Ridgewood Maine Hydro Partners, L.P.
Financial Statements
December 31, 2003, 2002 and 2001
Report of Independent Accountants
Partners'
Ridgewood Maine Hydro Partners, L.P.
We have audited the accompanying balance sheet of Ridgewood Maine Hydro
Partners, L.P. as of December 31, 2003 and the related statement of operations,
changes in partners' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial statements referred to above present fairly, in
all material respects, the financial position of Ridgewood Maine Hydro Partners,
L.P. at 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 Partners of
Ridgewood Maine Hydro Partners, L.P.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in Partners' equity and cash flows present fairly, in all
material respects, the financial position of Ridgewood Maine Hydro Partners,
L.P. (the "Partnership") at December 31, 2002, and the results of its operations
and its 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
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Florham Park, NJ
April 3, 2003
Ridgewood Maine Hydro Partners, L.P.
Balance Sheets
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December 31,
----------------------------
2003 2002
------------ -------------
Assets:
Cash and cash equivalents ...................... $ 186,055 $ 11,312
Accounts receivable ............................ 749,384 594,319
Due from affiliates ............................ 355,945 199,687
Prepaid and other current assets ............... 50,712 152,181
------------ ------------
Total current assets ...................... 1,342,096 957,499
Plant and equipment ............................ 2,461,377 2,189,075
Accumulated depreciation ....................... (317,632) (251,519)
------------ ------------
2,143,745 1,937,556
------------ ------------
Electric power sales contracts ................. 12,815,510 12,815,510
Accumulated amortization ....................... (7,242,481) (6,234,925)
------------ ------------
5,573,029 6,580,585
------------ ------------
Total assets .............................. $ 9,058,870 $ 9,475,640
------------ ------------
Liabilities and Partners' Equity:
Liabilities:
Accounts payable and accrued expenses .......... $ 273,623 $ 213,670
Due to affiliates .............................. 832,024 451,416
------------ ------------
Total current liabilities ................. 1,105,647 665,086
Commitments and contingencies --- ---
Partners' equity:
Limited partners ............................... 7,883,413 8,732,170
General partner ................................ 69,810 78,384
------------ ------------
Total partners' equity .................... 7,953,223 8,810,554
------------ ------------
Total liabilities and partners' equity .... $ 9,058,870 $ 9,475,640
------------ ------------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Statements of Operations
- -------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------
2003 2002 2001
----------- ----------- -----------
Power generation revenue ........... $ 3,504,496 $ 3,144,471 $ 2,311,346
----------- ----------- -----------
Operating expenses:
Depreciation and amortization ... 1,073,669 1,065,285 1,053,184
Labor ........................... 615,642 673,248 624,886
Insurance ....................... 403,137 460,767 256,015
Property taxes .................. 280,830 290,287 266,437
Contract management ............. 356,754 351,162 343,704
Other expenses .................. 531,743 602,015 505,701
----------- ----------- -----------
3,261,775 3,442,764 3,049,927
----------- ----------- -----------
Income (loss) from operations ...... 242,721 (298,293) (738,581)
----------- ----------- -----------
Other income:
Interest income .................... 209 770 13,563
Other income ....................... 105,411 48,582 ---
----------- ----------- -----------
Other income, net ............. 105,620 49,302 13,563
----------- ----------- -----------
Net income (loss) .................. $ 348,341 $ (248,991) $ (725,018)
----------- ----------- -----------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Statements of Changes in Partners' Equity
For the Years Ended December 31, 2003, 2002 and 2001
- ------------------------------------------------------------------------------
Limited General
Partners Partner Total
------------ ------------- -------------
Partners' equity,
January 1, 2001 ...... $ 10,596,678 $ 97,217 $ 10,693,895
Cash distributions .... (208,739) (2,108) (210,847)
Net loss for the year . (717,768) (7,250) (725,018)
------------ ------------ ------------
Partners' equity,
December 31, 2001 .... 9,670,171 87,859 9,758,030
Cash distributions .... (691,500) (6,985) (698,485)
Net loss for the year . (246,501) (2,490) (248,991)
------------ ------------ ------------
Partners' equity,
December 31, 2002 .... 8,732,170 78,384 8,810,554
Cash distributions .... (1,193,615) (12,057) (1,205,672)
Net income for the year 344,858 3,483 348,341
------------ ------------ ------------
Partners' equity,
December 31, 2003 .... $ 7,883,413 $ 69,810 $ 7,953,223
------------ ------------ ------------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Statements of Cash Flows
- ------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------
Cash flows from operating
activities:
Net income (loss) ................. $ 348,341 $ (248,991) $ (725,018)
----------- ----------- -----------
Adjustments to reconcile net
income (loss) to net cash flows
from operating activities:
Depreciation and amortization ... 1,073,669 1,065,285 1,053,184
Changes in assets and
liabilities:
(Increase) decrease in
accounts receivable ......... (155,065) (522,551) 530,574
Decrease (increase) in prepaid
and other current assets ..... 101,469 (110,505) (19,149)
Increase (decrease) in due
to/from affiliates, net ...... 224,350 588,345 (491,677)
Increase (decrease) in accounts
payable and accrued expenses . 59,953 95,510 (79,137)
----------- ----------- -----------
Total adjustments ............. 1,304,376 1,116,084 993,795
----------- ----------- -----------
Net cash provided by
operating activities ......... 1,652,717 867,093 268,777
----------- ----------- -----------
Cash flows from investing
activities:
Capital expenditures .............. (272,302) (175,112) (175,555)
----------- ----------- -----------
Net cash used in
investing activities ......... (272,302) (175,112) (175,555)
----------- ----------- -----------
Cash flows from financing
activities:
Cash distributions to partners .... (1,205,672) (698,485) (210,847)
----------- ----------- -----------
Net cash used in
financing activities ......... (1,205,672) (698,485) (210,847)
----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents ........ 174,743 (6,504) (117,625)
Cash and cash equivalents,
beginning of year ................ 11,312 17,816 135,441
----------- ----------- -----------
Cash and cash equivalents,
end of year ...................... $ 186,055 $ 11,312 $ 17,816
----------- ----------- -----------
See accompanying notes to the financial statements.
Ridgewood Maine Hydro Partners, L.P.
Notes to Financial Statements
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1. Organization and Business Activity
On September 5, 1996, Ridgewood Maine Hydro Partners, L.P. was formed as a
Delaware limited partnership (the "Partnership"). Ridgewood Maine Hydro
Corporation, a Delaware Corporation ("RMHCorp"), is the sole general partner of
the Partnership and is owned equally by Ridgewood Electric Power Trust IV
("Trust IV") and Ridgewood Electric Power Trust V ("Trust V"), both Delaware
business trusts (collectively, the "Trusts"). The Trusts are equal limited
partners in the Partnership.
On December 23, 1996, in a merger transaction, the Partnership acquired 14
hydroelectric projects located in Maine (the "Maine Hydro Projects") from a
subsidiary of 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 ("CMP") and
Bangor Hydro Company ("BHC") under long-term contracts.
2. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, requires the Partnership 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 Partnership evaluates its estimates,
including bad debts, intangible assets and recordable liabilities for litigation
and other contingencies. The Partnership bases its estimates on historical
experience, current and expected conditions and various other assumptions that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgements about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
New Accounting Standards and Disclosures
SFAS 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 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 adjusted for the time
value of money, with a charge to the income statement, until the obligation is
settled. SFAS 143 is effective for fiscal years beginning after June 15, 2002.
The Partnership adopted SFAS 143 effective January 1, 2003, with no material
impact on the 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 Partnership adopted
SFAS 145 effective January 1, 2003, with no material impact on the 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 Partnership adopted SFAS 146 effective January 1, 2003, with no
material impact on the 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 Partnership adopted the disclosure
provisions of FIN 45 during the fourth quarter of 2002 with no material impact
on the 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 Partnership adopted SFAS 149 effective July 1, 2003, with no
material impact on the 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 Partnership
adopted SFAS 150 effective July 1, 2003, with no material impact on the
financial statements.
Significant Accounting Policies
Cash and cash equivalents
The Partnership considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents. Cash balances
with banks as of December 31, 2003, exceed insured limits by approximately
$80,000.
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.
Revenue recognition
Power generation revenue is recorded in the month of delivery, based on the
estimated volumes sold to customers at rates stipulated in the power sales
contract. Adjustments are made to reflect actual volumes delivered when the
actual volumetric information subsequently becomes available. Billings to
customers for power generation generally occurs during the month following
delivery. Final billings typically do not vary significantly from estimates.
Interest income is recorded when earned.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 144, Accounting for the Impairment
of Long-Lived Assets to be Disposed Of, the Partnership evaluates long-lived
assets, such as fixed assets and specifically identifiable intangibles, when
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. The determination of whether an impairment has
occurred is made by comparing the carrying value of an asset to the estimated
undiscounted cash flows attributable to that asset. If an impairment has
occurred, the impairment loss recognized is the amount by which the carrying
value exceeds the discounted cash flows attributable to the asset or the
estimated fair value of the asset.
Plant and equipment
Plant and equipment, consisting principally of electrical generating equipment,
is stated at cost. Renewals and betterments that increase the useful lives of
the assets are capitalized. Repair and maintenance expenditures that increase
the efficiency of the assets are expensed as incurred. The Partnership
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. At December 31, 2003 and
2002, the Partnership had construction in progress of $248,191 and $186,381,
respectively.
Depreciation is recorded using the straight-line method over the useful lives of
the assets, which vary from 3 to 50 years with a weighted average of 32 years
for each of the years ended December 31, 2003 and 2002. During the years ended
December 31, 2003, 2002 and 2001, the Partnership recorded depreciation expense
of $66,113, $61,089 and $50,008, respectively.
Electric Power Sales Contracts
A portion of the purchase price of the Maine Hydro Projects was assigned to the
Electric Power Sales Contracts and is being amortized over the duration of the
contracts (11 to 21 years) on a straight-line basis. 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.
As part of the purchase of the Maine Hydro Projects, the Partnership assumed a
hydroelectric facility leased pursuant to a long-term lease agreement dated July
16, 1979, and as amended (the "Agreement"). Upon proper notice, the Partnership
had the right to purchase all the equipment covered in the Agreement at Fair
Market Value (as defined) or elect to extend the terms of the Agreement for up
to three five-year periods at a rental equal to Fair Rental Value (as defined).
In addition, the Partnership also had the right to terminate the Agreement and
purchase the hydroelectric facility upon proper notice and payment of a
scheduled close-out amount, which was $750,000 at April 30, 2000. This lease was
accounted for as a capital lease and the scheduled close-out amount of $750,000
had been recorded as a lease obligation. On April 30, 2000, the Partnership
purchased the equipment at its Fair Market Value, which was $254,136. The
difference between the recorded lease obligation of $750,000 and the purchase
price of $254,136 is recorded as a reduction to the Electric Powers Sales
Contract in the accompanying balance sheet.
During the years ended December 31, 2003, 2002 and 2001, the Partnership
recorded amortization expense of $1,007,556, $1,004,196 and $1,003,176,
respectively.
Income taxes
No provision is made for income taxes in the accompanying financial statements
as the income or loss of the Partnership is passed through and included in the
tax returns of the respective partners.
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes. This had no effect on income or loss.
3. Lease Commitments
The Partnership leases a parcel of land on the sites of two of its hydroelectric
projects under non-cancelable operating leases expiring in June 2078. Total
monthly payments in 2003 were the greater of $1,371 or a percentage of the
revenue from the hydroelectric project. At December 31, 2003, the future minimum
rental payments required under these leases was as follows:
2004 $ 16,452
2005 16,452
2006 16,452
2007 16,452
2008 16,452
Thereafter 1,143,414
------------
$ 1,225,674
------------
Rent expense for the years ended December 31, 2003, 2002 and 2001 was $16,452,
$16,008 and $15,816, respectively.
4. Electric Power Sale Contracts
The Partnership operates facilities which qualify as small power production
facilities under the Public Utility Regulatory Policies Act ("PURPA"). PURPA
requires that each electric utility company, operating at the location of a
small power production facility, as defined, purchase the electricity generated
by such facility at a specified or negotiated price. The Partnership sells
substantially all of its electrical output to two public utility companies,
Central Maine Power Company ("CMP") and Bangor Hydro-Electric Company ("BHC"),
pursuant to long-term power purchase agreements. Eleven of the twelve power
purchase agreements with CMP expire in December 2008 and are renewable for an
additional five year period. The twelfth power purchase agreement with CMP
expires in December 2007 with CMP having the option to extend the contract for
three more five-year periods. The two power purchase agreements with BHC expire
December 2014 and February 2017. The Partnership is required to maintain a
standby letter of credit totaling $99,250 under the long-term power purchase
agreement, which is provided by and collateralized by Ridgewood Renewable Power
LLC, the manager of the Trusts, line of credit facility.
5. Fair Value of Financial Instruments
At December 31, 2003 and 2002, the carrying value of the Partnership's cash and
cash equivalents, trade receivables, and accounts payable and accrued expenses
approximates their fair value. The fair value of the letter of credit does not
differ materially from its carrying value.
6. Management Agreement
The Maine Hydro Projects are operated by a subsidiary of 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
Partnership. The Partnership pays 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 Partnership also pays 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, plus an annual incentive fee equal to 50% of
the cumulative net cash flow in excess of a target amount. The maximum incentive
fee payable in a year is $112,500. For the years ended December 31, 2003, 2002
and 2001, no incentive fee was due. The Partnership 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 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 Partnership filed a Verified Complaint for Equitable
Relief against the Enel Subsidiary and certain of its officers, employees and
affiliates, (collectively, the "defendants") in the Superior Court of Kennebec
County, Maine. The Partnership is 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 Partnership.
The Partnership is seeking, among other things, for the court to preliminary and
permanently enjoin the defendants from operating or otherwise occupying or
possessing the Maine Hydro Project, declaring that the OM&A Agreement is
rescinded by virtue of the defendants' wrongful acts and awarding the
Partnership its reasonable costs, expenses and fees in prosecuting the action.
At this time, it is too early to determine what, if any, recovery the
Partnership might have as a result of his suit.
7. Transactions with Affiliates
From time to time, the Partnership records short-term payables and receivables
from other affiliates in the ordinary course of business. The amounts payable
and receivable with the other affiliates do not bear interest. At December 31,
2003 and 2002, the Partnership had outstanding payables and receivables, with
the following affiliates:
As of December 31,
Due To Due From
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Ridgewood Power Management, LLC $117,619 $171,731 $ -- $ --
Trust IV ...................... 644,405 -- -- 199,687
Trust V ....................... -- 279,685 355,945 --
Other affiliates .............. 70,000 -- -- --
-------- -------- -------- --------
Total ......................... $832,024 $451,416 $355,945 $199,687
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