
FIN 45
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others." FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual reports
ending after December 15, 2002. The Trust adopted FIN 45 with no material impact
to the consolidated financial statements.
FIN 46
In December 2003, the FASB issued FASB Interpretation No. 46, (Revised December
2003) "Consolidation of Variable Interest Entities" ("FIN 46") which changes the
criteria by which one company includes another entity in its consolidated
financial statements. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after December 31, 2003, and apply in the first fiscal period ending after March
15, 2004, for variable interest entities created prior to January 1, 2004. The
Trust adopted the disclosure provisions of FIN 46 effective December 31, 2002,
with no material impact to the consolidated financial statements. The Trust will
implement the full provisions of FIN 46 effective January 1, 2004 and is
evaluating the effect, if any, on the impact to the 2004 consolidated financial
statements.
SFAS 149
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 149 is generally effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. The Trust adopted SFAS 149 effective July 1, 2003, with no material
impact on the consolidated financial statements.
SFAS 150
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity. The Trust
adopted SFAS 150 effective July 1, 2003, with no material impact on the
consolidated financial statements.
Significant Account Policies
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.
Cash balances with banks as of December 31, 2003, exceed insured limits by
approximately $1,260,000.
Trade receivables
Trade receivables are recorded at invoice price and do not bear interest. No
allowance for bad debt expense was provided based upon historical write-off
experience, evaluation of customer credit condition and the general economic
status of the customer.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 144, 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 years at
December 31, 2003 and 2002, respectively. During 2003, 2002 and 2001, the Trust
recorded depreciation expense of $865,846, $860,813 and $865,820, 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 2003, 2002
and 2001, the Trust recorded amortization expense of $555,869 each year.
Spare Parts
Spare parts inventory, consisting of engine parts, are stated at the lower of
cost or market, with cost being determined on the first-in, first-out method.
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.
Renewable attribute revenue is derived from the sale of the renewable portfolio
standard attributes ("RPS Attributes"). Qualified renewable electric generation
facilities produce RPS Attributes when they generate electricity. RPS Attributes
have various classes, with each class assigned a limited life. Renewable
attribute revenue is recorded in the month the attributes are produced as the
Trust has substantially completed its obligations for entitled benefits,
represented by the underlying generation of power within specific environmental
requirements.
Interest income is recorded when earned.
Supplemental cash flow information
Total interest paid during the years ended December 31, 2003, 2002 and 2001 was
$129,829, $220,758 and $299,919, respectively.
Significant Customers and Suppliers
During 2003, 2002 and 2001, the Trust's largest customer, New England Power
Corporation ("NEP"), accounted for 80%, 91% and 86%, respectively of total
revenues respectively. During 2003, 2002 and 2001, the Trust purchased 100% of
the Providence Project's gas supply from one supplier.
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. At December 31,
2003 and 2002, the Trust's net assets had a tax basis of $21,620,973 and
$23,944,896, respectively.
Reclassification
Certain items in previously issued consolidated financial statements have been
reclassified for comparative purposes. This had no effect on income or loss.
3. Projects
Ridgewood Providence Power Partners, L.P. (known as the 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 13.8 megawatt capacity
electrical generating station, located at the Central Landfill in Johnston,
Rhode Island. 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, the Providence Project assumed the obligation to repay the remaining
principal outstanding of $6,310,404 on the senior collateralized non-recourse
notes payable. 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).
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.
In 1997, Massachusetts enacted the Electric Restructuring Act of 1997 (the
"Restructuring Act"). Among other things, the Restructuring Act requires that
all retail electricity suppliers in Massachusetts (i.e. those entities supplying
electric energy to retail end-use customers in Massachusetts) purchase a minimum
percentage of their electricity supplies from qualified new renewable generation
units powered by one of several renewable fuels, such as solar, biomass or
landfill. Beginning in 2003, each such retail supplier must obtain at least one
(1%) percent of its supply from qualified new renewable generation units. Each
year thereafter, the requirement increases one-half of one percentage point
until 2009, when the requirement equals four (4%) percent of each retail
supplier's sales in that year. Subsequent to 2009, the increase in the
percentage requirement will be determined and set by the DOER.
On January 17, 2003, the Providence Project received a "Statement of
Qualification" from the Massachusetts Division of Energy Resources ("DOER")
pursuant to the renewable portfolio standards ("RPS") adopted by Massachusetts.
Since the Providence Project has become qualified, it is able to sell to retail
electric suppliers the RPS Attributes associated with its electrical energy.
Retail electric suppliers need to purchase RPS Attributes associated with
renewable energy and not necessarily the energy itself. Thus, electrical energy
and RPS Attributes are separable products and need not be sold or purchased as a
bundled product. Retail electric suppliers in Massachusetts will then use the
purchase of such RPS Attributes to demonstrate compliance with the Restructuring
Act and RPS Regulations.
For the year ended December 31, 2003, the Providence Project recorded Renewable
attribute revenue totaling $772,370.
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 2.4 megawatts of power.
Ridgewood Maine Hydro Partners, L.P. (known as the 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, from a subsidiary of Enel North America, Inc. (formerly CHI
Energy, 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 Renewable Power LLC
is also the managing shareholder of 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 Enel North America,
Inc. (the "Enel Subsidiary') under an Operation, Maintenance and Administrative
Agreement (the "OM&A Agreement") dated December 23, 1996. The OM&A Agreement
requires the Enel Subsidiary to provide certain specified services to the Maine
Hydro Projects. The Maine Hydro Projects pay the Enel Subsidiary a fixed fee for
certain administration and management services and pays for certain operation,
maintenance and other services at specified hourly rates for hours actually
worked by Enel Subsidiary employees. The Maine Hydro Projects also pay the Enel
Subsidiary for out-of-pocket expenses incurred in performing the services
specified in the OM&A Agreement.
The fixed fee for administration and management services is adjusted on June
30th of each year for inflation. The Maine Hydro Projects recorded $356,754,
$351,162 and $343,704 of expense for administration and management services
under this arrangement during the periods ended December 31, 2003, 2002 and
2001, respectively. The Maine Hydro Projects also are subject to 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. No incentive fee was
paid during the periods ended December 31, 2003, 2002 and 2001. The OM&A
Agreement has a five-year term expiring on June 30, 2006 and can be renewed for
one additional five-year term by mutual consent.
On January 28, 2004, the Maine Hydro Projects filed a Verified Complaint for
Equitable Relief against the Enel Subsidiary and certain of its officers,
employees and affiliates in the Superior Court of Kennebec County, Maine. The
Maine Hydro Projects are seeking relief from the court related to a long-term
fraudulent scheme perpetrated by the defendants to (a) bill for time not worked,
(b) overbill for time actually worked, (c) bill at incorrect rates, (d) charge
for services and items that were not provided, and (e) charge for services and
items not appropriately charged to the Maine Hydro Projects.
The Maine Hydro Projects are seeking, among other things, for the court to
preliminary and permanently enjoin the defendants from operating or otherwise
occupying or possessing the Maine Hydro Projects, declaring that the OM&A
Agreement is rescinded by virtue of the defendants' wrongful acts and awarding
the Maine Hydro Projects their reasonable costs, expenses and fees in
prosecuting the action.
At this time, it is too early to determine what, if any, recovery the Maine
Hydro Projects might have as a result of this suit.
Summarized financial information for the Maine Hydro Projects is as follows:
Balance Sheets
December 31, 2003 December 31, 2002
----------------- -----------------
Current assets ......... $1,342,096 $ 957,499
Non-current assets ..... 7,716,774 8,518,141
---------- ----------
Total assets ........... $9,058,870 $9,475,640
---------- ----------
Current liabilities .... $1,105,647 $ 665,086
Partners' equity ....... 7,953,223 8,810,554
---------- ----------
Total liabilities
and equity ........ $9,058,870 $9,475,640
---------- ----------
Trust share ............ $3,976,612 $4,405,278
---------- ----------
Statements of Operations
For the Year Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------
Revenue .............. $ 3,504,496 $ 3,144,471 $ 2,311,346
----------- ----------- -----------
Operating expenses ... 3,261,775 3,442,764 3,049,927
Other (income) expense (105,620) (49,302) (13,563)
----------- ----------- -----------
Total expenses ....... 3,156,155 3,393,462 3,036,364
----------- ----------- -----------
Net income (loss) .... $ 348,341 $ (248,991) $ (725,018)
----------- ----------- -----------
Trust share .......... $ 174,171 $ (124,496) $ (362,509)
----------- ----------- -----------
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.
The Maine Hydro Projects is required to maintain a standby letter of credit
totaling $99,250 under the long-term power purchase agreement, which is provided
by and collateralized by Trust's managing shareholder's line of credit facility.
Indeck Maine Energy, L.L.C. (known as the 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. It is management's intent to
restart the Eastport Project in the second quarter of 2004. 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 member. Any remaining operating net cash flow is payable 25% to
the Trust and Trust V and 75% to the other Maine Biomass Project member.
In 2003, 2002 and 2001, the Trust loaned $300,000, $325,000 and $250,000,
respectively, to the Maine Biomass Projects. The loan is in the form of demand
notes that bear interest at 5% per annum. The loans have been included in the
carrying balance of the investment in the project. Trust V made identical loans
to the Maine Biomass Projects. The other Maine Biomass Project member also
loaned $600,000, $650,000 and $500,000 to the Maine Biomass Projects with the
same terms in 2003, 2002 and 2001, 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.
On July 8, 2002, the Trust received a "Statement of Qualification" from the
Massachusetts Division of Energy Resources for the Eastport and Penobscot
projects. As is the case with the Providence Project, the Division found that
the Projects meet the eligibility requirements and therefore may market and sell
renewable attributes associated with the electric generation of the Plants. For
the years ended December 31, 2003 and 2002, the Maine Biomass Projects recorded
attribute revenue totaling $4,500,337 and $2,008,488, respectively.
Summarized financial information for the Maine Biomass Projects is as follows:
Balance Sheets
December 31,
--------------------------
2003 2002
----------- -----------
Current assets .............. $ 586,645 $ 1,217,126
Non-current assets .......... 3,661,852 3,598,162
----------- -----------
Total assets ................ $ 4,248,497 $ 4,815,288
----------- -----------
Current liabilities ......... 3,160,596 3,485,662
Notes payable to members .... 8,301,000 7,101,000
Members' deficit ............ (7,213,099) (5,771,374)
----------- -----------
Total liabilities and deficit $ 4,248,497 $ 4,815,288
----------- -----------
Trust share ................. $ 3,469,735 $ 3,896,576
----------- -----------
Statement of Operations
For the Year Ended December 31,
--------------------------------------------
2003 2002 2001
------------ ------------ ------------
Revenue ...... $ 9,593,035 $ 7,246,435 $ 5,587,507
------------ ------------ ------------
Cost of
sales ...... 10,332,348 9,080,905 6,913,336
Other
expenses ... 702,412 636,524 557,671
------------ ------------ ------------
Total
expenses . 11,034,760 9,717,429 7,471,007
------------ ------------ ------------
Net loss ..... $ (1,441,725) $ (2,470,994) $ (1,883,500)
------------ ------------ ------------
Trust share .. $ (726,840) $ (1,259,415) $ (904,297)
------------ ------------ ------------
4. Long-Term Debt
Following is a summary of long-term debt at December 31, 2003 and 2002:
2003 2002
----------- -----------
Senior collateralized
non-recourse notes payable .... $ 867,223 $ 1,822,425
Less - Current maturity ......... (867,223) (955,202)
----------- -----------
Total long-term debt ............ $ -- $ 867,223
----------- -----------
The collateralized non-recourse notes are due in monthly installments of
$90,738, including interest at 9.6%. Although the final payment was due on
October 15, 2004, the Providence Project made a payment of $813,257 on February
13, 2004 to pay off its remaining debt. The final payment consisted of cash and
the transfer of the balance in the restricted cash debt reserve fund at February
13, 2004. The notes provided 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, 2003, 2002 and 2001. The notes were
collateralized by a leasehold mortgage on the Providence Project's landfill
lease agreements and substantially all of the assets of the Providence Project.
The loan agreement also provided for a cash funded debt reserve fund. At
December 31, 2003 and 2002, the balance in the restricted cash debt reserve fund
was $756,928 and $749,821, respectively. Additions and reductions to the reserve
account are defined in the loan agreement. The loan agreement contained various
covenants, including the maintenance of a specified debt service ratio.
5. Fair Value of Financial Instruments
At December 31, 2003 and 2002, the carrying value of the Trust's cash and cash
equivalents, restricted cash, accounts receivable 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
The Providence Project is committed to sell all of the electricity it produces
to New England Power Service Company ("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, 2003, 2002 and 2001, sales revenue under the NEP Power
Purchase Agreement amounted to $7,226,823, $6,791,676 and $6,925,308,
respectively.
7. Landfill Lease and Sublease
The Providence Project 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 the Providence Project 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, 2003, 2002 and 2001 royalty expense relating to
the RISWMC lease amounted to $1,069,192, $1,003,182 and $1,025,448,
respectively. The royalty expense has been included in the cost of sales in the
Consolidated Statements of Operations.
The Providence Project 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 - Effective January 1, 2001, Gasco is to pay the Providence
Project an annual amount equal to the product of $44,833, which is adjusted for
inflation annually, times the assumed output capacity of each engine generator
set in megawatts installed and operated by the joint venture. Income recorded
under the sublease amounted to $553,764, $552,444 and $547,000 for the years
ended December 31, 2003, 2002 and 2001, respectively.
Fuel Expense - The Providence Project agreed to purchase all the landfill gas
produced by Gasco and pay on a monthly basis $.014788 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, 2003, 2002 and 2001
amounted to $992,711, $941,605 and $937,731, 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 prior years net asset
value of the Trust payable monthly upon the closing of the Trust. For the years
ended December 31, 2003, 2002 and 2001, the Trust recorded an annual management
fee to the managing shareholder of $568,728, $624,468 and $761,266,
respectively. For 2003 the Trust paid $270,353 of the 2003 management fee to the
managing shareholder and the remaining $298,375 has been accrued and included in
Accounts payable and accrued expenses.
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, 2003.
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 Power Management LLC
("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, 2003, 2002 and 2001, Ridgewood Management charged the (i)
Providence Project $451,626, $570,159 and $538,262, respectively, (ii)
California Pumping Project $19,698, $19,297 and $71,841, respectively, and (iii)
Maine Biomass Projects $253,632, $310,607 and $205,120, respectively. During the
periods ended December 31, 2003, 2002 and 2001, Ridgewood Management did not
charge any amounts to the Maine Hydro Projects.
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. At December 31, 2003
and 2002, the Trust had outstanding payables and receivables, with the following
affiliates:
As of December 31,
Due To Due From
-------------------------------------------------
2003 2002 2003 2002
----------------------- -----------------------
Ridgewood Management .. $ 42,006 $ 242,077 $ -- $ --
Trust III ............. 569,463 -- -- 266,895
Trust V ............... -- -- 71,000 --
Ridgewood Power ....... 674,921 324,981 -- --
Maine Hydro ........... -- 199,687 644,405 --
Maine Biomass ......... 298,309 -- -- 691
Other affiliates ...... 21,437 20,747 -- --
---------- ---------- ---------- ----------
Total ................. $1,606,136 $ 787,492 $ 715,405 $ 267,586
========== ========== ========== ==========
9. Insurance Claim
During the first quarter of 2002, the Providence Project experienced the failure
of one of its engines. The project submitted a claim with its insurance carrier
for the replacement of the engine and lost profits as a result of the business
interruption it experienced. For the years ended December 31, 2003 and 2002, the
Trust had recorded claims of $162,991 and $197,284, respectively, as other
operating income. The Trust received the proceeds from its insurance claims in
the first and third quarters of 2003.
10. Other Income
In 2002 the Trust received $100,000 from the liquidation of the Santee River
Rubber Company, which filed for bankruptcy in 2000, and $100,000 from the sale
of obsolete equipment from the California Pumping project. The proceeds received
have been recorded as other income in the 2002 consolidated statements of
operations.
11. Financial Information by Business Segment
The Trust's business segments were determined based on similarities in economic
characteristics and customer base. The Trust's principal business segments
consist of wholesale and retail.
Common services shared by the business segments are allocated on the basis of
identifiable direct costs, time records or in proportion to amount invested in
projects managed by Ridgewood Management.
The financial data for business segments are as follows:
Wholesale
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Revenue ........... $ 8,552,957 $ 7,344,120 $ 7,472,308
Depreciation and
amortization .... 1,359,033 1,354,476 1,349,003
Operating income .. 1,719,615 858,416 834,114
Total assets ...... 17,780,418 18,649,850 19,786,395
Capital
expenditures .... 5,314 44,239 45,104
Retail
---------------------------------------
2003 2002 2001
--------- ----------- -----------
Revenue ........... $ 520,567 $ 684,328 $ 629,316
Depreciation and
amortization .... 62,682 62,206 72,686
Operating
income (loss) ... (11,949) 123,279 41,816
Total assets ...... 320,111 355,701 404,749
Capital
expenditures ... -- 5,000 23,967
Corporate
---------------------------------------
2003 2002 2001
--------- ----------- -----------
Revenue ........... $ -- $ -- $ --
Depreciation and
amortization .... -- -- --
Operating
loss .......... (605,068) (544,262) (1,134,667)
Total assets ...... 7,930,245 8,627,850 10,191,401
Capital
expenditures ... -- -- --
Total
----------------------------------------
2003 2002 2001
----------- ------------ ------------
Revenue ........... $ 9,073,524 $ 8,028,448 $ 8,101,624
Depreciation and
amortization .... 1,421,715 1,416,682 1,421,689
Operating
income (loss) .. 1,102,598 240,149 (258,737)
Total assets ...... 26,030,774 27,633,401 30,382,545
Capital
expenditures ... 5,314 49,239 69,071
B. Supplementary Financial Information (Unaudited)
Selected Quarterly Financial Data for the years ended December 31, 2003 and
2002.
2003
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
Revenue ............. $ 2,373,000 $ 2,058,000 $ 2,104,000 $ 2,539,000
Income (loss) from
operations ......... 442,000 119,000 66,000 476,000
Net income (loss) ... (42,000) 688,000 (610,000) (242,000)
2002
--------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- ------------
Revenue ............. $ 1,977,000 $ 1,954,000 $ 2,041,000 $ 2,056,000
Income (loss) from
operations ......... (92,000) 29,000 70,000 233,000
Net income (loss) ... (401,000) (137,000) 202,000 (1,038,000)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Trust dismissed PricewaterhouseCoopers LLP as its independent
accountants on January 14, 2004 and appointed Perelson Weiner LLP as successor,
as reported in the Trust's Current Report on Form 8-K dated January 20, 2004,
incorporated herein by reference. There were no disagreements with
PricewaterhouseCoopers LLP for the years ended December 31, 2002 and 2001 or for
the interim period through January 20, 2004, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on the financial statements for such years.
Item 9A. Controls and Procedures
Within the 90 days prior to the filing date of this Report, the Trust's
Chief Executive Officer and Chief Financial Officer conducted an evaluation of
the effectiveness and design of the Trust's disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange
Act"). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer each concluded that the disclosure controls and procedures
were effective.
There have been no significant changes in the internal controls or in other
factors that could significantly affect these controls subsequent to the date
that they completed their evaluation.
The term "disclosure controls and procedures" is defined in Rule 13a-15(e)
of the Exchange Act as "controls and other procedures designed to ensure that
information required to be disclosed by the issuer in the reports files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the [Securities and Exchange] Commission's
rules and forms." The Trust's disclosure controls and procedures are designed to
ensure that material information relating to the consolidated subsidiaries is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding the required disclosures.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholder of the Trust, Ridgewood Renewable 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.
(b) Managing Shareholder.
Ridgewood Power Corporation was incorporated in February 1991 as a Delaware
corporation for the primary purpose of acting as a managing shareholder of
business trusts and as a managing general partner of limited partnerships. 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. In December of 2002, Ridgewood Power, LLC changed its name
to Ridgewood Renewable Power, LLC. Robert E. Swanson is the controlling member,
sole manager and President of the Managing Shareholder. All of the equity in the
Managing Shareholder is 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 or other Delaware limited liability companies.
Ridgewood Renewable Power LLC is the managing shareholder of the Other Power
Trusts and the manager of the Ridgewood LLCs. The business objectives of these
trusts and LLCs are similar to those of the Trust.
A number of other companies are affiliates of Mr. Swanson and Ridgewood
Power. 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 eight 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 57, has also served as Chief Executive Officer of
the Trust since its inception in 1991 and as Chief Executive Officer of RPM, the
Other Power Trusts, and the Ridgewood LLCs since their respective inceptions.
Mr. Swanson has been President and registered principal of Ridgewood Securities
and became the Chairman of the Board of Ridgewood Capital on its organization in
1998. He also is Chairman of the Board of the Ridgewood Capital Venture Partners
I, II, III and IV venture capital funds (collectively "Ridgewood Venture
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.
Randall Holmes, age 56, has served as the President and Chief Operating
Officer of the Managing Shareholder, RPM, the Trust, the Other Power Trusts and
the Ridgewood LLCs since January 1, 2004. Prior to that, he served as the
primary outside counsel to and has represented the Managing Shareholder and its
affiliates since 1991. Mr. Holmes has over 30 years of acquisition, development,
financing and operating experience in the electric generation and other
industries. Mr. Holmes previously was counsel to Downs Rachlin Martin PLLC in
Vermont("DRM"), to DeForest & Duer in New York and to Chadbourne & Parke in New
York. Mr. Holmes was also President of the Pepsi-Cola Operating Company of
Chesapeake and Indianapolis and was Vice President of Advanced Medical
Technologies. He was also a Partner with the New York law firm of Barrett Smith
Schapiro Simon & Armstrong where he specialized in financing transactions,
acquisitions and tax planning. DRM is one of the primary outside counsel to the
Trust, Managing Shareholder and their affiliates. Immediately prior to being
appointed President and Chief Operating Officer, Mr. Holmes was counsel to DRM.
He has maintained a minor consulting relationship with DRM in which he may act
as a paid advisor to DRM on certain matters that are unrelated to Ridgewood.
Such relationship will not require a significant amount of Mr. Holmes' time and
it is expected that such relationship will not adversely affect his duties as
President and Chief Operating Officer.
Robert L. Gold, age 45, has served as Executive Vice President of the
Managing Shareholder, RPM, the Trust, the Other Power Trusts, and the Ridgewood
LLCs 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 Venture 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.
Daniel V. Gulino, age 43, has been Senior Vice President and General
Counsel of the Managing Shareholder, RPM, the Trust, Other Power Trusts and the
Ridgewood LLCs. 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, 39, has been the Vice President and Chief Financial
Officer of the Managing Shareholder, RPM, the Trust, the Other Power Trusts, and
the Ridgewood LLCs 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 the Pennsylvania
Institute of Certified Public Accountants. He holds a Bachelor of Science degree
in Business Administration from Bucknell University (1986).
Mary Lou Olin, age 51, has served as Vice President of the Managing
Shareholder, RPM, Ridgewood Capital, the Trust, the Other Power Trusts and the
Ridgewood LLCs 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.
The Corporate Trustee of the Trust is Christiana Bank & Trust Company.
Legal title to Trust property is now and in the future will be in the name of
the Trust. Christiana is also a trustee of Other Power Trusts. The principal
office of Christiana Bank is 1314 King Street, Wilmington, DE 19801.
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 2003.
(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 the same as for the Managing Shareholder
as set forth above.
(h). Code of Ethics. The Managing Shareholder has adopted a Code of Ethics in
March 2004 for itself, the Trust, Other Power Trusts, Ridgewood LLCs and
affiliates. The Code of Ethics is attached hereto as Exhibit 10J.
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.
Christiana, 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:
2003 2002 2001 2000 1999
Managing
Shareholder $568,728 $624,468 $761,266 $348,202 $467,268
RPM Cost 6,273,303 6,136,690 5,167,250 5,685,821 5,496,826
Reimbursement
The management fee, payable monthly under the Management Agreement at the
annual rate of 3% of the Trust's prior year 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.
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate audit fees billed for professional services rendered by
Perelson Weiner LLP for the audit of the Company's annual financial statements
for the year ended December 31, 2003 were approximately $16,000. The aggregate
audit fees billed for professional services rendered by PricewaterhouseCoopers
LLP for the audit of the Company's annual financial statements and financial
statements included in the Company's Quarterly Reports on Form 10-Q for the
years ended December 31, 2003 and 2002 were approximately $18,000 each.
Tax Fees
The aggregate fees billed for all tax services rendered by Perelson Weiner
LLP for the year ended December 31, 2003 were approximately $27,000. There were
no tax services rendered by PricewaterhouseCoopers LLP for the years ended
December 31, 2003 and 2002. Tax services principally include tax compliance, tax
advice and planning (including foreign tax services, as well as tax planning
strategies for the preservation of net operating loss carryforwards).
Audit Related Fees
None.
All Other Fees
None.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following documents are filed as part of this report:
(a) Financial Statements.
See the Index to Financial Statements in Item 8 hereof.
(b) Reports on Form 8-K.
The Registrant filed a Form 8-K with the Commission on January 20, 2004
indicating that the Trust changed its Certifying Accountants by dismissing
PrcewaterhouseCoopers LLP and engaging Perselson Weiner LLP.
(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.
10J. Code of Ethics, adopted March 1, 2004.
99.1. Certifications under Section 906 of the Sarbanes-Oxley Act.
The Registrant agrees to furnish supplementally a copy of any omitted exhibit or
schedule to agreements filed as exhibits to the Commission upon request.
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 Chief Executive Officer April 14, 2004
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 Chief Executive Officer April 14, 2004
Robert E. Swanson
By:/s/ Christopher Naunton Vice President and April 14, 2004
Christopher Naunton Chief Financial Officer
RIDGEWOOD RENEWABLE POWER LLC Managing Shareholder April 14, 2004
By:/s/ Robert E. Swanson Chief Executive Officer
Robert E. Swanson
CERTIFICATION PURSUANT TO RULE 13A-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Robert E. Swanson, Chief Executive Officer of Ridgewood Electric Power Trust
IV ("registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which the Annual Report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in the Annual Report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by the Annual Report
based on such evaluation; and
(c) Disclosed in the Annual Report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and senior management:
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: April 14, 2004
/s/ Robert E. Swanson
- ------------------------
Robert E. Swanson
Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13A-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Christopher I. Naunton, Chief Financial Officer of Ridgewood Electric Power
Trust IV ("registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which the Annual Report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures and presented in the Annual Report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by the Annual Report
based on such evaluation; and
(c) Disclosed in the Annual Report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and senior management:
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal control over financial reporting.
Date: April 14, 2004
/s/ Christopher I. Naunton
- -----------------------------
Christopher I. Naunton
Chief Financial Officer