UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Commission File No. 33-95538
SALTON SEA FUNDING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 47-0790493
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(State of (IRS Employer
Incorporation) Identification No.)
Salton Sea Brine Processing L.P. California 33-0601721
Salton Sea Power Generation L.P. California 33-0567411
Fish Lake Power LLC Delaware 33-0453364
Vulcan Power Company Nevada 95-3992087
CalEnergy Operating Corporation Delaware 33-0268085
Salton Sea Royalty LLC Delaware 47-0790492
VPC Geothermal LLC Delaware 91-1244270
San Felipe Energy Company California 33-0315787
Conejo Energy Company California 33-0268500
Niguel Energy Company California 33-0268502
Vulcan/BN Geothermal Power Company Nevada 33-3992087
Leathers, L.P. California 33-0305342
Del Ranch, L.P. California 33-0278290
Elmore, L.P. California 33-0278294
Salton Sea Power L.L.C. Delaware 47-0810713
CalEnergy Minerals LLC Delaware 47-0810718
CE Turbo LLC Delaware 47-0812159
CE Salton Sea Inc. Delaware 47-0810711
Salton Sea Minerals Corp. Delaware 47-0811261
302 S. 36th Street, Suite 400, Omaha, NE 68131
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(Address of principal executive offices and Zip Code
of Salton Sea Funding Corporation)
Salton Sea Funding Corporation's telephone number,
including area code: (402) 341-4500
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Securities registered pursuant to Section 12(b) of the Act: N/A
Securities registered pursuant to Section 12(g) of the Act: N/A
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
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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 ]
All common stock of Salton Sea Funding Corporation is held by Magma Power
Company. 100 shares of Common Stock were outstanding on March 28, 2002.
Documents incorporated by reference: N/A
TABLE OF CONTENTS
Part I ....................................................................1
Item 1. Business....................................................1
The Projects.........................................................2
Salton Sea Projects.........................................3
Partnership Projects........................................4
Zinc Recovery Project.......................................5
Royalty Projects............................................5
Securities ...................................................5
Structure of and Collateral for the Securities..............6
Payment of Interest and Principal...........................7
Priority of Payments........................................8
Debt Service Reserve Fund...................................9
Optional Redemption.........................................9
Mandatory Redemption........................................9
Distributions ..........................................9
Incurrence of Additional Debt..............................10
Principal Indenture Covenants..............................11
Principal Credit Agreement Covenants.......................11
Considerations Regarding Limitation on Remedies............11
Power Price and Sales Uncertainty...................................11
Reliance on Single Utility Customer.................................12
Zinc Price and Sales Uncertainty....................................12
Construction Uncertainty............................................12
Uncertainties Relating to Exploration and Development of
Geothermal Energy Resources..................................12
Insurance...........................................................13
Regulatory and Environmental Matters................................13
Employees...........................................................13
Item 2. Properties.................................................14
Item 3. Legal Proceedings..........................................14
Item 4. Submission of Matters to a Vote of Security Holders........16
Part II ....................................................................17
Item 5. Market for Registrant's Common Equity and Related
Stockholder's Matters........................................17
Item 6. Selected Financial Data....................................17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................18
Forward Looking Statements.................................18
Critical Accounting Policies...............................18
Factors Affecting Results of Operations....................19
Capacity Utilizations......................................19
Results of Operations for the Years Ended December 31,
2001, 2000 and 1999..........................................20
Item 7A. Qualitative and Quantitative Disclosures About Market Risk26
Interest Rate Risk.....................................26
Item 8. Financial Statements and Supplementary Data...............27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................80
Part III ....................................................................81
Item 10. Directors and Executive Officers of the Registrant......81
Item 11. Executive Compensation...................................83
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................83
Item 13. Certain Relationships and Related Transactions..83
Part IV ....................................................................85
Item 14. Exhibits, Financial Statements Schedule and Reports
on Form 8-K..................................................85
Signatures...................................................................86
PART I
Item 1. Business
Salton Sea Funding Corporation ("Funding Corporation") an indirect wholly-owned
subsidiary of CE Generation, LLC ("CE Generation"), is a Delaware corporation
formed for the sole purpose of issuing securities in its individual capacity as
principal and as agent acting on behalf of the Guarantors (as defined below).
The principal executive office of the Funding Corporation is located at 302
South 36th Street, Suite 400, Omaha, Nebraska 68131 and its telephone number is
(402) 341-4500.
CE Generation owns all of the capital stock of Magma Power Company ("Magma"),
which owns all of the outstanding capital stock of Funding Corporation. Through
its subsidiaries, CE Generation is primarily engaged in the development,
ownership and operation of environmentally responsible independent power
production facilities in the United States utilizing geothermal and natural gas
resources. CE Generation has an aggregate net ownership interest of 756 MW of
electrical generating capacity in power plants in operation in the United
States, which have an aggregate net capacity of 816 MW (including its interests
in the Salton Sea Projects and the Partnership Projects as defined below).
All of the outstanding stock of Magma was contributed by MidAmerican Energy
Holdings Company ("MidAmerican") to CE Generation in February 1999. In March
1999, MidAmerican sold a 50% interest in CE Generation to El Paso CE Generation
Holding Company, which was merged into El Paso Merchant Energy North American
Company ("EPME") on December 31, 2000, an affiliate of El Paso Corporation
("EPME").
Magma directly or indirectly owns all of the capital stock of or partnership
interests in the Funding Corporation and the Guarantors, except for CalEnergy
Minerals LLC ("Minerals LLC") and Salton Sea Minerals Corp., which are owned by
MidAmerican. The Guarantors are comprised of the Salton Sea Guarantors, the
Partnership Guarantors and the Royalty Guarantor.
The Salton Sea Guarantors include Salton Sea Brine Processing L.P. ("SSBP"),
Salton Sea Power Generation L.P. ("SSPG") Salton Sea Power L.L.C. ("Power LLC")
and Fish Lake Power LLC ("Fish Lake") (collectively, the "Salton Sea
Guarantors"), which own five operating geothermal power plants located in
Imperial Valley, California known as Salton Sea I, Salton Sea II, Salton Sea
III, Salton Sea IV and Salton Sea V (the "Salton Sea Projects").
The Partnership Guarantors include the Vulcan/BN Geothermal Power Company
("Vulcan"), Elmore, L.P. ("Elmore"), Leathers, L.P. ("Leathers"), Del Ranch,
L.P. ("Del Ranch") and CE Turbo LLC ("Turbo"), each of which owns an operating
geothermal power plant located in Imperial Valley, California known as the
Vulcan Project, the Elmore Project, the Leathers Project, the Del Ranch Project
and Turbo Project, respectively (the "Partnership Projects"). The Partnership
Guarantors also include Minerals LLC, which is constructing a zinc recovery
project in the Imperial Valley, California. Finally, the Partnership Guarantors
include CalEnergy Operating Corporation ("CEOC"), Vulcan Power Company ("VPC"),
San Felipe Energy Company ("San Felipe"), Conejo Energy Company ("Conejo"),
Niguel Energy Company ("Niguel"), VPC Geothermal LLC ("VPCG"), Salton Sea
Minerals Corp. and CE Salton Sea Inc. VPC and VPCG, collectively own 100% of the
partnership interests in Vulcan. CEOC and Niguel, San Felipe and Conejo,
collectively own 90% partnership interests in each of Elmore, Leathers and Del
Ranch, respectively. Salton Sea Minerals Corporation owns Minerals LLC. CE
Salton Sea Inc. owns Power LLC and Turbo.
Magma owns all of the remaining 10% interests in each of Elmore, Leathers and
Del Ranch. CEOC is entitled to receive from Magma, as payment for certain data
and services provided by CEOC, all of the partnership distributions Magma
receives with respect to its 10% ownership interests in each of the Elmore,
Leathers and Del Ranch Projects and Magma's special distributions equal to 4.5%
of total energy revenues from the Leathers Project.
Salton Sea Royalty LLC ("SSRC" or the "Royalty Guarantor") is the Royalty
Guarantor. SSRC received an assignment of certain fees and royalties
("Royalties") paid by three Partnership Projects: Elmore, Leathers and Del
Ranch.
CEOC currently operates each of the Salton Sea Projects and the Partnership
Projects, collectively the "Imperial Valley Projects". Affiliates of Magma
control, through a variety of fee, leasehold, and royalty interests, rights to
geothermal resources for power production in the Salton Sea Known Geothermal
Resource Area ("SSKGRA"). The Funding Corporation believes that such resources
will be sufficient to operate the Salton Sea Projects and the Partnership
Projects at contract capacity under their respective power purchase agreements
through the final maturity date of the Securities.
The principal executive offices of the Salton Sea Guarantors are located at 302
South 36th Street, Suites 400-B, 400-D, 400-E, 400-K and 400-N, Omaha, Nebraska
68131. The principal executive offices of the Partnership Guarantors is 302
South 36th Street, Suite 400-F, 400-G, 400-I, 400-J, 400-L, 400-M, 400-N, 400-O,
400-P, 400-Q, 400-R, 400-S, 400-T, and 400-U, Omaha, Nebraska 68131. The
principal executive office of the Royalty Guarantor is 302 South 36th Street,
Suite 400-H, Omaha, Nebraska 68131. The Salton Sea Guarantors, Partnership
Guarantors and the Royalty Guarantor are sometimes referred to collectively
herein as the "Guarantors".
The Projects
Set forth below is a table describing certain characteristics of the Salton Sea
Projects and the Partnership Projects, and the Guarantors' collective interests
therein. All the projects are located in the Imperial Valley, California.
DATE OF CONTRACT
PROJECT FACILITY COMMERICAL CONTRACT CONTRACT POWER
CAPACITY (1)(2) OPERATION EXPIRATION TYPE PURCHASERS
Salton Sea Projects
Salton Sea I 10.0 7/1987 6/2017 Negotiated Edison
Salton Sea II 20.0 4/1990 4/2020 SO4 Edison
Salton Sea III 49.8 2/1989 2/2019 SO4 Edison
Salton Sea IV 39.6 6/1996 5/2026 SO4 Edison
Salton Sea V 49.0 6/2000 N/A N/A Energy Markets/
----- Zinc Recovery Project
Subtotal 168.4
-----
Partnership Projects
Vulcan 34.0 2/1986 2/2016 SO4 Edison
Elmore 38.0 1/1989 12/2018 SO4 Edison
Leathers 38.0 1/1990 12/2019 SO4 Edison
Del Ranch 38.0 1/1989 12/2018 SO4 Edison
CE Turbo 10.0 8/2000 N/A N/A Energy Markets/
Subtotal 158.0 Zinc Recovery Project
-----
Total Power
Projects 326.4
======
Zinc Recovery
Project 30,000 2002 N/A N/A N/A
======
(1) Power capacity varies with operating and reservoir conditions.
(2) Facility Capacities are measured in MW; zinc recovery project capacity is
measured in estimated tons per year production.
Each of the Imperial Valley Projects, excluding the Turbo and Salton Sea V
Projects, sells electricity to Southern California Edison Company ("Edison")
pursuant to a separate Standard Offer No. 4 Agreement ("SO4 Agreement") or a
negotiated power purchase agreement. Each power purchase agreement is
independent of the others, and the performance requirements specified within one
such agreement apply only to the Project, which is subject to the agreement. The
power purchase agreements provide for energy payments, capacity payments and
capacity bonus payments. Edison makes fixed annual capacity payments and
capacity bonus payments to the applicable projects to the extent that capacity
factors exceed certain benchmarks. Except as described, the price for capacity
is fixed for the life of the SO4 Agreements and is significantly higher in the
months of June through September.
Energy payments for the SO4 Agreements were at increasing fixed rates for the
first ten years after firm operation and thereafter at a rate based on the cost
that Edison avoids by purchasing energy from the project instead of obtaining
the energy from other sources ("Avoided Cost of Energy"). In June and November
2001, the Imperial Valley Projects, which receive Edison's Avoided Cost of
Energy entered into agreements that provide for amended energy payments under
the SO4 Agreements. The amendments provide for fixed energy payments per kWh in
lieu of Edison's Avoided Cost of Energy. The fixed energy payment is 3.25 cents
per kWh from December 1, 2001 through April 30, 2002 and 5.37 cents per kWh
commencing May 1, 2002 for a five-year period. Following the five-year period,
the energy payments revert back to Edison's Avoided Cost of Energy.
For the years ended December 31, 2001, 2000 and 1999, respectively, Edison's
Average Avoided Cost of Energy was 7.4 cents per kilowatt-hour, 5.8 cents per
kilowatt-hour and 3.1 cents per kilowatt-hour, respectively. Estimates of
Edison's future Avoided Cost of Energy vary substantially from year to year.
The Imperial Valley Projects, other than Salton Sea I, receive transmission
service from the Imperial Irrigation District to deliver electricity to Edison
near Mirage, California. These projects pay a rate based on the Imperial
Irrigation District's cost of service, which was $1.68 per month per kilowatt of
service provided for 2001 and recalculated annually. The transmission service
and interconnection agreements expire in 2015 for the Partnership Projects, 2019
for Salton Sea III, 2020 for Salton Sea II and 2026 for Salton Sea IV. Salton
Sea V and the Turbo Projects have entered into 30-year agreements with similar
terms with the Imperial Irrigation District. Salton Sea I delivers energy to
Edison at the project site and has no transmission service agreement with the
Imperial Irrigation District.
Salton Sea Projects
The Salton Sea I Project contracts to sell electricity to Edison pursuant to a
30-year negotiated power purchase agreement that commenced on July 1, 1987 (the
"Salton Sea I PPA"). The contract capacity and contract nameplate are each 10
MW. The capacity payment is based on the firm capacity price, which adjusts
quarterly based on a basket of energy indices for the term of the Salton Sea I
PPA and is currently $154.45 per kW-year. The capacity payment is approximately
$1.1 million per annum. The energy payment is calculated using a Base Price
(defined as the initial value of the energy payment (4.7 cents per kWh for the
second quarter of 1992), which is subject to quarterly adjustments based on a
basket of indices. The time period weighted average energy payment for Salton
Sea was 5.9 cents per kWh during 2001. As the Salton Sea I PPA is not an SO4
Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy.
The Salton Sea II Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on April 5, 1990. The contract
capacity and contract nameplate are 15 MW (16.5 MW during on-peak periods) and
20 MW, respectively. The price for contract capacity and contract capacity bonus
payments is fixed for the life of the modified SO4 Agreement. The combined
annual capacity and bonus payments are approximately $3.3 million. The energy
payments for the first ten-year period, which period expired on April 4, 2000,
were levelized at a time period weighted average of 10.6 cents per kWh.
Thereafter, the monthly energy payment was based on Edison's Avoided Cost of
Energy. Edison is entitled to receive, at no cost, 5% of all energy delivered in
excess of 80% of contract capacity through September 30, 2004.
The Salton Sea III Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on February 13, 1989. The contract
capacity and contract nameplate are 47.5 MW and 49.8 MW, respectively. The price
for contract capacity payments and capacity bonus payments is fixed at $175/kW
per year. The combined annual capacity and bonus payments are approximately $9.7
million. The energy payments for the first ten-year period, which period expired
on February 12, 1999, were levelized at a time period weighted average of 9.8
cents per kWh. Thereafter, the energy payment was based on Edison's Avoided Cost
of Energy.
The Salton Sea IV Project contracts to sell electricity to Edison pursuant to a
modified SO4 Agreement which provides for contract capacity payments on 34 MW of
capacity at two different rates based on the respective contract capacities
deemed attributable to the original Salton Sea I PPA option (20 MW) and to the
original Salton Sea IV SO4 Agreement ("Fish Lake PPA") (14 MW). The capacity
payment price for the 20 MW portion adjusts quarterly based upon specified
indices and the capacity payment price for the 14 MW portion is a fixed
levelized rate. The combined capacity and bonus payments in 2001 were
approximately $5.7 million. The energy payment (for deliveries up to a rate of
39.6 MW) is at a fixed price for 55.6% of the total energy delivered by Salton
Sea IV and is based on an energy payment schedule for 44.4% of the total energy
delivered by Salton Sea IV. The contract has a 30-year term but Edison is not
required to purchase the 20 MW of capacity and energy originally attributable to
the Salton Sea I PPA option after September 30, 2017, the original termination
date of the Salton Sea I PPA.
The Salton Sea V Project, which commenced operations in the third quarter of
2000, will sell approximately one-third of its net output to a zinc facility,
which is owned by a subsidiary of MidAmerican and is expected to commence
commercial operations in 2002. The Salton Sea V Project sells its remaining
output through other market transactions.
On January 17, 2001, Salton Sea Power entered into a transaction agreement to
sell available power from Salton Sea V to El Paso Merchant Energy North America
Company ("EPME"). Under the terms of the agreement, at the option of Salton Sea
Power, EPME purchased all available power from the Salton Sea V and based on day
ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001 Salton Sea Power entered into new transaction
agreements to sell available power from Salton Sea V to EPME based on
percentages of the Dow Jones SP-15 Index.
Partnership Projects
The Vulcan Project contracts to sell electricity to Edison under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a contract
capacity and contract nameplate of 29.5 MW and 34 MW, respectively. The combined
annual capacity and bonus payments are approximately $5.5 million.
The Hoch (Del Ranch) Project contracts to sell electricity to Edison under a
30-year SO4 Agreement that commenced on January 2, 1989. The combined contract
capacity and contract nameplate are 34 MW and 38 MW, respectively. The combined
annual capacity and bonus payments are approximately $7.9 million.
The Elmore Project contracts to sell electricity to Edison under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract capacity and contract
nameplate are 34 MW and 38 MW, respectively. The annual capacity and bonus
payments are approximately $7.9 million.
The Leathers Project combined contracts to sell electricity to Edison pursuant
to a 30-year SO4 Agreement that commenced on January 1, 1990. The contract
capacity and contract nameplate are 34 MW and 38 MW, respectively. The combined
annual capacity and bonus payments are approximately $7.5 million. The fixed
price period for energy payments expired on December 31, 1999. Thereafter, the
energy payment was based on Edison's Avoided Cost of Energy.
The Turbo Project, which commenced commercial operation in the third quarter of
2000, sells its output through market transactions. The Turbo Project may sell
its output pursuant to a power purchase agreements with a zinc facility, which
is owned by a subsidiary of MidAmerican and is expected to commence commercial
operations in 2002.
On January 17, 2001, CE Turbo entered into a transaction agreement to sell
available power from the Turbo Project to EPME. Under the terms of the
agreement, at the option of CE Turbo, EPME purchased all available power from
the Turbo Project based on day ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001 CE Turbo entered into new transaction
agreements to sell available power from the Turbo Project to EPME based on
percentages of the Dow Jones SP-15 Index.
Minerals LLC developed and owns the rights to proprietary processes for the
extraction of zinc from elements in solution in the geothermal brine and fluids
utilized at the company's Imperial Valley Projects. A pilot plant has
successfully produced commercial quality zinc at the Imperial Valley Projects.
The affiliates of Minerals LLC intend to sequentially develop facilities for the
extraction of manganese, silver, gold, lead, boron, lithium and other products
as it further develops the extraction technology.
Minerals LLC is constructing the Zinc Recovery Project, which will recover zinc
from the geothermal brine (the "Zinc Recovery Project"). Facilities are being
installed near the Salton Sea & Partnership Project sites to extract a zinc
chloride solution from the geothermal brine through an ion exchange process.
This solution will be transported to a central processing plant where zinc
ingots will be produced through solvent extraction, electrowinning and casting
processes. The Zinc Recovery Project is designed to have a capacity of
approximately 30,000 tons per year and is scheduled to commence commercial
operations in 2002. In September 1999, Minerals LLC entered into a sales
agreement whereby all high-grade zinc produced by the Zinc Recovery Project will
be sold to Cominco, Ltd. The initial term of the agreement expires in December
2005.
Royalty Projects
The Royalty Guarantor has received an assignment from Magma of certain payments
("Royalties") received from the Leathers, Del Ranch and Elmore Projects in
exchange for the provision to those projects of the rights to use certain
geothermal resources. Substantially all of the assigned Royalties are based on a
percentage of energy and capacity revenues of the respective projects. Pursuant
to the assignment, the Royalty Guarantor is entitled to receive the aggregate
percentages of such project's energy and capacity revenues as illustrated in the
chart below. The Partnership Guarantors are also entitled to receive Royalties
from the Partnership Projects as illustrated in the chart below. Royalties are
subject to netting and reduction from time to time to reflect various operating
costs, as reflected in the financial statements herein. All such Royalties
(other than the various operating costs, as reflected in the financial
statements) are payable from revenues which will constitute Partnership
Guarantors collateral.
ROYALTIES TO BE PAID TO ROYALTIES TO BE PAID TO
ROYALTY GUARANTOR PARTNERSHIP GUARANTORS
PROJECT % ENERGY % CAPACITY % ENERGY % CAPACITY
REVENUES REVENUES REVENUES REVENUES
Del Ranch 23.33 1.00 5.67 3.00
Elmore 23.33 1.00 5.67 3.00
Leathers 21.50 0.00 7.50 3.00
Vulcan 0.00 0.00 4.17 0.00
The Securities
The Funding Corporation is a Delaware corporation formed for the sole purpose of
issuing securities in our individual capacity as principal and as agent acting
on behalf of our affiliates, which guarantee the Securities.
The Funding Corporation has completed the following issuances and exchanges of
securities (together, the "Securities"):
* On July 21, 1995, the Funding Corporation issued (1) $232.75 million of
6.69% Senior Secured Series A Notes Due 2000 (the "Series A Securities"),
(2) $133 million of 7.37% Senior Secured Series B Bonds Due 2005 (the
"Series B Securities") and (3) $109.25 million of 7.84% Senior Secured
Series C Bonds Due 2010 (the "Series C Securities"). The Series A
Securities were repaid in full on May 30, 2000.
* On June 20, 1996, the Funding Corporation issued (1) $70 million of 7.02%
Senior Secured Series D Bonds Due 2000 (the "Series D Securities") and (2)
$65 million of 8.30% Senior Secured Series E Bonds Due 2011 (the "Series E
Securities"). The Series D Securities were repaid in full on May 30, 2000.
* On October 13, 1998, the Funding Corporation issued $285 million of
7.475% Senior Secured Series F Bonds Due 2018 (the "Series F Securities").
The Securities have received ratings of Ba3 by Moody's Investors Service, Inc.
("Moody's") and "BBB-" by Standard & Poor's Ratings Group ("S&P"). The
Securities will be equivalent in right of payment and in the right to share in
the collateral. On December 31, 2001, the aggregate principal amount of all
Securities outstanding was $520 million.
Structure of and Collateral for the Securities
The Funding Corporation will make payments on the Securities with the principal
of and interest paid on promissory notes issued by the Guarantors to the Funding
Corporation (the "Project Notes"). The Securities are secured by a pledge of our
capital stock and are guaranteed by the Guarantors. These guarantees are secured
by:
* in the case of the guarantee issued by the Salton Sea Guarantors, by a
lien on substantially all of the assets of the Salton Sea Guarantors and a
pledge of the equity interests in the Salton Sea Guarantors;
* in the case of the guarantee issued by the Partnership Guarantors, by a
lien on substantially all of the assets of the Partnership Project
Companies, a lien on the equity cash flows and royalties of the Initial
Partnership Guarantors and a pledge of the stock of and other equity
interests in the Partnership Guarantors; and
* in the case of the guarantee issued by the Royalty Guarantor, by a lien
on all royalties paid to the Royalty Guarantor and a pledge of the capital
stock of the Royalty Guarantor.
The guarantees issued by the Salton Sea Guarantors are unlimited. However, the
guarantees issued by the Partnership Guarantors and the Royalty Guarantor are
limited to the following amounts:
* for any Initial Partnership Guarantor or the Royalty Guarantor, the total
equity cash flows and royalties received by the Guarantor, minus, without
duplication, (1) any royalties paid, (2) all operating and maintenance
costs, (3) all capital expenditures and (4) debt service;
* for any Additional Partnership Guarantor, the total revenues received by
the Guarantor, minus, without duplication (1) any royalties paid, (2) all
operating and maintenance costs, (3) all capital expenditures and (4) debt
service.
The structure has been designed to cross-collateralize cash flows from each
Guarantor without cross-collateralizing all of the Guarantors' assets.
Therefore, if a Guarantor defaults under its guarantee or its promissory note
issued to the Funding Corporation, without causing a payment default on the
Securities, then the trustee may direct the collateral agent to exercise
remedies only with respect to the collateral securing that Guarantor's
obligations. If, however, the default causes a payment default on the
Securities, then the trustee may accelerate the Securities and direct the
collateral agent to exercise remedies against all of the collateral and, if
different, the collateral pledged by the Salton Sea Guarantors.
The Funding Corporation is a special purpose finance subsidiary of Magma. Its
ability to make payments on the Securities will be entirely dependent on the
Guarantors' performance of their obligations under the Project Notes and the
Guarantees. As is common in non-recourse, project finance structures, the assets
and cash flows of the Guarantors are the sole source of repayment of the Project
Notes and the Guarantees. The Salton Sea Guarantors conduct no other business
and own no other significant assets except those related to the ownership or
operation of the Salton Sea Projects. The Partnership Guarantors conduct no
business other than owning their respective ownership interests in the
Partnership Projects and providing operation, maintenance, administrative and
technical services for Magma, the Salton Sea Projects and the Partnership
Projects. The Royalty Guarantor has been organized solely to receive royalty
payments owed by the Partnership Projects and conducts no other business and
owns no other assets. In the event of a default by any Guarantor under a Project
Note, Credit Agreement or Guarantee, there is no assurance that the exercise of
remedies under such Project Note, Credit Agreement or Guarantee, including
foreclosure on the assets of such Guarantor, would provide sufficient funds to
pay such Guarantor's obligation under the Project Notes and the Guarantees.
Moreover, unless such default causes a payment default under the Indenture (in
which case remedies may be exercised against the defaulting Guarantor's and the
Salton Sea Guarantors' assets), remedies may be exercised only against the
assets of the defaulting Guarantors. No shareholders, partners or affiliates of
the Funding Corporation (other than the Guarantors) and no directors, officers
or employees of the Funding Corporation or the Guarantors will guarantee or be
in any way liable for the payment of the Securities, the Project Notes or the
Guarantees except the guarantee by MidAmerican for the direct and indirect
owners of the Zinc Recovery Project of a specified portion of the scheduled debt
service on the Series F Securities including the current principal amount of
approximately $139.9 million and associated interest. In addition, the
obligations of the Partnership Guarantors and the Royalty Guarantor under the
Guarantees are limited to the available cash flows of such Guarantors. As a
result, payment of amounts owed pursuant to the Project Notes, the Guarantees
and the Securities is dependent upon the availability of sufficient revenues and
royalty payments from the Guarantors' businesses or holdings, after the payment
of operating expenses and the satisfaction of certain other obligations.
Payment of Interest and Principal
The interest payment dates for the Securities are May 30 and November 30.
The remaining balance of the $133 million initial principal amount of the 7.37%
Series B Securities due May 30, 2005 is payable in semiannual installments as
follows:
PAYMENT DATE PERCENTAGE OF INITIAL
PRINCIPAL AMOUNT
PAYABLE
May 30, 2002 8.5330827068%
November 30, 2002 8.5330827068%
May 30, 2003 5.6390977444%
November 30, 2003 5.6390977444%
May 30, 2004 7.5781954887%
November 30, 2004 7.5781954887%
May 30, 2005 16.1684210526%
The $109.25 million initial principal amount of the 7.84% Series C Securities
due May 30, 2010 is payable in semiannual installments, commencing May 30, 2003,
as follows:
PAYMENT DATE PERCENTAGE OF
PRINCIPAL AMOUNT
PAYABLE
May 30, 2003 3.3116704805%
November 30, 2003 3.3116704805%
May 30, 2004 1.6558352403%
November 30, 2004 1.6558352403%
May 30, 2005 0.8283752860%
November 30, 2005 0.8283752860%
May 30, 2006 9.8572082380%
November 30, 2006 9.8572082380%
May 30, 2007 9.8425629291%
November 30, 2007 9.8425629291%
May 30, 2008 10.0851258581%
November 30, 2008 10.0851258581%
May 30, 2009 10.0118993135%
November 30, 2009 10.0118993135%
May 30, 2010 8.8146453090%
The remaining balance of the $65 million initial principal amount of the 8.30%
Series E Securities due May 30, 2011 is payable in semiannual installments as
follows:
PAYMENT DATE PERCENTAGE OF INITIAL
PRINCIPAL AMOUNT
PAYABLE
May 30, 2002 1.2307692308%
November 30, 2002 1.2307692308%
May 30, 2003 2.3076923077%
November 30, 2003 2.3076923077%
May 30, 2004 2.5000000000%
November 30, 2004 2.5000000000%
May 30, 2005 2.6923076923%
November 30, 2005 2.6923076923%
May 30, 2006 1.9230769231%
November 30, 2006 1.9230769231%
May 30, 2007 1.9230769231%
November 30, 2007 1.9230769231%
May 30, 2008 2.6923076923%
November 30, 2008 2.6923076923%
May 30, 2009 2.5000000000%
November 30, 2009 2.5000000000%
May 30, 2010 10.3846153846%
November 30, 2010 10.3846153846%
May 30, 2011 17.4184615384%
The remaining balance of the $285 million initial principal amount of the 7.475%
Series F Securities due November 30, 2018 is payable in semiannual installments
as follows:
PAYMENT DATE PERCENTAGE OF INITIAL
PRINCIPAL AMOUNT
PAYABLE
May 30, 2002 0.750%
November 30, 2002 0.750%
May 30, 2003 0.500%
November 30, 2003 0.500%
May 30, 2004 0.625%
November 30, 2004 0.625%
May 30, 2005 0.625%
November 30, 2005 0.625%
May 30, 2006 0.650%
November 30, 2006 0.650%
May 30, 2007 0.375%
November 30, 2007 0.375%
May 30, 2008 0.875%
November 30, 2008 0.875%
May 30, 2009 0.375%
November 30, 2009 0.375%
May 30, 2010 1.250%
November 30, 2010 1.250%
May 30, 2011 3.000%
November 30, 2011 3.000%
May 30, 2012 5.750%
November 30, 2012 5.750%
May 30, 2013 5.075%
November 30, 2013 5.075%
May 30, 2014 6.000%
November 30, 2014 6.000%
May 30, 2015 6.550%
November 30, 2015 6.550%
May 30, 2016 7.050%
November 30, 2016 7.050%
May 30, 2017 6.875%
November 30, 2017 6.875%
May 30, 2018 3.450%
November 30, 2018 3.450%
Priority of Payments
All revenues received by the Salton Sea Guarantors from the Salton Sea Projects,
all revenues received by the Partnership Guarantors and all Royalties received
by the Royalty Guarantor shall be paid into a Revenue Fund maintained by the
depository agent. Amounts paid into the Revenue Fund shall be distributed in the
following order of priority: (a) to pay operating and maintenance costs of the
Guarantors; (b) to pay certain administrative costs of the agents for the
secured parties under the Financing Documents; (c) to pay principal of, premium
(if any) and interest on the Securities and the debt service reserve bonds, if
any, and interest and certain fees payable to the debt service reserve letter of
credit provider; (d) to pay principal of debt service reserve letter of credit
loans and certain related fees and charges; (e) to replenish any shortfall in
the Debt Service Reserve Fund; (f) to pay certain breakage costs in respect of
debt service reserve letter of credit loans, and indemnification and other
expenses to the secured parties, and (g) to the Distribution Fund or
Distribution Suspense Fund, as applicable.
Debt Service Reserve Fund
The Funding Corporation is obligated at all times to maintain a Debt Service
Reserve Fund and/or an acceptable letter of credit. The Debt Service Reserve
Fund is funded from available funds in accordance with the priority of payments
until the aggregate amount of the fund and letter of credit are equal to:
* through December 31, 1999, the maximum semiannual principal and interest
payments on the Securities for the remaining term of the Securities;
* after December 31, 1999 through payment in full of the Initial Securities
and the Supplemental Securities, the maximum annual principal and interest
payments on the Securities for the remaining term of the Securities; and
* after payment in full of the Initial Securities and the Supplemental
Securities, (a) the maximum annual principal and interest payments on the
Series F Securities for the remaining term or (b) if we obtain a
confirmation of the current ratings of the Securities, the maximum
semiannual principal and interest payments on the Series F Securities.
The Debt Service Reserve Letter of Credit, which was being provided by Credit
Suisse First Boston, must be issued by a financial institution rated at least
"A" by S&P and "A2" by Moody's. As a result of the uncertainties related to
Edison, the letter of credit that supports the debt service reserve fund at
Salton Sea Funding Corporation has not been extended beyond its current 2004
expiration date, and as such cash distributions are not available to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately $67.6 million, has been funded or the letter of credit and has
been extended beyond its current 2004 expiration date or replaced.
Optional Redemption
The Series B Securities, Series C Securities, Series E Securities and Series F
Securities are subject to optional redemption, in whole or in part, pro rata at
par plus accrued interest to the redemption date plus a premium calculated to
"make whole" to comparable U.S. Treasury securities plus 50 basis points.
Mandatory Redemption
The Securities are subject to mandatory redemption, pro rata within each
maturity, at par plus accrued interest to the redemption date, (a) if a
permitted power contract buy-out occurs unless the rating agencies confirm the
then current rating of the Securities; (b) upon the acceleration of a Project
Note in an amount equal to the principal amount of such note plus accrued
interest; (c) upon the occurrence of certain events of loss, condemnation, title
defects or similar events related to the Salton Sea Projects or the Partnership
Projects; or (d) in certain circumstances if any New Project fails to achieve
substantial completion by the applicable guaranteed substantial completion date
or receives certain net performance liquidated damages under the construction
contract for such Project or (e) upon the foreclosure by the Collateral Agent of
collateral securing the Guarantor's obligations under the Salton Sea Guarantee,
the Partnership Guarantee or Royalty Guarantee.
Distributions
Distributions may be made only from and to the extent of monies on deposit in
the Distribution Fund. Such distributions are subject to the prior satisfaction
of the following conditions:
(a) the amounts contained in the Principal Fund and the Interest Fund
shall be equal to or greater than the aggregate scheduled principal
and interest payments next due on the Securities;
(b) no default or event of default under the Indenture shall have occurred
and be continuing;
(c) the debt service coverage ratio for the preceding four fiscal
quarters, measured as one annual period, is equal to or greater than
1.4 to 1, if such distribution date occurs prior to the year 2000,
and, if in or subsequent to the year 2000, is equal to or greater than
1.5 to 1, as certified by an officer of the Funding Corporation;
(d) the projected debt service coverage ratio of the Securities for the
succeeding four fiscal quarters measured as one annual period is equal
to or greater than 1.4 to 1, if such distribution date occurs prior to
the year 2000, and, if such distribution date occurs in or subsequent
to the year 2000, is equal to or greater than 1.5 to 1, as certified
by an officer of the Funding Corporation;
(e) the debt service reserve fund shall have a balance equal to or greater
than the debt service reserve fund required balance or one or more
Debt Service Reserve Letter (or Letters) of Credit at least equal to
(collectively with the balance, if any, in the Debt Service Reserve
Fund) the debt service reserve fund required balance;
(f) an officer of the Funding Corporation provides a certificate (based on
customary assumptions) that there are sufficient geothermal resources
to operate the Salton Sea Projects and the Partnership Projects at
contract capacity through the final maturity date of the Securities;
and
(g) substantial completion of each New Project shall have occurred on or
prior to such New Project's guaranteed substantial completion date
unless the required amount of Securities shall have been redeemed as
described above under "Mandatory Redemption" or (ii) the rating
agencies shall have confirmed that no rating downgrade would result
from such delay; provided that such condition will apply to a New
Project only (x) after such New Project's guaranteed substantial
completion date or (y) if such New Project has been abandoned.
Incurrence of Additional Debt
The Funding Corporation shall not incur any debt other than "Permitted Debt".
"Permitted Debt" means:
(a) The Securities;
(b) Debt incurred to acquire the East Mesa Project in whole or in part;
provided that no such Debt may be incurred unless at the time of such
incurrence (i) no default or event of default has occurred and is
continuing and (ii) the rating agencies confirm that the incurrence of
such debt will not result in a rating downgrade;
(c) Debt incurred to develop, construct, own, operate or acquire
additional permitted facilities in the Imperial Valley ("Additional
Projects"); provided that no such debt may be incurred unless at the
time of such incurrence (i) no default or event of default has
occurred and is continuing and (ii) the rating agencies confirm that
the Securities will maintain an investment grade rating after giving
effect to such debt;
(d) Debt incurred to finance the making of capital improvements to the
Salton Sea Projects, the Partnership Projects or Additional Projects
required to maintain compliance with applicable law or anticipated
changes therein; provided that no such debt may be incurred unless at
the time of such incurrence the independent engineer confirms as
reasonable (i) a certification by the Funding Corporation (containing
customary qualifications) that the proposed capital improvements are
reasonably expected to enable such Project to comply with applicable
or anticipated legal requirements and (ii) the calculations of the
Funding Corporation that demonstrate, after giving effect to the
incurrence of such debt, the minimum projected debt service coverage
ratio (x) for the next four consecutive fiscal quarters, commencing
with the quarter in which such debt is incurred, taken as one annual
period, and (y) for each subsequent fiscal year through the final
maturity date, will not be less than 1.2 to 1;
(e) Debt incurred to finance the making of capital improvements to the
Salton Sea Projects, the Partnership Projects or Additional Projects
not required by applicable law so long as after giving effect to the
incurrence of such debt (i) no default or event of default has occurred
and is continuing, and (ii) (A) the independent engineer confirms as
reasonable (x) the calculations of the Funding Corporation that
demonstrate that the minimum projected debt service coverage ratio for
the next four consecutive quarters, taken as one annual period, and
each subsequent fiscal year, will not be less than 1.4 to 1, and (y)
the calculations of the Funding Corporation that demonstrate the
average projected debt service coverage ratio for all succeeding fiscal
years until the final maturity date will not be less than 1.7 to 1 or
(B) the Rating Agencies confirm that the incurrence of such debt will
not result in a rating downgrade;
(f) Working capital debt in an aggregate amount not to exceed $15,000,000;
(g) Debt incurred under the Debt Service Reserve LOC Reimbursement
Agreement;
(h) Debt incurred in connection with certain permitted interest rate swap
arrangements;
(i) Debt incurred by the Funding Corporation in an aggregate amount not to
exceed $30,000,000, in connection with the development, construction,
ownership, operation, maintenance or acquisition of Permitted
Facilities; and
(j) Subordinated debt from affiliates in an aggregate amount not to exceed
$200,000,000 which shall be used to finance capital, operating or
other costs with respect to the Projects or Additional Projects.
All Permitted Debt incurred by the Funding Corporation shall be loaned to the
Guarantors and guaranteed by the Guarantors.
Principal Indenture Covenants
Principal covenants under the Indenture require the Funding Corporation to
agree, except as permitted under the Indenture, (a) not to exercise any remedies
or waive any defaults under the Credit Agreements and the Project Notes, except
as otherwise permitted under the Indenture; (b) not to incur (i) any Debt except
Permitted Debt or (ii) any Lien upon any of its properties except Permitted
Liens and (c) not to enter into any transaction of merger or consolidation or
change its form of organization or its business.
Principal Credit Agreement Covenants
Principal covenants under the Credit Agreements require each Guarantor to agree,
subject to certain exceptions and qualifications, (a) not to enter into any
transaction of merger or consolidation, change its form of organization,
liquidate, wind-up or dissolve itself; (b) not to enter into non-arm's length
transactions or agreements with Affiliates; (c) not to incur (i) any debt except
Permitted Guarantor Debt and (ii) any liens except for permitted liens; (d) not
to engage in any business other than as contemplated by the respective Credit
Agreement; and (e) not to amend, terminate or otherwise modify the Project
Documents to which they are a party except as permitted under the respective
Credit Agreements. In addition to these principal covenants, in the Salton Sea
Credit Agreement and the Partnership Credit Agreement, the Salton Sea Guarantors
and the Partnership Guarantors have agreed (a) not to sell, lease or transfer
any property or assets material to the Salton Sea Projects or the Partnership
Projects, as applicable, except in the ordinary course of business; and (b) to
maintain insurance as is generally carried by companies engaged in similar
businesses and owning similar properties.
Considerations Regarding Limitation on Remedies
A significant portion of the proceeds of the Initial Offering were distributed
to MidAmerican to repay certain non-recourse indebtedness incurred by
MidAmerican in connection with the acquisition of Magma (including the
Guarantors). The Royalty Guarantor has purchased an assignment of the royalties
from Magma pursuant to the Magma Assignment Agreement. Magma has also agreed to
make certain payments to CEOC pursuant to the Magma Services Agreement and to
secure such payment obligation with a collateral assignment of certain cash
flows. The Guarantors have executed Guarantees with respect to the entire amount
of Securities. Under certain circumstances (including a proceeding under Title
11 of the United States Code or any similar proceeding), it is possible that a
creditor of a Guarantor or Magma could make a claim, under federal or state
fraudulent conveyance laws, that the Funding Corporation's claims under the
Credit Agreements, the Security Holders' claims under the Guarantees, the
Royalty Guarantor's interest pursuant to the Magma Assignment Agreement or
CEOC's rights under the Magma Services Agreement should be subordinated or not
enforced in accordance with such instruments' terms or that payments thereunder
(including payments to the Holders of the Securities) should be recovered. In
order to prevail on such a claim, a claimant would have to demonstrate that the
obligations incurred under any Guarantor's Credit Agreement or Guarantee or the
transfers made under the Magma Assignment Agreement or the Magma Services
Agreement were not incurred in good faith or that any Guarantor or Magma did not
receive fair consideration in connection with such obligations and transfers,
and that any Guarantor or Magma is and was insolvent at the time of entering
into the Credit Agreement, Guarantee, the Magma Assignment Agreement and/or the
Magma Services Agreement or that it did not have and will not have sufficient
capital for carrying on its business or was not and will not be able to pay its
debts as they mature.
Power Price and Sales Uncertainty
The Power Purchase Agreements pursuant to which each of the Vulcan, Del Ranch,
Elmore, Leathers, Salton Sea II and Salton Sea III Projects sell electricity to
Edison are SO4 Agreements. These agreements provide for both capacity payments
and energy payments for a term of 30 years. While the basis for the capacity
payment is fixed for the entire 30-year term, the price of energy payments is
fixed only for the first ten years of the term. Thereafter, the required energy
payment converted to Edison's Avoided Cost of Energy, as determined by a
methodology approved by, and subject to change by, the California Public Utility
Commission. In June and November 2001, the Imperial Valley Projects, which
receive Edison's Avoided Cost of Energy entered into agreements that provide for
amended energy payments under the SO4 Agreements. The amendments provide for
fixed energy rate in lieu of Edison's Avoided Cost of Energy. The fixed energy
payment is 3.25 cents/kWh from December 1, 2001 through April 30, 2002 and 5.37
cents/kWh commencing May 1, 2002 for a five-year period. Following the five-year
period, the energy payments revert back to Edison's Avoided Cost of Energy.
For the year ended December 2001, 2000 and 1999, Edison's average avoided cost
of energy was 7.4 cents, 5.8 cents and 3.1 cents per kWh, respectively.
Estimates of Edison's future avoided cost of energy vary substantially from year
to year. The Funding Corporation and the Guarantors cannot predict the likely
level of avoided cost of energy prices under these agreements.
Although approximately one-third of the net electrical output of Salton Sea V
will be sold for use by the Zinc Recovery Project pursuant to a power purchase
agreement and power from the Turbo Project may also be used by the Zinc Recovery
Project pursuant to a separate power purchase agreement, neither Salton Sea V
nor the Turbo Project currently has any power sales agreements for any portion
of the capacity of such Projects. The strategy for Salton Sea V and the Turbo
Project is to sell output not needed by the Zinc Recovery Project in short term
transactions through established energy markets or in such other transactions
from time to time as may be found to be more advantageous than those conducted
through established energy markets. Energy prices are expected to have the
characteristics of short-term spot prices and to fluctuate from time to time in
a manner that cannot be predicted with accuracy and is not within the control of
the Funding Corporation, the Guarantors or any other person.
Reliance on Single Utility Customer
Each of the Vulcan, Del Ranch, Elmore, Leathers and Salton Sea I-IV Projects
relies on an agreement with Edison to generate 100% of its operating revenues.
The payments (excluding those for power sales from March 22 through June 22,
2001) under these agreements have constituted 100% of the operating revenues of
each Project since its inception, and may do so for the life of the Securities.
Any material failure of Edison to fulfill its contractual obligations under the
Power Purchase Agreements could have a material adverse effect on the ability of
the Funding Corporation to pay principal of and interest on the Securities.
Zinc Price and Sales Uncertainty
In September 1999, Minerals LLC entered into a sales agreement whereby all
high-grade zinc produced by the Zinc Recovery Project will be sold to Cominco,
Ltd. The initial term of the agreement expires in December 2005.
Because most of the Zinc Recovery Project's revenues will be derived from the
sale of zinc, earnings will be directly related to the price of zinc in the
domestic and world markets. However, zinc prices fluctuate and are affected by
numerous factors, including expectations of inflation, speculative activities,
currency exchange rates, interest rates, global and regional demand and
production, political and economic conditions, discovery of new deposits, and
production costs in major producing regions. The aggregate effect of these
factors, all of which are beyond the control of the Funding Corporation or the
Guarantors, is impossible for the Funding Corporation to predict.
Construction Uncertainty
Although several of the power projects have been operating for a number of
years, the Zinc Recovery Project is currently in construction and is subject to
customary risks associated with the construction of metals processing plants
including risks of delays in completion, cost overruns and failures to perform
in accordance with contract terms. In addition, while each of the individual
process steps to be utilized in the Zinc Recovery Project (including ion
exchange, solvent extraction and electrowinning) has been in operation for more
than twenty years and the demonstration plant at the SSKGRA has successfully
recovered zinc through this integrated process, the integrated process for the
production of zinc from geothermal brine has not been attempted in a large scale
commercial facility. Any material unremedied delay in or unsatisfactory
completion of the Zinc Recovery Project could have an adverse effect on the
applicable Guarantors' results of operations.
Uncertainties Relating to Exploration and Development of Geothermal Energy
Resources
Geothermal exploration, development and operations are subject to uncertainties,
which vary among different geothermal reservoirs and are similar to those
typically associated with oil and gas exploration and development, including dry
holes and uncontrolled releases. Because of the geological complexities of
geothermal reservoirs, the geographic area and sustainable output of geothermal
reservoirs can only be estimated and cannot be definitively established. There
is, accordingly, a risk of an unexpected decline in the capacity of geothermal
wells and a risk of geothermal reservoirs not being sufficient for sustained
generation of the electrical power capacity desired.
In addition, both the cost of operations and the operating performance of
geothermal power plants may be adversely affected by a variety of operating
factors. Production and injection wells can require frequent maintenance or
replacement. Corrosion caused by high-temperature and high-salinity geothermal
fluids may require the replacement or repair of certain equipment, vessels or
pipelines. New production and injection wells may be required for the
maintenance of current operating levels, thereby requiring substantial capital
expenditures.
Insurance
The Salton Sea Projects and the Partnership Projects currently possess property,
business interruption, catastrophic and general liability insurance. Proceeds of
insurance received in connection with the Salton Sea Projects will be payable to
the Depositary for the account of the Salton Sea Guarantors and will be applied
as required under the financing documents. There can be no assurance that such
comprehensive insurance coverage will be available in the future at commercially
reasonable costs or terms or that the amounts for which the Salton Sea
Guarantors and the Partnership Guarantors are or will be insured will cover all
potential losses.
Because geothermally active areas such as the area in which the Projects are
located are subject to frequent low-level seismic disturbances, and serious
seismic disturbances are possible, the power generating plants and other
facilities at the Projects are designed and built to withstand relatively
significant levels of seismic disturbance. However, there is no assurance that
seismic disturbances of a nature and magnitude so as to cause material damage to
the Projects or gathering systems or a material change in the nature of the
geothermal resource will not occur, that insurance with respect to seismic
disturbances will be maintained by or on behalf of all of the Projects, that
insurance proceeds will be adequate to cover all potential losses sustained, or
that insurance will continue to be available in the future in amounts adequate
to insure against such seismic disturbances.
Regulatory and Environmental Matters
The Guarantors are subject to a number of environmental laws and regulations
affecting many aspects of their present and future operations, including the
disposal of various forms of materials resulting from geothermal reservoir
production and the drilling and operation of new wells. Such laws and
regulations generally require the Guarantors to obtain and comply with a wide
variety of licenses, permits and other approvals. In addition, regulatory
compliance for the construction of new facilities is a costly and time-consuming
process, and intricate and rapidly changing environmental regulations may
require major expenditures for permitting and create the risk of expensive
delays or material impairment of project value if projects cannot function as
planned due to changing regulatory requirements or local opposition. The
Guarantors and the Projects also remain subject to a varied and complex body of
environmental and energy regulations that both public officials and private
individuals may seek to enforce. There can be no assurance that existing
regulations will not be revised or that new regulations will not be adopted or
become applicable to the Guarantors and the Projects which could have an adverse
impact on their operations. In particular, the independent power market in the
United States is dependent on the existing energy regulatory structure,
including the Public Utility Regulatory Policies Act and its implementation by
utility commissions in the various states. The structure of such federal and
state energy regulations has in the past, and may in the future, be the subject
of various challenges and restructuring proposals by utilities and other
industry participants. The implementation of regulatory changes in response to
such challenges or restructuring proposals, or otherwise imposing more
comprehensive or stringent requirements on the Guarantors and Projects, which
would result in increased compliance costs could have a material adverse effect
on the Guarantors' and the Projects' results of operations.
Employees
Employees necessary for the operation of the Salton Sea Projects and the
Partnership Projects are provided by CEOC. As of December 31, 2001, CEOC
employed 232 people at the Salton Sea Projects and the Partnership Projects,
collectively. CEOC maintains a qualified technical staff covering a broad range
of disciplines including geology, geophysics, geochemistry, hydrology,
volcanology, drilling technology, reservoir engineering, plant engineering,
construction management, maintenance services, production management and
electric power operation. CEOC employees are not covered by any collective
bargaining agreement. The Funding Corporation believes that CEOC's employee
relations are good.
Item 2. Properties
See page 4 for a schedule of the Guarantors' facilities.
Item 3. Legal Proceedings
In addition to the proceedings described below, some of the projects are
currently parties to various minor items of litigation in the normal course of
business none of which, if determined adversely, would have a material adverse
effect on those projects financial position, results of operations or cash
flows.
Southern California Edison/California Power Exchange- Past Due Amounts
Edison, a wholly owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The Funding
Corporation is aware that there have been public announcements that Edison's
financial condition has deteriorated as a result of reduced liquidity. Following
Edison's recent financing Edison's senior unsecured debt obligations were
upgraded to Ba3 by Moody's and BB by S&P.
Edison failed to pay approximately $119 million due under the power purchase
agreements with certain Guarantors (Imperial Valley Projects, excluding the
Salton Sea V and Turbo Projects) for power delivered in November and December
2000 and January, February and March 2001, although the Power Purchase
Agreements provide for billing and payment on a schedule where payments would
have normally been received in early January, February, March, April and May
2001.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in
California's Imperial County Superior Court seeking a court order requiring
Edison to make the required payments under the Power Purchase Agreements. The
lawsuit also requested, among other things, that the court order permit these
Guarantors to suspend deliveries of power to Edison and to permit the Guarantors
to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary
Adjudication and a Declaratory Judgment ordering that: 1) under the Power
Purchase Agreements, Guarantors have the right to temporarily suspend deliveries
of capacity and energy to Edison, 2) Guarantors are entitled to resell the
energy and capacity to other purchasers and 3) the interim suspension of
deliveries to Edison shall not in any respect result in the modifications or
termination of the Power Purchase Agreements and the Power Purchase Agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.
As a result of the March 22, 2001 Declaratory Judgment, the Guarantors'
suspended deliveries of energy to Edison and entered into a transaction
agreement with EPME, in which the Guarantors' available power was sold to EPME
based on percentages of the Dow Jones SP-15 Index. On June 18, 2001, the
Superior Court prospectively vacated its order authorizing the Guarantors' to
resell power.
On June 20, 2001, the Guarantors' (excluding Salton Sea V and CE Turbo) entered
into Agreements Addressing Renewable Energy Pricing and Payment Issues with
Edison ("Settlement Agreements") and, as a result, resumed power sales to Edison
on June 22, 2001. The Settlement Agreements required that Edison make an initial
payment to repay the past due balances under the Power Purchase Agreements (the
"stipulated amounts"). The initial payment of approximately $11.6 million, which
represented 10% of the stipulated amounts, was received June 22, 2001. On
October 2, 2001, the California Public Utilities Commission ("CPUC") announced
an agreement with Edison that allowed Edison to recover in retail electric rates
its past due obligations. On November 30, 2001, the Settlement Agreements were
amended to reflect when Edison would be required to make the final payment on
past due amounts. On March 1, 2002, Edison obtained $1.8 billion in secured
financing that, when combined with cash on hand, enabled Edison to pay off its
past due debts. The final payment of approximately $104.6 million, representing
the remaining stipulated amounts, was received March 1, 2002. In addition to
these payments, Edison was required to make monthly interest payments calculated
at a rate of 7% per annum on the outstanding stipulated amounts. The amended
Settlement Agreements provide a revised energy pricing structure, whereby Edison
elects to pay the Guarantors' a fixed energy price in lieu of the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. The fixed energy price is 3.25 cents/kWh from December 2001 through
April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year period.
Following the five-year period, the energy payments revert back to the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. Estimates of Edison's future avoided cost of energy vary
substantially from year to year.
As a result of the uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended beyond its current 2004 expiration date, and as such cash
distributions are not available to CE Generation until the Salton Sea Funding
Corporation debt service reserve fund of approximately $67.6 million, has been
funded or the letter of credit and has been extended beyond its current 2004
expiration date or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea Unit V and Turbo Projects have not received payment for
power sold under the Transaction Agreements during December 2000 and January
2001 of approximately $3.0 million.
The Guarantors are contractually entitled to receive payments under the Power
Purchase Agreements, Settlement Agreements and Transactions Agreements. However,
due to the uncertainties associated with Edison's financial condition and
failure to pay contractual obligations at December 31, 2001, along with the
California Power Exchange bankruptcy, the Guarantors have established an
allowance for doubtful accounts of approximately $9.8 million on December 31,
2001. The allowance for doubtful accounts has been recorded as a reduction of
net sales in the statement of operations.
Southern California Edison - Capacity Bonus Payments
Edison has failed to pay approximately $1.3 million of capacity bonus payments
for the months of October, November and December 2001. On December 10, 2001,
certain Guarantors filed a lawsuit against Edison in California's Imperial
County Superior Court seeking a court order requiring Edison to make the
required capacity bonus payments under the Power Purchase Agreements. The
Guarantors will vigorously pursue collection of the capacity bonus payments.
Kvaerner Arbitration
The Zinc Recovery Project was being constructed by Kvaerner U.S. Inc.
("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering,
procure, construct and manage contract (the "Zinc Recovery Project EPC
Contract"). On June 14, 2001, Minerals LLC issued notices of default termination
and demand for payment of damages to Kvaerner under the Zinc Recovery Project
EPC Contract due to failure to meet performance obligations. As a result of
Kvaerner's failure to pay monetary obligations under the Zinc Recovery EPC
contract, the Guarantors drew $29.6 million under the EPC contract letter of
credit on July 20, 2001. The liquidated damages have been accounted for as a
reduction of the capitalized costs of the project. The Guarantors have entered
into a time and materials reimbursable engineer, procure and construction
management contract with AMEC E&C Services, Inc. to complete the Zinc Recovery
Project.
On July 11, 2001, Kvaerner filed an Amended Demand for Arbitration against
Minerals LLC characterizing the nature of the dispute as concerns regarding
change orders and performance penalties. Kvaerner did not state the amount of
its claim.
On August 7, 2001, Minerals filed an Answering Statement and Counterclaim
against Kvaerner. Minerals LLC denied all material allegations in Kvaerner's
Amended Demand for Arbitration, and asserted a counterclaim against Kvaerner for
breach of contract and specific performance. Minerals LLC alleged that its total
estimated damage for Kvaerner's breach of contract are in excess of
approximately $60 million; however, Minerals LLC has offset approximately $42.5
million of these damages by exercising its rights under the EPC Contract to
claim the retainage and by drawing on a letter of credit, Therefore, Minerals
LLC asked for a judgment in excess of approximately $20 million. The arbitration
is scheduled for June 2002.
Stone and Webster
The Salton Sea V and Turbo Projects were constructed by Stone and Webster, Inc.
(formerly Stone & Webster Engineering Corporation), a wholly-owned subsidiary of
the Shaw Group ("Stone & Webster"), pursuant to date certain, fixed-price,
turnkey engineering, procure, construct and manage contracts (collectively, the
"Salton Sea V and Turbo Projects EPC Contracts"). On March 7, 2002, Salton Sea
Power L.L.C., Vulcan/BN Geothermal Power Company, Del Ranch, L.P., and CE Turbo
L.L.C., the owners of the Salton Sea V and Turbo Projects, filed a Demand for
Arbitration against Stone & Webster for breach of contract and breach of
warranty arising from deficiencies in Stone & Webster's design, engineering,
construction and procurement of equipment for the Salton Sea V and Turbo
Projects pursuant to the Salton Sea V and Turbo Projects EPC Contracts. The
Demand for Arbitration did not include a stated claim amount. The arbitration is
scheduled for June 2002.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder's Matters
Not applicable.
Item 6. Selected Financial Data
Salton Sea Funding Corporation
The following tables set forth selected historical financial and operating data
of the Funding Corporation. The data should be read in conjunction with the
financial statements and related notes and other financial information appearing
elsewhere in this Form 10-K (in thousands).
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998(1) 1997
- ---------------------------------------------------------------------------------------------------------------
Total revenues $ 41,791 43,718 $48,538 $39,329 $40,674
Income (loss) before cumulative effect of
change in accounting principle (37) 174 1,123 1,783 1,461
Net income (loss) (137) 174 1,123 1,783 1,461
Total assets $ 540,580 $565,375 $585,648 $659,337 $474,289
Senior secured notes and bonds 520,250 543,908 568,980 626,816 448,754
Total liabilities 527,482 552,140 572,587 647,399 464,134
Total stockholder's equity 13,098 13,235 13,061 11,938 10,155
(1) On October 13, 1998 Funding Corporation issued additional securities of $285
million of Salton Sea Notes and Bonds Series F.
Salton Sea Guarantors
The following tables set forth selected historical combined financial and
operating data of the Salton Sea Guarantors. The data should be read in
conjunction with the financial statements and related notes and other financial
information appearing elsewhere in this Form 10-K (in thousands).
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
2001 2000(1) 1999(2) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Sales of electricity $ 110,941 $ 98,057 $ 81,850 $ 106,274 $ 106,252
Total revenues 113,228 98,410 83,718 107,091 106,425
Income (loss) before cumulative effect of
change in accounting principle (807) 28,323 23,045 45,939 42,816
Net income (loss) (9,550) 28,323 23,045 45,939 42,816
Total assets 599,378 626,543 633,014 628,515 556,353
Senior secured project note 266,899 284,217 293,954 310,030 266,208
Total liabilities 277,793 295,048 329,842 348,388 322,165
(1) Salton Sea V commenced operations in the third quarter of 2000.
(2) The decrease in revenue and net income in 1999 was primarily due to
the expiration of the fixed price period for the Salton Sea III
Project.
Partnership Guarantors
The following tables set forth selected historical combined financial and
operating data of the Partnership Guarantors. The data should be read in
conjunction with the financial statements and related notes, and other financial
information appearing elsewhere in this Form 10-K (in thousands).
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------
2001 2000(1) 1999(2) 1998 1997
- -----------------------------------------------------------------------------------------------------
Sales of electricity $119,738 $103,250 $105,921 $165,779 $158,125
Total revenues 126,318 108,184 114,988 172,565 162,315
Income before cumulative effect of
change in accounting principles 22,975 27,180 25,481 37,134 33,637
Net income 16,085 27,180 25,481 37,134 33,637
Total assets 938,342 921,701 901,892 907,819 736,783
Senior secured project note 248,742 250,650 261,212 293,576 143,610
Total liabilities 370,763 370,207 377,578 408,986 275,084
(1) Turbo commenced operations in the third quarter of 2000.
(2) The decrease in revenue and net income in 1999 was primarily due to
the expiration of the fixed price periods for the Elmore and Del Ranch
Projects.
Royalty Guarantor
The following tables set forth selected historical financial and operating data
of the Royalty Guarantor. The data should be read in conjunction with the
financial statements and related notes and other financial information appearing
elsewhere in this Form 10-K (in thousands).
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------
2001 2000 1999 1998(1) 1997
- ------------------------------------------------------------------------------------------------------
Total revenues $16,882 $14,130 $26,274 $51,703 $32,231
Net income 10,092 7,352 19,222 19,497 8,661
Total assets 79,300 73,670 71,116 77,432 86,009
Senior secured project note 4,607 9,041 13,814 23,210 38,934
Total liabilities 4,636 9,098 13,896 39,434 67,508
(1) In 1998, the Royalty Guarantor received $25 million in a settlement
related to the Geo East Mesa payments.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform Act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Company to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In connection with the safe harbor provisions of the Reform Act, the Company has
identified important factors that could cause actual results to differ
materially from such expectations, including development and construction
uncertainty, operating uncertainty, acquisition uncertainty, uncertainties
relating to geothermal resources, uncertainties relating to economic and
political conditions and uncertainties regarding the impact of regulations,
changes in government policy, industry deregulation and competition. Reference
is made to all of the Company's SEC filings, incorporated herein by reference,
for a description of such factors. The Company assumes no responsibility to
update forward-looking information contained herein.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make judgments, assumptions and estimates that affect the amounts
reported in the Consolidated Financial Statements and accompanying notes. Note 2
to the Consolidated Financial Statements in this Annual Report on Form 10-K
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Estimates are used for,
but not limited to, the accounting for the allowance for doubtful accounts,
impairment of long-lived assets and contingent liabilities. Actual results could
differ from these estimates. The following critical accounting policies are
impacted significantly by judgments, assumptions and estimates used in the
preparation of the Consolidated Financial Statements.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is based on the Company's assessment of the
collectibility of specific customer accounts and the aging of the accounts
receivable. If there is a deterioration of a major customer's credit worthiness
or actual defaults are higher than the Company's historical experience,
estimates of the recoverability of amounts due could be adversely affected.
Impairment of Long-Lived Assets
The Guarantors' long-lived assets consist primarily of property, plant and
equipment, goodwill and intangible assets that were acquired in business
acquisitions. The Guarantors believe the useful lives we assigned to these
assets, which range from 3 to 40 years, are reasonable. The Guarantors evaluate
the long-lived assets for impairment when events or changes in circumstances
indicate, in management's judgment, that the carrying value of such assets may
not be recoverable. These computations utilized judgments and assumptions
inherent in management's estimate of undiscounted future cash flows to determine
recoverability of an asset. If the Guarantors assumptions about these assets
change as a result of events or circumstances, and the Guarantors believe the
assets may have declined in value, then the Guarantors may record impairment
charges, resulting in lower profits.
Contingent Liabilities
The Guarantors are subject to the possibility of various loss contingencies
arising in the ordinary course of business. The Guarantors consider the
likelihood of the loss or impairment of an asset or the incurrence of a
liability as well as the ability to reasonably estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred or an asset has been impaired and
the amount of loss can be reasonably estimated. The Guarantors regularly
evaluate current information available to determine whether such accruals should
be adjusted.
Factors Affecting Results of Operations
The periodic results of operations for the Guarantors are influenced to varying
degrees by a number of factors, principally the level of revenues received under
the power purchase agreements, project capacity utilization, the level of
operating expenses and capital expenditures.
Capacity Utilizations
For purposes of consistency in financial presentation, plant capacity factors
for Vulcan, Del Ranch, Turbo, Elmore and Leathers plants are based on capacity
amounts of 34, 38, 10, 38, and 38 net MW respectively, and for Salton Sea I,
Salton Sea II, Salton Sea III, Salton Sea IV, and Salton Sea V plants, are based
on nominal capacity amounts of 10, 20, 49.8, 39.6 and 49 net MW, respectively.
Each plant possesses an operating margin, which allows for production in excess
of the amounts listed above. Utilization of this operating margin is based upon
a variety of factors and can be expected to vary throughout the year under
normal operating conditions.
The following operating data represents the aggregate capacity and electricity
production of Salton Sea I and II, Salton Sea III, Salton Sea IV and Salton Sea
V:
Years Ended December 31,
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Overall capacity factor 80.1% 76.1% 91.9%
Capacity NMW (weighted average) 168.4 146.1 119.4
Kwh produced (in thousands) 1,180,900 976,500 960,800
- --------------------------------------------------------------------------------
The following operating data represents the aggregate capacity and electricity
production of Vulcan, Del Ranch, Elmore, Leathers and Turbo:
Years Ended December 31,
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Overall capacity factor 100.0% 98.8% 103.4%
Capacity NMW (weighted average) 158.0 152.1 148.0
Kwh produced (in thousands) 1,384,700 1,320,300 1,339,900
- --------------------------------------------------------------------------------
Results of Operations for the Years Ended December 31, 2001, 2000 and 1999
Revenues
The Salton Sea Guarantors' sales of electricity increased to $110.9 million for
the year ended December 31, 2001 from $98.1 million for the same period in 2000.
The increase was primarily due to higher energy rates in 2001, the start up of
Salton Sea V in the third quarter of 2000 and scheduled overhauls in 2000, which
were more extensive compared to 2001. Due to uncertainties associated with
Edison's financial condition and failure to pay, the Salton Sea Guarantors have
established an allowance for doubtful accounts of approximately $9.8 million,
which reduced revenues in 2001 compared to 2000. The Salton Sea Guarantors'
sales of electricity increased to $98.1 million for the year ended December 31,
2000 from $81.9 million for the same period in 1999. The increase was due to the
addition of Salton Sea V and higher avoided cost rates.
The Salton Sea Guarantors interest and other income increased to $2.3 million in
2001 from $.4 million in 2000. The increase was due to interest income earned on
past due balances from Edison. Interest and other income decreased to $.4
million in 2000 from $1.9 million in 1999. The decrease was due to lower cash
balances.
The Partnership Guarantors' sales of electricity increased to $119.7 million for
the year ended December 31, 2001 from $103.3 million for the same period in
2000. The increase was due to higher energy rates, the start up of CE Turbo in
the third quarter of 2000 and more production due to fewer outages compared to
2000. Due to uncertainties associated with Edison's financial conditions and
failure to pay, the Partnership Guarantors have established an allowance for
doubtful accounts of approximately $14.9 million, which reduced income in 2001
compared to 2000. The Partnership Guarantors' sales of electricity decreased to
$103.3 million for the year ended December 31, 2000 from $105.9 million for the
same period in 1999. The decrease is due to the end of the fixed price period at
Leathers partially offset by the addition of Turbo and higher avoided cost
rates.
Interest and other income for the Partnership Guarantors increased to $6.6
million for the year ended December 31, 2001 from $4.9 million for the same
period in 2000. The increase was due to interest income earned on past due
balances from Edison. Interest and other income for the Partnership Guarantors
decreased to $4.9 million for the year ended December 31, 2000 from $9.1 million
for 1999. The decrease was due to lower interest income on reduced restricted
cash balances, which were depleted by construction expenditures.
The Royalty Guarantor revenue increased to $16.9 million for the year ended
December 31, 2001 from $14.1 million for the same period in 2000. The increase
was the result of higher energy sales at the Partnership Projects resulting in
higher revenues. The Royalty Guarantor revenue decreased to $14.1 million for
the year ended December 31, 2000 from $26.3 million for the same period in 1999.
The decrease was the result of the lower energy sales at the Partnership
Projects resulting in lower royalties and the realization of deferred revenue of
$9.3 million related to the East Mesa settlement in 1999.
Operating Expenses
The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and administrative expenses, increased to $61.6 million for the year
ended December 31, 2001, from $40.8 million for the same period in 2000 and
$28.8 million for the same period in 1999. The increase in expenses from 2000 to
2001 was primarily due to higher operating costs resulting from Salton Sea V
costs for an entire year, higher brine disposal costs and higher royalty costs
due to higher revenue. The increase from expenses from 1999 to 2000 was
primarily due to higher operating costs resulting from Salton Sea V start up
activities and higher brine disposal costs.
The Partnership Guarantors' operating expenses, which include royalty,
operating, and general and administrative expenses, increased to $62.7 million
for the year ended December 31, 2001, from $53.0 million for the same period in
2000 and $48.0 million for the same period in 1999. The increase in costs from
2000 to 2001 was due primarily to higher royalty expense due to higher revenue,
start up of the Turbo Project in the third quarter of 2000 and higher brine
disposal costs. The increase in costs from 1999 to 2000 was associated with zinc
plant commissioning costs.
The Royalty Guarantor's operating expenses increased to $4.4 million for the
year ended December 31, 2001 from $3.9 million for the same period of 2000. The
increase was due to higher royalties from higher energy revenue from the
Partnership projects. The Royalty Guarantor's operating expenses decreased to
$3.9 million for the year ended December 31, 2000 from $4.6 million for the same
period of 1999. The decrease was due to scheduled decreases in third party
lessor royalties related to the decreases in the Partnership Projects' sales of
electricity.
Depreciation and Amortization
The Salton Sea Guarantors' depreciation and amortization increased to $17.3
million for the year ended December 31, 2001 from $16.0 million for the year
ended December 31, 2000. The increase was due to a full year of depreciation at
Salton Sea V. The Salton Sea Guarantors' depreciation and amortization decreased
to $16.0 million for the year ended December 31, 2000 from $16.9 million for the
same period in 1999. The decrease was due to an adjustment in the step up
depreciation charges after the end of the fixed price period, partially offset
by depreciation on Salton Sea V.
The Partnership Guarantors' depreciation and amortization increased to $22.8
million for the year ended December 31, 2001 from $19.7 million for the same
period in 2000. The increase was primarily due to the upgraded brine handling
system and the start up of the Turbo Project in the third quarter of 2000. The
Partnership Guarantors' depreciation and amortization decreased to $19.7 million
for the year ended December 31, 2000 from $22.6 million for the year ended
December 31, 1999. The decrease was primarily due to reduced step up
depreciation after the end of the fixed price periods for the Leathers project
as a result of greater value being assigned to the scheduled price periods for
the contracts relating to these projects at the time of acquisition.
The Royalty Guarantor's amortization was $1.8 million for the year ended
December 31, 2001 compared to $2.0 million for the same period in 2000. The
charges are consistent with the Company's scheduled amortization of the royalty
stream and the excess of cost over fair value related to the Magma acquisition.
The Royalty Guarantors' depreciation and amortization decreased to $2.0 million
for the year ended December 31, 2000 from $7.1 million for the year ended
December 31, 1999. The decrease was due to the end of the fixed price periods at
the Partnership Plants.
Interest Expense
The Salton Sea Guarantors' interest expense, net of capitalized amounts,
increased to $20.1 million for the year ended December 31, 2001 from $13.3
million for the same period in 2000. The increase was due primarily to the
discontinuance of capitalizing interest on the minerals extraction process and
Salton Sea V partially offset by reduced indebtedness. The Salton Sea
Guarantors' interest expense, net of capitalized amounts, decreased to $13.3
million for the year ended December 31, 2000 from $15.0 million for the same
period in 1999. The decrease was due to discontinuance of capitalizing interest
charges on Salton Sea V construction costs and repayment of debt.
The Partnership Guarantors' interest expense, net of capitalized amounts,
increased to $6.1 million for the year ended December 31, 2001 from $.6 million
for the same period in 2000. The increase is a result of the discontinuance of
capitalizing interest on the minerals extraction process partially offset by
reduced indebtedness. The Partnership Guarantors' interest expense, net of
capitalized amounts, decreased to $.6 million for the year ended December 31,
2000 from $6.4 million for the same period in 1999. The decrease is the result
of the repayment of debt and capitalization of interest on the mineral
extraction project.
The Royalty Guarantors' interest expense decreased to $.6 million for the year
ended December 31, 2001 from $1.0 million for the same period in 2000 and $1.7
million for the same period in 1999. These decreases are due to the repayment of
debt.
Asset Impairment
The asset impairment at the Salton Sea Guarantors in 2001 reflects the write off
of the book value of a steam turbine. The Salton Sea Guarantors have determined
that the cost of the turbine, which had been held in storage for use in new
development projects, no longer had any significant value.
Income Tax Provision
The Salton Sea Guarantors are substantially comprised of partnerships. Income
taxes are the responsibility of the partners and Salton Sea Guarantors have no
obligation to provide funds to the partners for payment of any tax liabilities.
Accordingly, the Salton Sea Guarantors have no tax obligations.
The Partnership Guarantors' income tax provision increased to $11.7 million for
the year ended December 31, 2001 from $7.7 million for the same period in 2000.
The income tax provision decreased to $7.7 million in 2000 from $12.5 million
for the same period in 1999. The effective tax rate was 34%, 22%, and 33% in
2001, 2000 and 1999, respectively. The changes from year to year in the
effective rate are due primarily to the generation and utilization of energy tax
credits and depletion deductions. Income taxes will be paid by the parent of the
Guarantors from distributions to the parent company by the Guarantors, which
occur after payment of operating expenses and debt service.
The Royalty Guarantor had no income tax provision in 2000 and 2001. The Royalty
Guarantor's income tax provision was a benefit of $6.3 million for the year
ended December 31, 1999. The decrease in the provision is due to the change in
the Royalty Guarantor from a corporation to a limited liability company, which
is not taxed. Income taxes are the responsibility of the partners and the
Royalty Guarantor has no obligation to provide funds to the partners for payment
or any tax liabilities. Accordingly, the Royalty Guarantor has no tax
obligations.
Cumulative Effect of Accounting Policy Change
The Guarantors have changed their policy of accounting for overhaul and well
workover costs. These costs, which have historically been accounted for using
deferral methods, are now expensed as incurred. The new policy went into effect
January 1, 2001 and the Salton Sea Guarantors have recorded a cumulative effect
of this change of $8.7 million. The Partnership Guarantors have recorded a
cumulative effect of this change of $6.9 million, net of tax. If Salton Sea
Guarantors and Partnership Guarantors had adopted the policy as of January 1,
2000, net income would have been $1.1 million lower and $4.9 million higher,
respectively, in 2000 on a proforma basis.
Net Income (Loss)
The Funding Corporation's net loss was $.1 million for the year ended December
31, 2001 compared to net income of $.2 million for the year ended December 31,
2000 and $1.1 million for the year ended December 31, 1999, which represented
interest income and expense, net of applicable tax, and the Funding
Corporation's 1% equity in earnings of the Guarantors.
Related Party Transactions
Pursuant to power sales agreements with EPME, sales to EPME from the Salton Sea
Guarantors totaled $53.4 million and $16.1 million in 2001 and 2000,
respectively. Pursuant to power sales agreements with EPME, sales to EPME from
the Partnership Guarantors totaled $49.4 million and $3.4 million in 2001 and
2000, respectively. As of December 31, 2001 and 2000, accounts receivable from
EPME were $9.4 million and $5.6 million, respectively, for the Salton Sea
Guarantors and $2.5 million and $1.5 million, respectively, for the Partnership
Guarantors.
On October 13, 1998, Funding Corporation completed a sale to institutional
investors of $285 million aggregate amount of 7.475% Senior Secured Series F
bonds due November 30, 2018. A portion of the proceeds are being used to fund
the cost of construction of, and was advanced to, the Zinc Recovery Project,
which is indirectly 100% owned by Salton Sea Minerals Corp., a MEHC affiliate
not owned by CE Generation. The direct and indirect owners of the Zinc Facility
(the "Zinc Guarantors", which include Salton Sea Minerals Corp. and Minerals
LLC) are among the guarantors of the Funding Corporation debt. In connection
with the divestiture, MEHC guaranteed the payment by the Zinc Guarantors of a
specified portion of the scheduled debt service on the Imperial Valley Project
Loans including the current principal amount of approximately $139.9 million,
which is included in note receivable to related party in the accompanied
consolidated balance sheet and associated interest.
Capital Resources and Liquidity
The operating Salton Sea Guarantors' only source of revenue is payments received
pursuant to long-term power sales agreements with Edison, other than Salton Sea
V Project revenue and interest earned on funds on deposit. The operating
Partnership Guarantors' primary source of revenue is payments received pursuant
to long term power sales agreements with Edison, other than Turbo Project and
Zinc Recovery Project revenue and interest earned on funds on deposit. The
Royalty Guarantor's only source of revenue is Royalties received pursuant to
resource lease agreements with the Partnership Projects. If Edison pays the
projects, these payments, for each of the Guarantors, are expected to be
sufficient to fund operating and maintenance expenses, payments of interest and
principal on the Securities, projected capital expenditures and debt service
reserve fund requirements.
Contractual Obligations and Commercial Commitments
The Funding Corporation has contractual obligations and commercial commitments
that may affect its financial condition. Based on management's assessment of the
underlying provisions and circumstances of the material contractual obligations
and commercial commitments of the Funding Corporation, including material
off-balance sheet and structured finance arrangements, there is no known trend,
demand, commitment, event or uncertainty that is reasonably likely to occur
which would have a material effect on the Funding Corporations' financial
condition or results of operations. The following tables identify material
obligations and commitments as of December 31, 2001:
Payments Due by Period
-------------------------------------------------------------------------------
Less Than 2-3 4-5 After 5
Contractual Cash Obligations Total 1 Year Years Years Years
- ---------------------------- ----- ------ ----- ----- -----
(in thousands)
Long-Term Debt $ 520,250 $ 28,572 $ 58,674 $ 58,118 $ 374,886
Other Long-Term Obligations - - - - -
---------- --------- --------- --------- ----------
Total Contractual Cash Obligations $ 520,250 $ 28,527 $ 58,674 $ 58,118 $ 374,886
========== ========= ========= ========= ==========
Commitment Expiration per Period
-----------------------------------------------------------------------------
Less Than 2-3 4-5 After 5
Other Commercial Commitments Total 1 Year Years Years Years
- ---------------------------- ----- ------ ----- ----- -----
(in thousands)
Lines of Credit (a) $ 15,000 $ 15,000 $ - $ - $ -
Standby Letters of Credit (b) 67,600 - 67,600 - -
---------- --------- --------- --------- ----------
Total Commercial Commitments $ 82,600 $ 15,000 $ 67,600 $ - $ -
========== ========= ========= ========= ==========
(a) The line of credit represent the unused borrowing capacity available
to the company, as of December 31, 2001.
(b) The Standby Letter of Credit matures in July 2004.
Minerals LLC is constructing the Zinc Recovery Project, which will recover zinc
from the geothermal brine (the "Zinc Recovery Project"). Facilities are being
installed near the sites of the Imperial Valley Projects to extract a zinc
chloride solution from the geothermal brine through an ion exchange process.
This solution will be transported to a central processing plant where zinc
ingots will be produced through solvent extraction, electrowinning and casting
processes. The Zinc Recovery Project is designed to have a capacity of
approximately 30,000 metric tonnes per year and is scheduled to commence
commercial operations in 2002. In September 1999, Minerals LLC entered into a
sales agreement whereby all high-grade zinc produced by the Zinc Recovery
Project will be sold to Cominco, Ltd. The initial term of the agreement expires
in December 2005.
Total project costs of the Zinc Recovery Project are expected to be
approximately $217.9 million, net of payments for liquidated damages, which is
being funded by $140.5 million of debt and the balance from equity
contributions. The Zinc Recovery Project has incurred $158.8 million, net of
payments for liquidated damages received, of such costs through December 31,
2001.
The Zinc Recovery Project was being constructed by Kvaerner pursuant to a date
certain, fixed-price, turnkey engineering, procure, construct and manage
contract (the "Zinc Recovery Project EPC Contract"). On June 14, 2001, Minerals
LLC issued notices of default, termination and demand for payment of damages to
Kvaerner under the Zinc Recovery Project EPC Contract due to failure to meet
performance obligations. As a result of Kvaerner's failure to pay monetary
obligations under the Zinc Recovery EPC Contract, the Guarantors drew $29.6
million under the EPC Contract Letter of Credit on July 20, 2001. The Guarantors
have entered into a time and materials reimbursable engineer, procure and
construction management contract with AMEC E&C Services, Inc. to complete the
Zinc Recovery Project.
Edison, a wholly owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The Funding
Corporation is aware that there have been public announcements that Edison's
financial condition has deteriorated as a result of reduced liquidity. Following
Edison's recent financing Edison's senior unsecured debt obligations were
upgraded to Ba3 by Moody's and BB by S&P.
Edison failed to pay approximately $119 million due under the power purchase
agreements with certain Guarantors (Imperial Valley Projects, excluding the
Salton Sea V and Turbo Projects) for power delivered in November and December
2000 and January, February and March 2001, although the Power Purchase
Agreements provide for billing and payment on a schedule where payments would
have normally been received in early January, February, March, April and May
2001.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in
California's Imperial County Superior Court seeking a court order requiring
Edison to make the required payments under the Power Purchase Agreements. The
lawsuit also requested, among other things, that the court order permit these
Guarantors to suspend deliveries of power to Edison and to permit the Guarantors
to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary
Adjudication and a Declaratory Judgment ordering that: 1) under the Power
Purchase Agreements, Guarantors have the right to temporarily suspend deliveries
of capacity and energy to Edison, 2) Guarantors are entitled to resell the
energy and capacity to other purchasers and 3) the interim suspension of
deliveries to Edison shall not in any respect result in the modifications or
termination of the Power Purchase Agreements and the Power Purchase Agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.
As a result of the March 22, 2001 Declaratory Judgment, the Guarantors'
suspended deliveries of energy to Edison and entered into a transaction
agreement with EPME in which the Guarantors' available power was sold to EPME
based on percentages of the Dow Jones SP-15 Index. On June 18, 2001, the
Superior Court prospectively vacated its order authorizing the Guarantors' to
resell power.
On June 20, 2001, the Guarantors' (excluding Salton Sea V and CE Turbo) entered
into Agreements Addressing Renewable Energy Pricing and Payment Issues with
Edison ("Settlement Agreements") and, as a result, resumed power sales to Edison
on June 22, 2001. The Settlement Agreements required that Edison make an initial
payment to repay the past due balances under the Power Purchase Agreements (the
"stipulated amounts"). The initial payment of approximately $11.6 million, which
represented 10% of the stipulated amounts, was received June 22, 2001. On
October 2, 2001, the California Public Utilities Commission ("CPUC") announced
an agreement with Edison that allowed Edison to recover in retail electric rates
its past due obligations. On November 30, 2001, the Settlement Agreements were
amended to reflect when Edison would be required to make the final payment on
past due amounts. On March 1, 2002, Edison obtained $1.8 billion in secured
financing that, when combined with cash on hand, enabled Edison to pay off its
past due debts. The final payment of approximately $104.6 million, representing
the remaining stipulated amounts, was received March 1, 2002. In addition to
these payments, Edison was required to make monthly interest payments calculated
at a rate of 7% per annum on the outstanding stipulated amounts. The amended
Settlement Agreements provide a revised energy pricing structure, whereby Edison
elects to pay the Guarantors' a fixed energy price in lieu of the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. The fixed energy price is 3.25 cents/kWh from December 2001 through
April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year period.
Following the five-year period, the energy payments revert back to the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. Estimates of Edison's future avoided cost of energy vary
substantially from year to year.
As a result of the uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been not renewed, and as such cash distributions are not available to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately $67.6 million, has been funded or the letter of credit has been
renewed or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea Unit V and Turbo Projects have not received payment for
power sold under the Transaction Agreements during December 2000 and January
2001 of approximately $3.8 million.
The Guarantors are contractually entitled to receive payments under the Power
Purchase Agreements, Settlement Agreements and Transactions Agreements. However,
due to the uncertainties associated with Edison's financial condition and
failure to pay contractual obligations at December 31, 2001, along with the
California Power Exchange bankruptcy, the Guarantors have established an
allowance for doubtful accounts of approximately $24.8 million on December 31,
2001.
Environmental Liabilities
The Guarantors are subject to numerous legislative and regulatory environmental
protection requirements involving air and water pollution, waste management,
hazardous chemical use, noise abatement, and land use aesthetics.
State and federal environmental laws and regulations currently have, and future
modifications may have, the effect of (i) increasing the lead time for the
construction of new facilities, (ii) significantly increasing the total cost of
new facilities, (iii) requiring modification of the Guarantors' existing
facilities, (iv) increasing the risk of delay on construction projects, (v)
increasing the Guarantors' cost of waste disposal and (vi) reducing the
reliability of service provided by the Guarantors and the amount of energy
available from the Guarantors' facilities. Any of such items could have a
substantial impact on amounts required to be expended by the Guarantors in the
future. Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other social and economic factors, and
include estimates of associated legal costs. These amounts also consider prior
experience in remediating sites, other companies' clean-up experience and data
released by the Environmental Protection Agency or other organizations. These
estimated liabilities are subject to revision in future periods based on actual
costs or new circumstances, and are included in the accompanying balance sheets
at their undiscounted amounts. As of December 31, 2001 and December 31, 2000,
the Guarantors environmental liabilities recorded on the balance sheet were not
material.
Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets", which establish accounting
and reporting for business combinations. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and other
intangible assets with indefinite lives will not be amortized, but will be
tested for impairment on an annual basis. SFAS 142 is effective for the Funding
Corporation beginning January 1, 2002. Under the current method of assessing
goodwill for impairment, which uses an undiscounted cash flow approach, no
material impairment existed at December 31, 2001. For 2002, the Company will
begin to test goodwill for impairment under the new rules, applying a
fair-value-based approach. The Funding Corporation is in the process of
quantifying the anticipated impact on its financial condition and results of
operations of adopting the provisions of SFAS No. 142, which could be
significant.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard addresses financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS 143 is effective for the Funding
Corporation's fiscal year beginning January 1, 2003. The Funding Corporation has
not quantified the impact resulting from the adoption of this standard.
In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". The standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for the Funding Corporations' fiscal year beginning January 1, 2002. The Funding
Corporation has not quantified the impact resulting from the adoption of this
standard.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
The following discussion of the Guarantors' exposure to various market risks
contains "forward-looking statements" that involve risks and uncertainties.
These projected results have been prepared utilizing certain assumptions
considered reasonable in the circumstances and in light of information currently
available to the Guarantors. Actual results could differ materially from those
projected in the forward-looking information.
Interest Rate Risk
At December 31, 2001 and 2000 respectively, the Funding Corporation had
fixed-rate long-term debt of $520.3 million and $543.9 million in principal
amount and having a fair value of $478.8 million and $468.8 million. These
instruments are fixed-rate and therefore do not expose the Funding Corporation
to the risk of earnings loss due to changes in market interest rates. However,
the fair value of these instruments would decrease by approximately $28.1
million and $14.6 million if interest rates were to increase by 10% from their
levels at December 31, 2001 and 2000, respectively. In general, such a decrease
in fair value would impact earnings and cash flows only if the Funding
Corporation were to reacquire all or a portion of these instruments prior to
their maturity.
Item 8. Financial Statements and Supplementary Data.
SALTON SEA FUNDING CORPORATION
INDEX TO FINANCIAL STATEMENTS
SALTON SEA FUNDING CORPORATION
Independent Auditors' Report--Deloitte & Touche LLP 30
Balance Sheets as of December 31, 2001 and 2000 31
Statements of Operations for the three years ended December 31, 2001 32
Statements of Stockholder's Equity for the three years ended
December 31, 2001 33
Statements of Cash Flows for the three years ended December 31, 2001 34
Notes to Financial Statements 35
SALTON SEA GUARANTORS
Independent Auditors' Report--Deloitte & Touche LLP 39
Combined Balance Sheets as of December 31, 2001 and 2000 40
Combined Statements of Operations for the three years ended December 31, 2001 41
Combined Statements of Guarantors' Equity for the three years ended
December 31, 2001 42
Combined Statements of Cash Flows for the three years ended December 31, 2001 43
Notes to Combined Financial Statements 44
PARTNERSHIP GUARANTORS
Independent Auditors' Report--Deloitte & Touche LLP 52
Combined Balance Sheets as of December 31, 2001 and 2000 53
Combined Statements of Operations for the three years ended December 31, 2001 54
Combined Statements of Guarantors' equity for the three years ended
December 31, 2001 55
Combined Statements of Cash Flows for the three years ended December 31, 2001 56
Notes to Combined Financial Statements 57
SALTON SEA ROYALTY LLC
Independent Auditors' Report--Deloitte & Touche LLP 70
Balance Sheets as of December 31, 2001 and 2000 71
Statements of Operations for the three years ended December 31, 2001 72
Statements of Equity for the three years ended December 31, 2001 73
Statements of Cash Flows for the three years ended December 31, 2001 74
Notes to Financial Statements 75
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska
We have audited the accompanying balance sheets of Salton Sea Funding
Corporation as of December 31, 2001 and 2000, and the related statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Salton Sea Funding Corporation as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, in 2001 the equity method
investees of Salton Sea Funding Corporation changed their accounting policy for
overhaul and well workover costs.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 17, 2002 (March 1, 2002 as to Note 4)
SALTON SEA FUNDING CORPORATION
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
December 31,
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
ASSETS
Cash $ 4,361 $ 8,467
Restricted cash 2,949 -
Accrued interest receivable and other assets 3,351 3,563
Current portion secured project notes from Guarantors 28,572 23,658
---------- --------
Total current assets 39,233 35,688
Secured project notes from Guarantors 491,678 520,250
Investment in 1% of net assets of Guarantors 9,669 9,437
---------- -----------
$ 540,580 $ 565,375
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities $ 3,333 $ 3,479
Due to affiliates 3,899 4,753
Current portion of long term debt (Note 3) 28,572 23,658
---------- -----------
Total current liabilities 35,804 31,890
Senior secured notes and bonds 491,678 520,250
---------- -----------
Total liabilities 527,482 552,140
Commitments and contingencies (Note 3 and 4)
Stockholder's equity:
Common stock--authorized 1,000
shares, par value $.01 per share;
issued and outstanding 100 shares - -
Additional paid-in capital 5,366 5,366
Retained earnings 7,732 7,869
----------- ----------
Total stockholder's equity 13,098 13,235
----------- ----------
$ 540,580 $ 565,375
=========== ==========
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
For the Year Ended December 31,
2001 2000 1999
- -------------------------------------------------------------------------------
Revenues:
Interest income $ 41,389 $ 43,128 $ 47,815
Equity in earnings of Guarantors 402 590 723
--------- -------- ---------
41,791 43,718 48,538
Expenses:
General and administrative expenses 1,089 971 775
Interest expense 40,765 42,452 45,859
------ ------ ------
Total expenses 41,854 43,423 46,634
------ ------ ------
Income (loss) before income taxes (63) 295 1,904
Provision for income taxes (26) 121 781
--------- -------- --------
Income (loss) before cumulative effect
of accounting change (37) 174 1,123
Cumulative effect of accounting
change, net of tax (100) --- ---
---------- --------- ---------
Net income (loss) $ (137) $ 174 $ 1,123
========== ========= =========
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
(Dollars in Thousands)
Additional
Common Stock Paid-in Retained Total
Shares Amount Capital Earnings Equity
------ ------ -------- -------- ------
Balance, January 1, 1999 100 $ - $ 5,366 $ 6,572 $ 11,938
Net income - - - 1,123 1,123
------ ------ -------- ------- --------
Balance, December 31, 1999 100 - 5,366 7,695 13,061
Net income - - - 174 174
------ ------ -------- ------- --------
Balance, December 31, 2000 100 - 5,366 7,869 13,235
Net loss - - (137) (137)
------ ------ -------- -------- ---------
Balance, December 31, 2001 100 $ - $ 5,366 $ 7,732 $ 13,098
====== ====== ========= ========= =========
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Years Ended December 31,
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (137) $ 174 $ 1,123
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Equity in earnings of Guarantors (232) (590) (723)
Changes in assets and liabilities:
Prepaid expenses and other assets 212 54 3,151
Accrued liabilities (146) (128) (364)
---------- ---------- ----------
Net cash flows from operating activities (303) (490) 3,187
---------- ---------- ----------
Cash flows from investing activities:
Principal repayments of secured project
notes from Guarantors 23,658 25,072 57,836
---------- ----------
Net cash flows from investing activities 23,658 25,072 57,836
--------- ---------- ----------
Cash flows from financing activities:
Repayment of senior secured
notes and bonds (23,658) (25,072) (57,836)
Increase in restricted cash (2,949) - -
Due to affiliates (854) 6,871 (18,730)
---------- ---------- ----------
Net cash flows from financing activities (27,461) (18,201) (76,566)
---------- ---------- ----------
Net change in cash (4,106) 6,381 (15,543)
Cash at the beginning of period 8,467 2,086 17,629
--------- ---------- ----------
Cash at the end of period $ 4,361 $ 8,467 $ 2,086
========= ========== ==========
Supplemental disclosure:
Interest paid $40,911 $ 42,580 $ 46,210
========= ========== ==========
Income taxes paid (received) $ (95) $ 121 $ 781
========= ========== ==========
The accompanying notes are an integral part of the financial statements.
SALTON SEA FUNDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Salton Sea Funding Corporation (the "Funding Corporation"), which was formed on
June 20, 1995, is a special purpose Delaware corporation and was organized for
the sole purpose of acting as issuer of senior secured notes and bonds. On July
21, 1995, June 20, 1996 and October 31, 1998, the Funding Corporation issued
$475 million, $135 million and $285 million, respectively, of Senior Secured
Notes and Bonds (collectively, the "Securities").
The Funding Corporation is a wholly-owned subsidiary of Magma Power Company,
which in turn was wholly-owned by MidAmerican Energy Holdings Company
("MidAmerican"). On February 8, 1999, MidAmerican created a new subsidiary, CE
Generation and subsequently transferred its interest in the Company and its
power generation assets in the Imperial Valley to CE Generation, with certain
assets being retained by MidAmerican. On March 3, 1999, MidAmerican closed the
sale of 50% of its ownership interests in CE Generation to El Paso CE Generation
Holding Company, which was ultimately merged into EPME, an indirect subsidiary
of El Paso Corporation.
The Securities are payable from the proceeds of payments made of principal and
interest on the Secured Project Notes from the Guarantors to the Funding
Corporation. The Securities are also guaranteed on a joint and several basis by
the Salton Sea Guarantors, the Partnership Guarantors and Salton Sea Royalty,
LLC (collectively the "Guarantors"). The Guarantors are affiliates of Magma
Power Company and the Salton Sea Funding Corporation who collectively own ten
operating geothermal power plants and a related zinc recovery plant located in
Imperial Valley, California. The guarantees of the Partnership Guarantors and
the Royalty Guarantor are limited to available cash flow. The Funding
Corporation does not conduct any operations apart from issuing the Securities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
The restricted cash balance is composed of a debt service fund that is legally
restricted as to its use and requires the maintenance of a specific minimum
balance.
Investment in Guarantors
Since the Funding Corporation has the ability to assert significant influence
over the operations of the Guarantors, it accounts for its one percent
investment in the Guarantors using the equity method of accounting.
Income Taxes
The Funding Corporation is included in the consolidated income tax returns with
its parent and affiliates. Income taxes are provided on a separate return basis;
however, tax obligations of the Funding Corporation will be remitted to the
parent only to the extent of cash flows available after operating expenses and
debt service.
Overhaul and Well Rework Costs
The Guarantors have changed their accounting policy for overhaul and well
workover costs. These costs, which have historically been accounted for using
the deferral method, are now expensed as incurred. The new policy went into
effect January 1, 2001 and the Funding Corporation has recorded its share of the
Guarantors' cumulative effect of this change of approximately $0.1 million, net
of tax.
Fair Values of Financial Instruments
Fair values have been estimated based on quoted market prices for debt issues
listed on exchanges. Fair values of financial instruments that are not actively
traded are based on market prices of similar instruments and/or valuation
techniques using market assumptions. Unless otherwise noted, the estimated fair
value amounts do not differ significantly from recorded values.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities", which was delayed by SFAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of FASB No. 133" and amended by SFAS 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS 133 requires an entity to
recognize all of its derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. The
Funding Corporation adopted the new standards on January 1, 2001. The initial
adoption of SFAS 133 did not have any impact on the Funding Corporation's'
financial position, results of operations or cash flows.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets", which establish accounting
and reporting for business combinations. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and other
intangible assets with indefinite lives will not be amortized, but will be
tested for impairment on an annual basis. SFAS 142 is effective for the Funding
Corporation beginning January 1, 2002. Under the current method of assessing
goodwill for impairment, which uses an undiscounted cash flow approach, no
material impairment existed at December 31, 2001. For 2002, the Company will
begin to test goodwill for impairment under the new rules, applying a
fair-value-based approach. The Funding Corporation is in the process of
quantifying the anticipated impact on its financial condition and results of
operations of adopting the provisions of SFAS No. 142, which could be
significant.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard addresses financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS 143 is effective for the Funding
Corporation's fiscal year beginning January 1, 2003. The Funding Corporation has
not quantified the impact resulting from the adoption of this standard.
In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". The standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for the Funding Corporation's fiscal year beginning January 1, 2002. The Funding
Corporation has not quantified the impact resulting from the adoption of this
standard.
3. SENIOR SECURED NOTES AND BONDS
The Funding Corporation's debt securities (the "Notes and Bonds") are as follows
(in thousands):
Senior Final Maturity December 31,
Secured Series Date Rate 2001 2000
July 21, 1995 B Bonds May 30, 2005 7.37% $ 79,360 $ 100,736
July 21, 1995 C Bonds May 30, 2010 7.84% 109,250 109,250
June 20, 1996 E Bonds May 30, 2011 8.30% 47,922 48,922
October 13, 1998 F Bonds November 30, 2018 7.475% 283,718 285,000
------- ---------
$ 520,250 $ 543,908
Principal and interest payments are made in semi-annual installments. Principal
maturities of the Senior Secured Notes and Bonds are as follows (in thousands):
2002 $ 28,572
2003 28,086
2004 30,588
2005 30,374
2006 27,744
Thereafter 374,886
-------
$ 520,250
Pursuant to a depository agreement, Funding Corporation established a debt
service reserve fund in the form of a letter of credit in the amount of $67.6
million from which scheduled interest and principal payments could have been
made. The letter of credit has not been renewed. The Funding Corporation is
restricted from making distributions until it has reserved $67.6 million as a
debt service reserve fund.
The estimated fair values of the Senior Secured Notes and Bonds at December 31,
2001 and 2000 were $478.8 million and $468.8 million, respectively.
4. CONTINGENCY
Edison, a wholly owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The Salton
Sea Funding Corporation is aware that there have been public announcements that
Edison's financial condition has deteriorated as a result of reduced liquidity.
Following Edison's recent financing Edison's senior unsecured debt obligations
were upgraded to Ba3 by Moody's and BB by S&P.
Edison failed to pay approximately $119 million due under the power purchase
agreements with certain Guarantors (Imperial Valley Projects, excluding the
Salton Sea V and Turbo Projects) for power delivered in November and December
2000 and January, February and March 2001, although the Power Purchase
Agreements provide for billing and payment on a schedule where payments would
have normally been received in early January, February, March, April and May
2001.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in
California's Imperial County Superior Court seeking a court order requiring
Edison to make the required payments under the Power Purchase Agreements. The
lawsuit also requested, among other things, that the court order permit these
Guarantors to suspend deliveries of power to Edison and to permit the Guarantors
to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary
Adjudication and a Declaratory Judgment ordering that: 1) under the Power
Purchase Agreements, Guarantors have the right to temporarily suspend deliveries
of capacity and energy to Edison, 2) Guarantors are entitled to resell the
energy and capacity to other purchasers and 3) the interim suspension of
deliveries to Edison shall not in any respect result in the modifications or
termination of the Power Purchase Agreements and the Power Purchase Agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.
As a result of the March 22, 2001 Declaratory Judgment, the Guarantors'
suspended deliveries of energy to Edison and entered into a transaction
agreement with EPME in which the Guarantors' available power was sold to EPME
based on percentages of the Dow Jones SP-15 Index. On June 18, 2001, the
Superior Court prospectively vacated its order authorizing the Guarantors' to
resell power.
On June 20, 2001, the Guarantors' (excluding Salton Sea V and CE Turbo) entered
into Agreements Addressing Renewable Energy Pricing and Payment Issues with
Edison ("Settlement Agreements") and, as a result, resumed power sales to Edison
on June 22, 2001. The Settlement Agreements required that Edison make an initial
payment to repay the past due balances under the Power Purchase Agreements (the
"stipulated amounts"). The initial payment of approximately $11.6 million, which
represented 10% of the stipulated amounts, was received June 22, 2001. On
October 2, 2001, the California Public Utilities Commission ("CPUC") announced
an agreement with Edison that allowed Edison to recover in retail electric rates
its past due obligations. On November 30, 2001, the Settlement Agreements were
amended to reflect when Edison would be required to make the final payment on
past due amounts. On March 1, 2002, Edison obtained $1.8 billion in secured
financing that, when combined with cash on hand, enabled Edison to pay off its
past due debts. The final payment of approximately $104.6 million, representing
the remaining stipulated amounts, was received March 1, 2002. In addition to
these payments, Edison was required to make monthly interest payments calculated
at a rate of 7% per annum on the outstanding stipulated amounts. The amended
Settlement Agreements provide a revised energy pricing structure, whereby Edison
elects to pay the Guarantors' a fixed energy price in lieu of the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. The fixed energy price is 3.25 cents/kWh from December 2001 through
April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year period.
Following the five-year period, the energy payments revert back to the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. Estimates of Edison's future avoided cost of energy vary
substantially from year to year.
As a result of the uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been not renewed, and as such cash distributions are not available to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately $67.6 million, has been funded or the letter of credit has been
renewed or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea Unit V and Turbo Projects have not received payment for
power sold under the Transaction Agreements during December 2000 and January
2001 of approximately $3.8 million.
The Guarantors are contractually entitled to receive payments under the Power
Purchase Agreements, Settlement Agreements and Transactions Agreements. However,
due to the uncertainties associated with Edison's financial condition and
failure to pay contractual obligations at December 31, 2001, along with the
California Power Exchange bankruptcy, the Guarantors have established an
allowance for doubtful accounts of approximately $24.8 million on December 31,
2001.
The Funding Corporation Securities are currently rated Ba3 by Moody's and BBB-
by S&P. CE Generation Securities are currently rated Ba2 by Moody's and BBB- by
S&P
5. REVOLVING CREDIT AGREEMENT
In connection with the issuance of the Notes and Bonds, the Funding Corporation
also obtained a $15 million seven-year revolving credit agreement between Credit
Suisse as bank and agent and other lenders. The interest rate is at the Adjusted
Base Rate plus .375% or at the LIBOR rate plus 100 basis points.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined balance sheets of the Salton Sea
Guarantors as of December 31, 2001 and 2000, and the related combined statements
of operations, Guarantors' equity and cash flows for each of the three years in
the period ended December 31, 2001. Our audits also included the financial
statement schedule listed in item 14. These financial statements and financial
statement schedule are the responsibility of the Salton Sea Guarantors'
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Salton Sea Guarantors as of
December 31, 2001 and 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, such financial statement schedule, when considered
in relation to the basic combined financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the combined financial statements, in 2001 the Salton
Sea Guarantors changed their accounting policy for overhaul and well workover
costs.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 17, 2002 (March 1, 2002 as to Note 6)
SALTON SEA GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
December 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
ASSETS
Accounts receivable, net of allowance of $9,829
and $0, respectively (Note 6) $ 36,647 $ 24,396
Prepaid expenses and other assets 5,314 8,699
----------- -----------
Total current assets 41,961 33,095
Due from affiliates 9,186 22,976
Restricted cash --- 17
Property, plant, contracts and equipment, net 504,321 524,881
Excess of cost over fair value of net assets
acquired, net 44,270 45,574
----------- -----------
$ 599,738 $ 626,543
============ ============
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 1,292 $ 5
Accrued liabilities 9,602 10,826
Current portion of long term debt 20,487 17,319
------ ------
Total current liabilities 31,381 28,150
Senior secured project note (Note 4) 246,412 266,898
------- -------
Total liabilities 277,793 295,048
Commitments and contingencies (Notes 4, 5 and 6)
Total Guarantors' equity 321,945 331,495
------------ ------------
$ 599,738 $ 626,543
============ ============
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Year Ended December 31,
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Revenues:
Sales of electricity $110,941 $98,057 $81,850
Interest and other income 2,287 353 1,868
-------- --------- ---------
Total Revenues 113,228 98,410 83,718
------- --------- ------
Expenses:
Operating, general and
administrative expenses 61,568 40,804 28,772
Depreciation and amortization 17,332 16,016 16,891
Interest expense 21,827 23,075 24,251
Less capitalized interest (1,692) (9,808) (9,241)
Asset impairment (Note 4) 15,000 --- ---
-------- -------- ---------
Total expenses 114,035 70,087 60,673
-------- -------- ---------
Income (loss) before cumulative
effect of accounting change (807) 28,323 23,045
Cumulative effect of accounting change (Note 2) (8,743) --- ---
--------- --------- ---------
Net income (loss) $(9,550) $28,323 $23,045
======== ======= =======
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF GUARANTORS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
(Dollars in Thousands)
Balance, January 1, 1999 $ 280,127
Net income 23,045
----------
Balance, December 31, 1999 303,172
Net income 28,323
----------
Balance, December 31, 2000 331,495
Net loss (9,550)
-----------
Balance, December 31, 2001 $ 321,945
==========
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
- -------------------------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ (9,550) $ 28,323 $ 23,045
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 17,332 16,016 16,891
Cumulative effect of change in
accounting principle 8,743 --- ---
Asset Impairment 15,000 --- ---
Changes in assets and liabilities:
Accounts receivable (12,251) (12,859) 4,420
Prepaid expenses and other assets (5,358) 2,996 715
Accounts payable and accrued liabilities 63 2,936 225
---------- ---------- ---------
Net cash flows from operating activities 13,979 37,412 45,296
---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures (10,468) (10,148) (11,830)
Construction in progress --- (18,238) (76,367)
Decrease in restricted cash 17 9,984 61,672
---------- ---------- ---------
Net cash flows from investing activities (10,451) (18,402) (26,525)
---------- ---------- ---------
Cash flows from financing activities:
Repayments of senior secured project note (17,318) (9,737) (16,076)
Due from affiliates 13,790 (9,273) (2,695)
---------- ---------- ---------
Net cash flows from financing activities (3,528) (19,010) (18,771)
---------- ---------- ----------
Net change in cash --- --- ---
Cash at beginning of period --- --- ---
---------- ----------- ----------
Cash at end of period $ --- $ --- $ ---
========== =========== ==========
Supplemental disclosure:
Cash paid for interest,
net of capitalized interest $ 19,536 $ 12,063 $ 15,153
========== =========== =========
The accompanying notes are an integral part of the combined financial statements
SALTON SEA GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Salton Sea Guarantors (the "Guarantors") (not a legal entity) own 100% interests
in five operating geothermal electric power generating plants (Salton Sea I, II,
III, IV and V) (collectively, the "Salton Sea Projects"). All five plants are
located in the Imperial Valley of California. The Salton Sea Guarantors
guarantee loans from Salton Sea Funding Corporation ("Funding Corporation"), an
indirect wholly-owned subsidiary of Magma Power Company ("Magma"), which in turn
was wholly-owned by MidAmerican Energy Holdings Company ("MidAmerican").
On February 8, 1999, MidAmerican created a new subsidiary, CE Generation LLC
("CE Generation") and subsequently transferred its interest in the Company and
its power generation assets in the Imperial Valley to CE Generation, with
certain assets being retained by MidAmerican. On March 3, 1999, MidAmerican
closed the sale of 50% of its ownership interests in CE Generation to El Paso CE
Generation Holding Company, which was ultimately merged into EPME, an indirect
subsidiary of El Paso Corporation.
The financial statements consist of the combination of (1) Salton Sea Brine
Processing, L.P., a California limited partnership between Magma as a 99%
limited partner and Salton Sea Power Company ("SSPC"), a wholly-owned subsidiary
of Magma, as a 1% general partner, (2) Salton Sea Power Generation, L.P., a
California limited partnership between Salton Sea Brine Processing, L.P., as a
99% limited partner, and Salton Sea Power Company, as a 1% general partner, (3)
assets and liabilities attributable to Salton Sea IV which are held 99% by
Salton Sea Power Generation, L.P. and 1% by Fish Lake Power LLC ("FLPC") and (4)
Salton Sea Power L.L.C., a Delaware limited liability company. Funding
Corporation owns 1% interests in SSPC and FLPC. All of the entities in the
combination are affiliates of Magma and indirect subsidiaries of CE Generation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the combined accounts of the
Salton Sea Projects described above. All significant intercompany transactions
and accounts have been eliminated. Certain 2000 amounts have been reclassified
to conform with the 2001 presentation.
The financial statements reflect the acquisition of Magma and the resulting push
down to the Guarantors of the accounting as a purchase business combination.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from sales of
electricity on an accrual basis. All of the Guarantors' sales of electricity,
except for Salton Sea V, are to Southern California Edison Company ("Edison")
under long-term power purchase contracts.
For the years ended December 31, 2001, 2000 and 1999, respectively, Edison's
Average Avoided Cost of Energy was 7.4 cents per kilowatt-hour, 5.8 cents per
kilowatt-hour and 3.1 cents per kilowatt-hour, respectively. Estimates of
Edison's future Avoided Cost of Energy vary substantially from year to year.
The Salton Sea I Project contracts to sell electricity to Edison pursuant to a
30-year negotiated power purchase agreement, which commenced on July 1, 1987
(the "Salton Sea I PPA"). The contract capacity and contract nameplate are each
10 MW. The capacity payment is based on the firm capacity price, which adjusts
quarterly based on a basket of energy indices for the term of the Salton Sea I
PPA and is currently $154.45 per kW-year. The capacity payment is approximately
$1.1 million per annum. The energy payment is calculated using a Base Price
(defined as the initial value of the energy payment (4.7 cents per kWh for the
second quarter of 1992)), which is subject to quarterly adjustments based on a
basket of indices. The time period weighted average energy payment for Salton
Sea I was 5.9 cents per kWh during 2001. As the Salton Sea I PPA is not an SO4
Agreement, the energy payments do not revert to Edison's Avoided Cost of Energy.
The Salton Sea II Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on April 5, 1990. The contract
capacity and contract nameplate are 15 MW (16.5 MW during on-peak periods) and
20 MW, respectively. The price for contract capacity and contract capacity bonus
payments is fixed for the life of the modified SO4 Agreement. The combined
annual capacity and bonus payments are approximately $3.3 million. The energy
payments for the first ten-year period, which period expired on April 4, 2000,
were levelized at a time period weighted average of 10.6 cents per kWh.
Thereafter, the monthly energy payment was based on Edison's Avoided Cost of
Energy. Edison is entitled to receive, at no cost, 5% of all energy delivered in
excess of 80% of contract capacity through September 30, 2004.
The Salton Sea III Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on February 13, 1989. The contract
capacity and contract nameplate are 47.5 MW and 49.8 MW, respectively. The price
for contract capacity payments and capacity bonus payments is fixed at $175/kW
per year. The combined annual capacity and bonus payments are approximately $9.7
million. The energy payments for the first ten-year period, which period expired
on February 12, 1999, were levelized at a time period weighted average of 9.8
cents per kWh. Thereafter, the energy payment was based on Edison's Avoided Cost
of Energy.
The Salton Sea IV Project contracts to sell electricity to Edison pursuant to a
modified SO4 Agreement which provides for contract capacity payments on 34 MW of
capacity at two different rates based on the respective contract capacities
deemed attributable to the original Salton Sea I PPA option (20 MW) and to the
original Salton Sea IV SO4 Agreement ("Fish Lake PPA") (14 MW). The capacity
payment price for the 20 MW portion adjusts quarterly based upon specified
indices and the capacity payment price for the 14 MW portion is a fixed
levelized rate. The capacity included bonus payments in 2001 that were
approximately $5.7 million. The energy payment (for deliveries up to a rate of
39.6 MW) is at a fixed price for 55.6% of the total energy delivered by Salton
Sea IV and is based on an energy payment schedule for 44.4% of the total energy
delivered by Salton Sea IV. The contract has a 30-year term but Edison is not
required to purchase the 20 MW of capacity and energy originally attributable to
the Salton Sea I PPA option after September 30, 2017, the original termination
date of the Salton Sea I PPA.
The Salton Sea V Project, which commenced operations in the third quarter of
2000, will sell approximately one-third of its net output to a zinc facility,
which is owned by a subsidiary of MidAmerican and is expected to commence
commercial operations in 2002. The Salton Sea V Project sells its remaining
output through other market transactions.
On January 17, 2001, Salton Sea Power entered into a transaction agreement to
sell available power from Salton Sea V to EPME. Under the terms of the
agreement, at the option of Salton Sea Power, EPME purchased all available power
from the Salton Sea V based on day ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001 Salton Sea Power entered into new transaction
agreements to sell available power from Salton Sea V to EPME based on
percentages of the Dow Jones SP-15 Index.
The Imperial Valley Projects, other than Salton Sea I, receive transmission
service from the Imperial Irrigation District to deliver electricity to Edison
near Mirage, California. These projects pay a rate based on the Imperial
Irrigation District's cost of service, which was $1.68 per month per kilowatt of
service provided for 2001 and recalculated annually. The transmission service
and interconnection agreements expire in 2015 for the Partnership Projects, 2019
for Salton Sea III, 2020 for Salton Sea II and 2026 for Salton Sea IV. The
Salton Sea V and Turbo projects have entered into 30-year agreements with
similar terms with the Imperial Irrigation District. Salton Sea Unit I delivers
energy to Edison at the project site and has no transmission service agreement
with the Imperial Irrigation District.
Overhaul and Well Rework Costs
The Guarantors have changed their accounting policy for the overhaul and well
workover costs. These costs, which have historically been accounted for using
the deferral method, are now expensed as incurred. The new policy went into
effect January 1, 2001 and the Guarantors have recorded a cumulative effect of
this change of approximately $8.7 million. If the Guarantors had adopted the
policy as of January 1, 2000, net income would have been $1.1 million lower in
2000 on a proforma basis.
Restricted Cash
The restricted cash balance primarily included commercial paper, money market
securities and mortgage backed securities and was composed of amounts deposited
in restricted accounts, which the Guarantors used to fund capital expenditures.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less accumulated
depreciation. The Guarantors provide depreciation and amortization of property,
plants, contracts and equipment upon the commencement of revenue production over
the estimated useful life of the assets.
Depreciation of the operating power plant costs, net of salvage value, is
computed on the straight-line method over the estimated useful lives, between 10
and 30 years. Depreciation of furniture, fixtures and equipment is computed on
the straight-line method over the estimated useful lives of the related assets,
which range from three to ten years.
Power sale agreements have been assigned values separately for each of (1) the
remaining portion of the fixed price periods of the power sales agreements and
(2) the 20-year avoided cost periods of the power sales agreements and are being
amortized separately over such periods using the straight-line method.
The Salton Sea reservoir contains commercial quantities of extractable minerals.
The carrying value of the mineral reserves will be amortized upon commencement
of commercial production.
Excess of Cost over Fair Value
Total acquisition costs in excess of the fair values assigned to the net assets
acquired are amortized over a 40-year period using the straight-line method. At
December 31, 2001 and 2000, accumulated amortization of the excess of cost over
fair value was $9.0 million and $7.7 million, respectively.
Capitalization of Interest and Deferred Financing Costs
Prior to the commencement of operations, interest is capitalized on the costs of
the plants and geothermal resource development to the extent incurred.
Capitalized interest and other deferred charges are amortized over the lives of
the related assets.
Deferred financing costs are amortized over the term of the related financing
using the effective interest method.
Income Taxes
The Guarantors are comprised substantially of partnership interests. The income
or loss of each partnership for income tax purposes, along with any associated
tax credits, is the responsibility of the individual partners. Accordingly, no
recognition has been given to federal or state income taxes in the accompanying
combined financial statements.
Statements of Cash Flows
For purposes of the statements of cash flows, the Guarantors consider only
demand deposits at banks to be cash.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based on
market prices of similar instruments and/or valuation techniques using market
assumptions. Unless otherwise noted, the estimated fair value amounts do not
differ significantly from recorded values.
Impairment of Long-Lived Assets
The Guarantors review long-lived assets and certain identifiable intangibles for
impairments whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss would be
recognized, based on discounted cash flows or other fair value models, whenever
evidence exists that the carrying value is not recoverable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities", which was delayed by SFAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of FASB No. 133" and amended by SFAS 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS 133 requires an entity to
recognize all of its derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. The
Guarantors adopted the new standards on January 1, 2001. The initial adoption of
SFAS 133 did not have any impact on the Guarantors' financial position, results
of operations or cash flows.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets", which establish accounting
and reporting for business combinations. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and other
intangible assets with indefinite lives will not be amortized, but will be
tested for impairment on an annual basis. SFAS 142 is effective for the
Guarantors beginning January 1, 2002. Under the current method of assessing
goodwill for impairment, which uses an undiscounted cash flow approach, no
material impairment existed at December 31, 2001. For 2002, the Company will
begin to test goodwill for impairment under the new rules, applying a
fair-value-based approach. The Guarantors are in the process of quantifying the
anticipated impact on its financial condition and results of operations of
adopting the provisions of SFAS No. 142, which could be significant. The
historical impact of not amortizing goodwill would have been to increase net
income for the years ended December 31, 2001, 2000 and 1999 by approximately
$1.3 million, $1.3 million and $1.3 million, respectively. However, impairment
reviews may result in future periodic write-downs.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard addresses financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS 143 is effective for the Guarantor's fiscal
year beginning January 1, 2003. The Guarantors have not quantified the impact
resulting from the adoption of this standard.
In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". The standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for the Guarantors' fiscal year beginning January 1, 2002. The Guarantors have
not quantified the impact resulting from the adoption of this standard.
3. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following:
December 31,
2001 2000
---- ----
Plant and equipment $451,554 $458,762
Power sale agreements 7,913 7,913
Mineral reserves 91,811 90,119
Wells and resource development 44,569 43,585
---------- ---------
595,847 600,379
Less accumulated depreciation
and amortization 91,526 75,498
---------- ---------
$504,321 $524,881
======== ========
The asset impairment in 2001 reflects the write off of the book value of a steam
turbine. In 2001, the Guarantors made the decision to dispose of the turbine.
The Guarantors have determined that the cost of the turbine, which had been held
in storage for use in new construction at the Salton Sea Projects, no longer was
recoverable.
4. SENIOR SECURED PROJECT NOTE
The Guarantors' project note payable to Salton Sea Funding Corporation consist
of the following (in thousands):
Senior Final Maturity December 31,
Secured Series Date Rate 2001 2000
July 21, 1995 B Bonds May 30, 2005 7.37% $ 74,752 $ 91,695
July 21, 1995 C Bonds May 30, 2010 7.84% 109,250 109,250
October 13, 1998 F Bonds November 30,2018 7.475% 82,897 83,272
--------- ---------
$ 266,899 $ 284,217
======= =======
The Guarantors have also guaranteed, along with other guarantors, the debt of
Salton Sea Funding Corporation, which amounted to $520.3 million at December 31,
2001. The guarantee issued is collateralized by a lien on substantially all the
assets of and a pledge of the equity interests in the Guarantors. The structure
has been designed to cross collateralize cash flows from each guarantor without
cross collateralizing all of the guarantors' assets.
Principal maturities of the senior secured project note are as follows (in
thousands):
2002 $ 20,487
2003 22,765
2004 24,409
2005 23,917
2006 22,620
Thereafter 152,701
----------
$266,899
The estimated fair values of the senior secured projects notes at December 31,
2001 and 2000 were $253.0 million and $249.8 million, respectively.
5. RELATED PARTY TRANSACTIONS
The Guarantors have entered into the following agreements:
Amended and Restated Easement Grant Deed and Agreement Regarding Rights for
Geothermal Development dated February 23, 1994, as amended, whereby the
Guarantors acquired from Magma Land I, a wholly-owned subsidiary of Magma,
rights to extract geothermal brine from the geothermal lease rights
property which is necessary to operate the Salton Sea Power Generation,
L.P. facilities in return for 5% of all electricity revenues received by
the Guarantors. The amount expensed for the years ended December 31, 2001,
2000 and 1999 was $4.4 million, $4.1 million and $3.7 million,
respectively.
Administrative Services Agreement dated April 1, 1993 with Magma, whereby
Magma will provide administrative and management services to the
Guarantors, excluding Salton Sea IV and V. Fees payable to Magma amount to
3% of total electricity revenues. The amount expensed for the years ended
December 31, 2001, 2000 and 1999 was $1.6 million, $1.4 million and $1.5
million, respectively.
Operating and Maintenance Agreement dated April 1, 1993 with CalEnergy
Operating Corporation ("CEOC"), whereby the Guarantors retain CEOC to
operate the Salton Sea facilities for a period of 32 years. Payment is made
to CEOC in the form of reimbursements of expenses incurred. During 2001,
2000 and 1999, the Guarantors reimbursed CEOC for expenses of $16.2
million, $7.4 million and $6.7 million, respectively.
Salton Sea Power LLC ("Salton Sea Power"), a Salton Sea Guarantor, and EPME
entered into a power marketing agreement commencing June 13, 2000 and ending on
June 30, 2000. Under the terms of the agreement, EPME purchased and Salton Sea
Power sold all available power from the Salton Sea Unit V project. EPME sold the
available power into the bulk power market. The purchase price of the available
power is the value of the cash actually received by EPME for the sale of such
power, plus any realized renewable premiums.
On June 9, 2000, Salton Sea Power, entered into an agreement to sell all
available power from the Salton Sea Unit V project to EPME. Under the terms of
the agreement commencing on July 1, 2000 and ending on September 30, 2000, EPME
purchased up to 25 MW of available power for $53 per MWh, together with any
premiums related to such power. EPME also marketed any available power which
exceeded 25 MW on behalf of Salton Sea Power.
On September 29, 2000, Salton Sea Power entered into an agreement to sell all
available power from the Salton Sea Unit V project to EPME. Under the terms of
the agreement, commencing October 1, 2000, EPME purchased and sold available
power on behalf of Salton Sea Power, into the California ISO markets. The
purchase price for the available power was equivalent to the value actually
received by EPME for the sale of such power, including renewable premiums.
On January 17, 2001, Salton Sea Power entered into a transaction agreement to
sell available power from Salton Sea V to EPME. Under the terms of the
agreement, at the option of Salton Sea Power EPME purchased all available power
from Salton Sea V based on day ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001 Salton Sea Power entered into transaction
agreements to sell available power from Salton Sea V to EPME based on
percentages of the Dow Jones SP-15 Index.
On March 27, 2001 and May 1, 2001, the Guarantor entered into a Transaction
Agreement to sell available power to EPME based on percentages of the Dow Jones
SP-15 Index. On June 28, 2001, the Guarantors Projects (excluding the Salton Sea
V Project) ceased selling available power to EPME and resumed power sales to
Edison.
Pursuant to these agreements, sales to EPME from the Company totaled $53.4
million, $16.1 million and $0 million in 2001, 2000 and 1999, respectively. As
of December 31, 2001 and 2000, accounts receivable from EPME were $11.8 million
and $7.1 million, respectively.
6. CONTINGENCY
Edison, a wholly owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The
Guarantors are aware that there have been public announcements that Edison's
financial condition has deteriorated as a result of reduced liquidity. Following
Edison's recent financing, Edison's senior unsecured debt obligations were
upgraded to Ba3 by Moody's and BB by S&P.
Edison failed to pay approximately $42.3 million due under the power purchase
agreements with certain Guarantors (Imperial Valley Projects, excluding the
Salton Sea V and Turbo Projects) for power delivered in November and December
2000 and January, February and March 2001, although the Power Purchase
Agreements provide for billing and payment on a schedule where payments would
have normally been received in early January, February, March, April and May
2001.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in
California's Imperial County Superior Court seeking a court order requiring
Edison to make the required payments under the Power Purchase Agreements. The
lawsuit also requested, among other things, that the court order permit these
Guarantors to suspend deliveries of power to Edison and to permit the Guarantors
to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary
Adjudication and a Declaratory Judgment ordering that: 1) under the Power
Purchase Agreements, Guarantors have the right to temporarily suspend deliveries
of capacity and energy to Edison, 2) Guarantors are entitled to resell the
energy and capacity to other purchasers and 3) the interim suspension of
deliveries to Edison shall not in any respect result in the modifications or
termination of the Power Purchase Agreements and the Power Purchase Agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.
As a result of the March 22, 2001 Declaratory Judgment, the Guarantors'
suspended deliveries of energy to Edison and entered into a transaction
agreement with EPME in which the Guarantors' available power was sold to EPME
based on percentages of the Dow Jones SP-15 Index. On June 18, 2001, the
Superior Court prospectively vacated its order authorizing the Guarantors' to
resell power.
On June 20, 2001, the Guarantors' (excluding the Salton Sea V Project) entered
into Agreements Addressing Renewable Energy Pricing and Payment Issues with
Edison ("Settlement Agreements") and, as a result, resumed power sales to Edison
on June 22, 2001. The Settlement Agreements required that Edison make an initial
payment to repay the past due balances under the Power Purchase Agreements (the
"stipulated amounts"). The initial payment of approximately $4.1 million, which
represented 10% of the stipulated amounts, was received June 22, 2001. On
October 2, 2001, the California Public Utilities Commission ("CPUC") announced
an agreement with Edison that allowed Edison to recover in retail electric rates
its past due obligations. On November 30, 2001, the Settlement Agreements were
amended to reflect when Edison would be required to make the final payment on
past due amounts. On March 1, 2002, Edison obtained $1.8 billion in secured
financing that, when combined with cash on hand, enabled Edison to pay off its
past due debts. The final payment of approximately $36.9 million, representing
the remaining stipulated amounts, was received March 1, 2002. In addition to
these payments, Edison was required to make monthly interest payments calculated
at a rate of 7% per annum on the outstanding stipulated amounts. The amended
Settlement Agreements provide a revised energy pricing structure, whereby Edison
elects to pay the Guarantors' a fixed energy price in lieu of the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. The fixed energy price is 3.25 cents/kWh from December 2001 through
April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year period.
Following the five-year period, the energy payments revert back to the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. Estimates of Edison's future avoided cost of energy vary
substantially from year to year.
As a result of the uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been not extended beyond its current July 2004 expiration date, and as such cash
distributions are not available to CE Generation until the Salton Sea Funding
Corporation debt service reserve fund of approximately $67.6 million, has been
funded or the letter of credit has been extended beyond its current July 2004
expiration date or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea V Project has not received payment for power sold under
the Transaction Agreements during December 2000 and January 2001 of
approximately $3.0 million.
The Guarantors are contractually entitled to receive payments under the Power
Purchase Agreements, Settlement Agreements and Transactions Agreements. However,
due to the uncertainties associated with Edison's financial condition and
failure to pay contractual obligations at December 31, 2001, along with the
California Power Exchange bankruptcy, the Guarantors have established an
allowance for doubtful accounts of approximately $9.8 million on December 31,
2001.
Southern California Edison - Capacity Bonus Payments
Edison has failed to pay approximately $.4 million of capacity bonus payments
for the months of October, November and December 2001. On December 10, 2001
certain Guarantors filed a lawsuit against Edison in California's Imperial
County Superior Court seeking a court order requiring Edison to make the
required capacity bonus payments under the Power Purchase Agreements. The
Guarantors will vigorously pursue collection of the capacity bonus payments.
Environmental Liabilities
The Guarantors are subject to numerous legislative and regulatory environmental
protection requirements involving air and water pollution, waste management,
hazardous chemical use, noise abatement, and land use aesthetics.
State and federal environmental laws and regulations currently have, and future
modifications may have, the effect of (i) increasing the lead time for the
construction of new facilities, (ii) significantly increasing the total cost of
new facilities, (iii) requiring modification of the Guarantors' existing
facilities, (iv) increasing the risk of delay on construction projects, (v)
increasing the Guarantors' cost of waste disposal and (vi) reducing the
reliability of service provided by the Guarantors and the amount of energy
available from the Guarantors' facilities. Any of such items could have a
substantial impact on amounts required to be expended by the Guarantors in the
future. Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other social and economic factors, and
include estimates of associated legal costs. These amounts also consider prior
experience in remediating sites, other companies' clean-up experience and data
released by the Environmental Protection Agency or other organizations. These
estimated liabilities are subject to revision in future periods based on actual
costs or new circumstances, and are included in the accompanying balance sheets
at their undiscounted amounts. As of December 31, 2001 and December 31, 2000,
the environmental liabilities recorded on the balance sheet were not material.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying combined balance sheets of the Partnership
Guarantors as of December 31, 2001 and 2000, and the related combined statements
of operations, Guarantors' equity and cash flows for each of the three years in
the period ended December 31, 2001. Our audits also included the financial
statements schedule listed in Item 14. These financial statements and financial
statement schedule are the responsibility of the Partnership Guarantors'
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Partnership Guarantors as of
December 31, 2001 and 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, such financial statement schedule, when considered
in relation to the basic combined financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the combined financial statements, in 2001 the
Partnership Guarantors changed their accounting policy for overhaul and well
workover costs.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 17, 2002 (March 1, 2002 as to Note 8A)
PARTNERSHIP GUARANTORS
COMBINED BALANCE SHEETS
(Dollars in Thousands)
December 31,
- -------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------
ASSETS
Accounts receivable, net of allowance of $14,925
and $0, respectively (Note 8) $ 59,384 $ 28,319
Prepaid expenses and other assets 19,358 26,661
--------- ----------
Total current assets 78,742 54,980
Restricted cash 21,282 106
Property, plant, contracts and equipment, net (Note 3) 633,574 640,204
Management fee 70,806 70,855
Due from affiliates 13,072 31,126
Excess of fair value over net assets acquired, net 120,866 124,430
------- -------
$ 938,342 $ 921,701
=========== ===========
LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable $ 5,480 $ 101
Accrued liabilities 14,458 17,722
Current portion of long term debt 4,625 1,907
--------- ---------
Total current liabilities 24,563 19,730
Senior secured project note (Note 4) 244,117 248,743
Deferred income taxes 102,083 101,734
--------- -------
Total liabilities 370,763 370,207
Commitments and contingencies (Notes 4, 5 and 8)
Guarantors' equity:
Common stock 3 3
Additional paid-in capital 387,663 387,663
Retained earnings 179,913 163,828
------- -------
Total Guarantors' equity 567,579 551,494
------- -------
$ 938,342 $ 921,701
=========== ===========
The accompanying notes are an integral part of the combined financial statements
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Years Ended December 31,
- -----------------------------------------------------------------------------------------------------------------
2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Revenues:
Sales of electricity $119,738 $103,250 $105,921
Interest and other income 6,580 4,934 9,067
--------- -------- --------
Total revenues 126,318 108,184 114,988
Costs and expenses:
Operating, general and administrative costs 62,749 52,996 47,967
Depreciation and amortization 22,773 19,743 22,566
Interest expense 19,330 20,092 22,200
Less capitalized interest (13,237) (19,521) (15,773)
------- -------- --------
Total expenses 91,615 73,310 76,960
--------- --------- --------
Income before income taxes 34,703 34,874 38,028
Provision for income taxes (Note 7) 11,728 7,694 12,547
--------- --------- --------
Income before cumulative effect
of accounting change 22,975 27,180 25,481
Cumulative effect of accounting change, net of tax (Note 2) (6,890) --- ---
---------- -------- --------
Net income $ 16,085 $ 27,180 $ 25,481
======== ======== ========
The accompanying notes are an integral part of the combined financial statements
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF GUARANTORS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
(Dollars in Thousands)
Additional
Common Stock Paid-in Retained Total
Shares Amount Capital Earnings Equity
------ ------ -------- -------- -------
Balance, January 1, 1999 3 $ 3 $387,663 $111,167 $ 498,833
Net income - - - 25,481 25,481
------ ------- -------- --------- ---------
Balance, December 31, 1999 3 3 387,663 136,648 524,314
Net income - - - 27,180 27,180
------ ------ -------- --------- ---------
Balance, December 31, 2000 3 3 387,663 163,828 551,494
Net income - - - 16,085 16,085
------ ------ -------- --------- --------
Balance, December 31, 2001 3 $ 3 $387,663 $179,913 $ 567,579
====== ======= ======== ======== =========
The accompanying notes are an integral part of the combined financial statements
PARTNERSHIP GUARANTORS
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
- ------------------------------------------------------------------------------------------
2001 2000 1999
- ------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 16,085 $ 27,180 $ 25,481
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,773 19,743 22,566
Cumulative effect of change in accounting
principle, net of tax 6,890 --- ---
Deferred income taxes 725 2,827 1,266
Changes in assets and liabilities:
Accounts receivable (31,065) (12,024) 17,109
Prepaid expenses and other assets (4,326) (4,461) 4,129
Accounts payable and accrued liabilities 2,115 364 (310)
--------- --------- ---------
Net cash flows from operating activities 13,197 33,629 70,241
--------- --------- --------
Cash flows from investing activities:
Capital expenditures (17,871) (42,349) (40,455)
Construction in progress (22,507) (75,856) (107,346)
Liquidated damages 29,648 --- ---
Decrease (increase) in restricted cash (21,176) 60,348 104,529
Management fee (1,800) (2,177) (2,704)
---------- ---------- ---------
Net cash flows from investing activities (33,706) (60,034) (45,976)
---------- ---------- ---------
Cash flows from financing activities:
Repayments of senior secured project notes (1,908) (10,562) (32,364)
Due from affiliates 22,417 36,967 8,099
--------- --------- --------
Net cash flows from financing activities 20,509 26,405 (24,265)
--------- --------- ---------
Net change in cash --- --- ---
Cash at beginning of period --- --- ---
--------- --------- --------
Cash at the end of period $ --- $ --- $ ---
=========== ========== =========
Supplemental disclosure:
Cash paid for interest,
net of capitalized interest $ 5,863 $ 89 $ 5,942
=========== ========== =========
Income taxes paid $ 9,460 $ 4,867 $ 11,281
=========== =========== =========
The accompanying notes are an integral part of these
combined financial statements
PARTNERSHIP GUARANTORS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
The Partnership Guarantors (the "Guarantors") (not a legal entity) include the
Vulcan/BN Geothermal Power Company ("Vulcan"), Elmore, L.P. ("Elmore"),
Leathers, L.P. ("Leathers"), Del Ranch, L.P. ("Del Ranch") and CE Turbo LLC
("Turbo "), each of which owns an operating geothermal power plant located in
Imperial Valley, California known as the Vulcan Project, the Elmore Project, the
Leathers Project, the Del Ranch Project and Turbo Project, respectively (the
"Partnership Projects"). The Partnership Guarantors also include CalEnergy
Minerals LLC ("Minerals LLC"), which is constructing a zinc recovery project in
the Imperial Valley, California. Finally, the Partnership Guarantors include
CalEnergy Operating Corporation ("CEOC"), Vulcan Power Company ("VPC"), both 99%
owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding
Corporation (the "Funding Corporation") San Felipe Energy Company ("San
Felipe"), Conejo Energy Company ("Conejo"), Niguel Energy Company ("Niguel"),
VPC Geothermal LLC ("VPCG"), Salton Sea Minerals Corp. and CE Salton Sea Inc.
VPC and VPCG, collectively own 100% of the partnership interests in Vulcan. CEOC
and Niguel, San Felipe and Conejo, collectively own 90% partnership interests in
each of Elmore, Leathers and Del Ranch, respectively. Salton Sea Minerals
Corporation owns Minerals LLC. Minerals LLC is an indirect wholly-owned
subsidiary of MidAmerican Energy Holdings Company ("MidAmerican"). CE Salton Sea
Inc. owns Power LLC and Turbo LLC.
Magma owns all of the remaining 10% interests in each of Elmore, Leathers and
Del Ranch. CEOC is entitled to receive from Magma, as payment for certain data
and services provided by CEOC, all of the partnership distributions Magma
receives with respect to its 10% ownership interests in each of the Elmore,
Leathers and Del Ranch Projects and Magma's special distributions equal to 4.5%
of total energy revenues from the Leathers Project.
Magma is a wholly-owned subsidiary of CE Generation LLC ("CE Generation"), which
is owned equally by MidAmerican and El Paso CE Generation Holding Company, which
was merged into EPME on December 31, 2000, an indirect subsidiary of El Paso
Corporation.
Minerals LLC owns the rights to proprietary processes for the extraction of zinc
from elements in solution in the geothermal brine and fluids utilized at the
Guarantors' Imperial Valley plants. A pilot plant has successfully produced
commercial quality zinc at the Guarantors' Imperial Valley Project. The
Guarantor's affiliates intend to sequentially develop facilities for the
extraction of manganese, silver, gold, lead, boron, lithium and other products
as they further develop the extraction technology.
Minerals LLC is constructing the Zinc Recovery Project, which will recover zinc
from the geothermal brine (the "Zinc Recovery Project"). Facilities are being
installed near the sites of the Imperial Valley Projects to extract a zinc
chloride solution from the geothermal brine through an ion exchange process.
This solution will be transported to a central processing plant where zinc
ingots will be produced through solvent extraction, electrowinning and casting
processes. The Zinc Recovery Project is designed to have a capacity of
approximately 30,000 metric tonnes per year and is scheduled to commence
commercial operation in 2002. In September 1999, Minerals LLC entered into a
sales agreement whereby all zinc produced by the Zinc Recovery Project will be
sold to Cominco, Ltd. The initial term of the agreement expires in December
2005.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of the Guarantors present the accounts of
CEOC, VPC, CE Turbo LLC and Minerals LLC and their proportionate share of the
Partnerships in which they have an undivided interest in the assets and are
proportionately liable for their share of the liabilities. All significant
intercompany balances and transactions have been eliminated.
The financial statements reflect the acquisition of Magma and the resulting push
down to the Guarantors of the accounting as a purchase business combination.
Revenue Recognition
The Guarantors recognize revenues and related accounts receivable from sales of
electricity on an accrual basis. All of the Guarantors' sales of electricity,
except for Turbo, are to Southern California Edison Company ("Edison") under
long-term power purchase contracts.
Each of the Partnership Projects, except for Turbo, sells electricity generated
by the respective plants pursuant to four long-term power purchase agreements
("SO4 Agreements") between the projects and Edison. These SO4 Agreements provide
for capacity payments, capacity bonus payments and energy payments. Edison makes
fixed annual capacity payments to the projects, and to the extent that capacity
factors exceed certain benchmarks is required to make capacity bonus payments.
The price for capacity and capacity bonus payments is fixed for the life of the
SO4 Agreements. Energy is sold at increasing fixed rates for the first ten years
of each contract and thereafter at a rate based on the cost that Edison avoids
by purchasing energy from the project instead of obtaining the energy from other
sources ("Avoided Cost of Energy"). The fixed energy price periods of the
Partnership Project SO4 Agreements extended until February 1996 for Vulcan,
December 1998 for Hoch (Del Ranch) and Elmore, and December 1999 for the
Leathers Partnership. In June and November 2001, the Partnership Projects which
receive Edison's Avoided Cost of Energy entered into agreements that provide for
a fixed energy payment /kWh in lieu of Edison's Avoided Cost of Energy. The
fixed energy payments are 3.25 cents/kWh from December 1, 2001 through April 30,
2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year period. Following
the five-year period, the energy payment reverts back to Edison's Avoided Cost
of Energy.
For the years ended December 31, 2001, 2000 and 1999, Edison's average Avoided
Cost of Energy was 7.4 cents, 5.8 cents and 3.1 cents per kWh, respectively.
Estimates of Edison's future Avoided Cost of Energy vary substantially from year
to year. The Guarantors cannot predict the likely level of Avoided Cost of
Energy prices.
The Turbo Project, which commenced commercial operation in the third quarter of
2000, sells its output through other market transactions. The Turbo Project may
sell its output to the Zinc Recovery Project, which is owned by a subsidiary of
MidAmerican and is expected to commence operations in 2002.
Overhaul and Well Rework Costs
The Guarantors have changed their accounting policy for overhaul and well
workover costs. These costs, which have historically been accounted for using
the deferral method, are now expensed as incurred. The new policy went into
effect January 1, 2001 and the Guarantors have recorded a cumulative effect of
this change of approximately $6.9 million, net of tax of $4.7 million. If the
Guarantors had adopted the policy as of January 1, 2000, net income would have
been $4.9 million higher in 2000 on a proforma basis.
Restricted Cash
The restricted cash balance primarily included commercial paper, money market
securities and mortgage backed securities and was composed of amounts deposited
in restricted accounts, which the Guarantors will use to fund capital
expenditures.
Property, Plant, Contracts and Equipment
Property, plant, contracts and equipment are carried at cost less accumulated
depreciation. The Guarantors provide depreciation and amortization of property,
plants, contracts and equipment upon the commencement of revenue production over
the estimated useful life of the assets.
Depreciation of the operating power plant costs, net of salvage value, is
computed on the straight-line method over the estimated useful lives, between 10
and 30 years. Depreciation of furniture, fixtures and equipment is computed on
the straight-line method over the estimated useful lives of the related assets,
which range from three to ten years.
Power sale agreements have been assigned values separately for each of (1) the
remaining portion of the fixed price periods of the power sales agreements and
(2) the 20-year avoided cost periods of the power sales agreements and are
amortized separately over such periods using the straight-line method.
The Salton Sea reservoir contains commercial quantities of extractable minerals.
The carrying value of the mineral reserves will be amortized upon commencement
of commercial production.
The process license represents the economic benefits expected to be realized
from the installation of the license and related technology at the Imperial
Valley. The carrying value of the process license is amortized using the
straight-line method over 24 years, the remaining estimated useful life of the
license.
Excess of Cost over Fair Value
Total acquisition costs in excess of the fair values assigned to the net assets
acquired are amortized over a 40-year period using the straight-line method. At
December 31, 2001 and 2000 accumulated amortization of the excess of cost over
fair value of net assets acquired was $24.6 million and $21.1 million,
respectively.
Capitalization of Interest and Deferred Financing Costs
Prior to the commencement of operations, interest is capitalized on the costs of
the plants and geothermal resource development to the extent incurred.
Capitalized interest and other deferred charges are amortized over the lives of
the related assets.
Deferred financing costs are amortized over the term of the related financing
using the effective interest method.
Income Taxes
The entities comprising the Guarantors are included in consolidated income tax
returns with their parent and affiliates; however, income taxes are provided on
a separate return basis. Tax obligations of the Guarantors will be remitted to
the parent only to the extent of cash flows available after operating expenses
and debt service.
Management Fee
Pursuant to the Magma Services Agreement, Magma has agreed to pay CEOC all
equity cash flows and certain royalties payable by the Guarantors in exchange
for providing data and services to Magma. As security for the obligations of
Magma under the Magma Services Agreement, Magma has collaterally assigned to
CEOC its rights to such equity cash flows and certain royalties.
Statements of Cash Flows
For purposes of the statement of cash flows, the Guarantors consider only demand
deposits at banks to be cash.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based on
market prices of similar instruments and/or valuation techniques using market
assumptions. Unless otherwise noted, the estimated fair value amounts do not
differ significantly from recorded values.
Impairment of Long-Lived Assets
The Guarantors review long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss would be
recognized, based on discounted cash flows or various models, whenever evidence
exists that the carrying value is not recoverable.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities", which was delayed by SFAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of FASB No. 133" and amended by SFAS 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS 133 requires an entity to
recognize all of its derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. The
Guarantors adopted the new standards on January 1, 2001. The initial adoption of
SFAS 133 did not have any material impact on the Guarantors' financial position,
results of operations or cash flows.
In July 2001, FASB issued SFAS No. 141, "Business Combinations", and SFAS No.
142, "Goodwill and Other Intangible Assets", which establish accounting and
reporting for business combinations. SFAS No. 141 requires all business
combinations entered into subsequent to June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 142 provides that goodwill and other
intangible assets with indefinite lives will not be amortized, but will be
tested for impairment on an annual basis. These standards are effective for the
Guarantors beginning on January 1, 2002. SFAS 142 is effective for the
Guarantors beginning January 1, 2002. Under the current method of assessing
goodwill for impairment, which uses an undiscounted cash flow approach, no
material impairment existed at December 31, 2001. For 2002, the Company will
begin to test goodwill for impairment under the new rules, applying a
fair-value-based approach. The Guarantors are in the process of quantifying the
anticipated impact on its financial condition and results of operations of
adopting the provisions of SFAS No. 142, which could be significant. The
historical impact of not amortizing goodwill would have been to increase net
income for the years ended December 31, 2001, 2000 and 1999 by approximately
$3.6 million, $3.6 million and $3.6 million, respectively. However, impairment
reviews may result in future periodic write-downs.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". This standard addresses financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS 143 is effective for the Guarantor's fiscal
year beginning January 1, 2003. The Guarantors have not quantified the impact
resulting from the adoption of this standard.
In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". The standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for the Guarantors' fiscal year beginning January 1, 2002. The Guarantors have
not quantified the impact resulting from the adoption of this standard.
3. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT
Property, plant, contracts and equipment consisted of the following (in
thousands):
December 31,
- -------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------
Plant and equipment $205,993 $196,113
Power sale agreements 123,588 123,588
Process license 46,290 46,290
Mineral reserves 168,988 166,650
Wells and resource development 100,876 95,570
---------- ------
645,735 628,211
Less accumulated depreciation
and amortization (170,952) (153,592)
-------- ---------
474,783 474,619
Construction in progress:
Zinc recovery project 158,791 165,585
------- -------
$ 633,574 $ 640,204
========== ===========
4. SENIOR SECURED PROJECT NOTE
The Guarantors' project note payable to Salton Sea Funding Corporation consists
of the following (in thousands):
Senior Final Maturity December 31,
Secured Series Date Rate 2001 2000
June 20, 1996 E Bonds May 30, 2011 8.30% $47,922 $48,922
October 13, 1998 F Bonds November 30, 2018 7.475% 200,820 201,728
-------- -------
$248,742 $250,650
========= ========
Principal maturities of the senior secured project note are as follows
(in thousands):
2002 $ 4,625
2003 5,017
2004 5,771
2005 6,022
2006 5,124
Thereafter 222,183
----------
$248,742
The Guarantors have also guaranteed, along with other guarantors, the debt of
Salton Sea Funding Corporation, which amounted to $520.3 million at December 31,
2001. The guarantee is collateralized by a lien on the available cash flow of
and a pledge of stock in the Guarantors. The structure has been designed to
cross collateralize cash flows from each guarantor without cross collateralizing
all of the guarantors' assets.
The estimated fair values of the senior secured project note at December 31,
2001 and 2000 were $221.2 million and $210.6 million, respectively.
5. RELATED PARTY TRANSACTIONS
The Guarantors are party to a 30-year brine supply agreement through the
Vulcan/BN Geothermal Power Company partnership and a technology license
agreement for the rights to use the technology necessary for the construction
and operation of the Vulcan Plant. Under the brine supply agreement, the
Guarantors will pay VPC 4.167% of the contract energy component of the price of
electricity provided by the Vulcan Plant. In addition, VPC has been designated
as operator of the Vulcan Plant and receives agreed-upon compensation for such
services.
Charges to the Guarantors related to the brine supply agreement and operator's
fees on a pro rata basis amounted to $918,000 and $824,000, respectively, for
the year ended December 31, 2001, $709,000 and $676,000, respectively, for the
year ended December 31, 2000, $423,000 and $472,000, respectively, for the year
ended December 31, 1999, respectively.
In addition, the Guarantors entered into the following agreements:
Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development, whereby the Guarantors acquired from Magma rights to extract
geothermal brine from the geothermal lease rights property which is
necessary to operate the Leathers, Del Ranch and Elmore Plants in return
for 17.333%, on a pro rata basis, of all energy revenues received by each
plant. The Guarantors' share of amounts expensed under this agreement for
2001, 2000 and 1999 were $11.5 million, $9.6 million and $11.9 million,
respectively.
Ground Leases dated March 15 and August 15, 1988 with Magma whereby the
Guarantors lease from Magma for 32 years the surface of the land as
described in the Imperial County Assessor's official records. Amounts
expensed under the ground leases for 2001, 2000 and 1999 were $70,000 per
year.
Administrative Services Agreements whereby CEOC will provide to the
Partnerships administrative and management services for a period of 32
years through 2020. Fees payable to CEOC amount to the greater of 3% of
total electricity revenues or $60,000 per month. The minimum monthly
payments for years subsequent to 1989 are increased based on the consumer
price index of the Bureau of Labor and Statistics. Amounts expensed related
to these agreements for 2001, 2000 and 1999 amounted to $2.6 million, $2.3
million and $2.7 million, respectively.
Operating and Maintenance Agreements whereby the Guarantors retain CEOC to
operate the plants for a period of 32 years through 2020. Payment is made
to CEOC in the form of reimbursements of expenses incurred and a guaranteed
capacity payment ranging from 10% to 25% of energy revenues over stated
amounts. The Guarantors in 2001, 2000 and 1999 reimbursed CEOC for expenses
of $14.6 million, $10.6 million and $7.5 million, respectively, and accrued
a guaranteed capacity payment of $3.0 million, $1.9 million and $3.3
million at December 31, 2001, 2000 and 1999, respectively.
On September 29, 2000, CE Turbo LLC entered into an agreement to sell all
available power from the Turbo Project to El Paso Merchant Energy L.P. ("EPME").
Under the terms of the agreement, commencing October 1, 2000 and ending
September 30, 2001, EPME purchased and sold available power on behalf of the
Turbo Project, into the California ISO markets. The purchase price for the
available power shall be equivalent to the value actually received by EPME for
the sale of such power, including renewable premiums
On January 17, 2001, CE Turbo LLC entered into an agreement to sell available
power from the Turbo Project to EPME. Under the terms of the agreement at the
option of CE Turbo, EPME will purchase all available power from CE Turbo based
on day ahead price quotes received from EPME.
On March 27, 2001 and May 1, 2001, the Guarantors entered into a Transaction
Agreement to sell available power to EPME based on percentages of the Dow Jones
SP-15 index. On June 28, 2001, the Guarantors (excluding the Turbo Project)
ceased selling available power to EPME and resumed power sales to Edison.
Pursuant to these agreements, sales to EPME from the Company totaled $49.4
million, $3.4 million and $0 million in 2001, 2000 and 1999, respectively. As of
December 31, 2001 and 2000, accounts receivable from EPME were $2.4 million and
$1.5 million, respectively.
6. CONDENSED FINANCIAL INFORMATION
Vulcan
Power CEOC Elmore Del Ranch Leathers
----- ---- ------ --------- --------
December 31, 2001 Assets:
Restricted cash $ - $ - $ - $ - $ -
Accounts receivable and
other assets 3 17,364 15,348 14,487 15,136
Due from affiliates (3,847) 41,358 35,510 27,950 34,301
Property, plant, contracts and
equipment, net 7,098 13,868 59,913 64,782 67,108
Management fee and
goodwill, net - - - - -
Investments in
partnerships 108,861 328,580 - - -
---------- ---------- --------- ---------- ----------
$ 112,115 $ 401,170 $ 110,771 $ 107,219 $ 116,545
========== ========== ========= ========== ==========
Liabilities and Equity:
Accounts payable, accrued
liabilities and deferred
taxes $ 320 $ 8,928 $ 2,233 $ 1,528 $ 2,194
Senior secured project note - - - - -
--------- ---------- -------- ---------- ----------
Total liabilities 320 8,928 2,233 1,528 2,194
Guarantors' equity 111,795 392,242 108,538 105,691 114,351
---------- ---------- ------- ---------- ----------
$ 112,115 $ 401,170 $ 110,771 $ 107,219 $ 116,545
========== ========== ========= ========== ==========
6. CONDENSED FINANCIAL INFORMATION (Continued)
Vulcan Adjustments/ Combined
BNG Minerals Turbo Eliminations Total
---- -------- ----- ------------ ------
December 31, 2001 Assets:
Restricted cash $ - $ 21,282 $ - $ - $ 21,282
Accounts receivable and
other assets 14,246 640 217 1,301 78,742
Due from affiliates 28,326 (25,197) (3,498) (121,831) 13,072
Property, plant, contracts and
equipment, net 67,306 135,242 9,417 208,840 633,574
Management fee and
goodwill, net - - - 191,672 191,672
Investments in
partnerships - - (437,441) -
---------- ---------- --------- ---------- ----------
$109,878 $ 131,967 $ 6,136 $ (157,459) $ 938,342
========== ========== ========= ========== ==========
Liabilities and Equity:
Accounts payable, accrued
liabilities and deferred
taxes $ 1,017 $ (1,610) $ 1,818 $ 105,593 $ 122,021
Senior secured project note - 139,896 - 108,846 248,742
---------- ---------- --------- ---------- ----------
Total liabilities 1,017 138,286 1,818 214,439 370,763
Guarantors' equity 108,861 (6,319) 4,318 (371,898) $ 567,579
$ 109,878 $ 131,967 $ 6,136 $ (157,459) $ 938,342
========== ========== ========= ========== ==========
6. CONDENSED FINANCIAL INFORMATION (Continued)
Vulcan
Power CEOC Elmore Del Ranch Leathers
------ ---- ------ --------- --------
December 31, 2000 Assets:
Restricted cash $ - $ - $ - $ - $ -
Accounts receivable and
other assets - 15,304 10,019 8,105 9,946
Due from affiliates (4,218) 36,919 31,307 42,659 31,353
Property, plant, contracts and
equipment, net 7,377 15,173 61,078 52,953 69,179
Management fee and
goodwill, net - - - - -
Investments in
partnerships 98,656 312,381 - - -
---------- ---------- --------- ---------- ---------
$ 101,815 $ 379,777 $ 102,404 $ 103,717 $ 110,478
========== ========== ========= ========== =========
Liabilities and Equity:
Accounts payable, accrued
liabilities and deferred taxes$ 1,098 $ 7,849 $ 1,244 $ 1,554 $ 1,419
Senior secured project note - - - - -
---------- ---------- --------- ---------- ---------
Total liabilities 1,098 7,849 1,244 1,554 1,419
Guarantors' equity 100,717 371,928 101,160 102,163 109,059
---------- ---------- --------- ---------- ---------
$ 101,815 $ 379,777 $ 102,404 $ 103,717 $ 110,478
========== ========== ========= ========== =========
Vulcan Adjustments/ Combined
BNG Minerals Turbo Eliminations Total
--- -------- ----- ------------ ------
December 31, 2000 Assets:
Restricted cash $ - $ - $ - $ 106 $ 106
Accounts receivable and
other assets 7,923 195 1,922 1,566 54,980
Due from affiliates 42,002 (16,747) (8,358) (123,791) 31,126
Property, plant, contracts and
equipment, net 49,852 152,933 10,114 221,545 640,204
Management fee and
goodwill, net - - - 195,285 195,285
Investments in
partnerships - - - (411,037) -
---------- ---------- --------- ---------- ----------
$ 99,777 $ 136,381 $ 3,678 $ (116,326) $ 921,701
========== ========== ========= ========== ==========
Liabilities and Equity:
Accounts payable, accrued
liabilities and deferred taxe$ 1,121 $ (1,208) $ 1,252 $ 105,228 $ 119,557
Senior secured project note - 140,528 - 110,122 250,650
---------- ---------- --------- ---------- ----------
Total liabilities 1,121 139,320 1,252 215,350 370,207
Guarantors' equity 98,656 (2,939) 2,426 (331,676) 551,494
---------- ---------- --------- ---------- ----------
$ 99,777 $ 136,381 $ 3,678 $ (116,326) $ 921,701
========== ========== ========= ========== ==========
6. CONDENSED FINANCIAL INFORMATION (Continued)
Condensed combining statements of operations including information of the
Guarantors' pro rata interest in the respective entities for the years ended
December 31, 2001, 2000 and 1999 is as follows:
Vulcan
Power CEOC Elmore Del Ranch Leathers
----- ---- ------ --------- --------
December 31, 2001
Revenues $ 1,757 $ 5,417 $ 31,165 $ 28,446 $ 30,591
Expenses 884 1,302 23,787 24,918 25,299
--------- --------- -------- --------- ---------
Net income $ 873 $ 4,115 $ 7,378 $ 3,528 $ 5,292
========= ======= ======== ========== ==========
December 31, 2000
Revenues $ 1,386 $ 4,657 $ 25,762 $ 25,610 $ 25,662
Expenses 709 - 18,887 18,866 19,684
--------- ------- -------- --------- ---------
Net income $ 677 $ 4,657 $ 6,875 $ 6,744 $ 5,978
========= ========= ======== ========== ==========
December 31, 1999
Revenues $ 892 $ 6,104 $ 16,908 $ 17,299 $ 56,127
Expenses 485 - 15,764 13,914 36,320
--------- ------- -------- --------- ---------
Net income $ 407 $ 6,104 $ 1,144 $ 3,385 $ 19,807
========== ======= ======== ======== =========
Vulcan Adjustments/ Combined
BNG Minerals Turbo Eliminations Total
--- -------- ----- ------------ ----------
December 31, 2001
Revenues $ 28,375 $ 847 $ 5,082 $ (5,362) $ 126,318
Expenses 18,170 5,271 2,797 7,805 110,233
-------- --------- -------- ---------- ----------
Net income $ 10,205 $ (4,424) $ 2,285 $ (13,167) $ 16,085
======== ========= ======== ========== ==========
December 31, 2000
Revenues $ 22,749 $ 576 $ 4,652 $ (2,870) $ 108,184
Expenses 12,214 4,962 1,031 4,651 81,004
--------- --------- -------- ---------- ----------
Net income $ 10,535 $ (4,386) $ 3,621 $ (7,521) $ 27,180
========= ========= ======== ========== ==========
December 31, 1999
Revenues $ 15,756 $ --- $ --- $ 1,902 $ 114,988
Expenses 9,663 --- --- 13,361 89,507
--------- --------- -------- ---------- ----------
Net income $ 6,093 $ --- $ --- $ (11,459) $ 25,481
========= ========= ======== ========== ==========
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 2001, 2000 and
1999 consisted of the following (in thousands):
Current Deferred Total
2001
Federal $ 8,190 $ 880 $ 9,070
State 2,813 (155) 2,658
---------- --------- ---------
Total $ 11,003 $ 725 $ 11,728
========== ========== =========
2000
Federal $ 3,956 $ 946 $ 4,902
State 911 1,881 2,792
--------- --------- ---------
Total $ 4,867 $ 2,827 $ 7,694
========== ========= =========
1999
Federal $ 8,527 $ 991 $ 9,518
State 2,754 275 3,029
--------- -------- ---------
Total $ 11,281 $ 1,266 $12,547
========== ========= =======
The net deferred tax liability at December 31, 2001 and 2000 consisted of the
following (in thousands).
2001 2000
---- ----
Liabilities:
Properties, plant contracts and equipment $ 115,843 $ 106,447
Other - 1,125
--------- ---------
115,843 107,572
Assets:
Accruals not currently deductible for tax purposes (6,577) -
Energy credits (5,126) (5,170)
AMT credit (2,057) (668)
--------- ---------
(13,760) (5,838)
--------- ---------
Net deferred tax liability $ 102,083 $ 101,734
========= =========
A reconciliation of the federal statutory tax rate to the effective tax rate
applicable to income before provision for income taxes follows:
2001 2000 1999
Federal statutory rate 35.0% 35.0% 35.0%
Percentage depletion (8.6) (9.5) (6.8)
Investment and energy tax credits (1.2) (12.2) (3.7)
Goodwill amortization 3.6 3.6 3.3
State taxes, net of federal benefit 5.0 5.2 5.2
---------------------------------------
Effective tax rate 33.8% 22.1% 33.0%
=========== ============= =============
8. COMMITMENTS AND CONTINGENCIES
A. Financial Condition of Edison
Edison, a wholly owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The Funding
Corporation is aware that there have been public announcements that Edison's
financial condition has deteriorated as a result of reduced liquidity. Following
Edison's recent financing Edison's senior unsecured debt obligations were
upgraded to Ba3 by Moody's and BB by S&P.
Edison failed to pay approximately $76.9 million due under the power purchase
agreements with certain Guarantors (Imperial Valley Projects, excluding the
Salton Sea V and Turbo Projects) for power delivered in November and December
2000 and January, February and March 2001, although the Power Purchase
Agreements provide for billing and payment on a schedule where payments would
have normally been received in early January, February, March, April and May
2001.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in
California's Imperial County Superior Court seeking a court order requiring
Edison to make the required payments under the Power Purchase Agreements. The
lawsuit also requested, among other things, that the court order permit these
Guarantors to suspend deliveries of power to Edison and to permit the Guarantors
to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted Guarantors' Motion for Summary
Adjudication and a Declaratory Judgment ordering that: 1) under the Power
Purchase Agreements, Guarantors have the right to temporarily suspend deliveries
of capacity and energy to Edison, 2) Guarantors are entitled to resell the
energy and capacity to other purchasers and 3) the interim suspension of
deliveries to Edison shall not in any respect result in the modifications or
termination of the Power Purchase Agreements and the Power Purchase Agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.
As a result of the March 22, 2001 Declaratory Judgment, the Guarantors'
suspended deliveries of energy to Edison and entered into a transaction
agreement with EPME in which the Guarantors' available power was sold to EPME
based on percentages of the Dow Jones SP-15 Index. On June 18, 2001, the
Superior Court prospectively vacated its order authorizing the Guarantors' to
resell power.
On June 20, 2001, the Guarantors' (excluding the Turbo Project) entered into
Agreements Addressing Renewable Energy Pricing and Payment Issues with Edison
("Settlement Agreements") and, as a result, resumed power sales to Edison on
June 22, 2001. The Settlement Agreements required that Edison make an initial
payment to repay the past due balances under the Power Purchase Agreements (the
"stipulated amounts"). The initial payment of approximately $7.5 million, which
represented 10% of the stipulated amounts, was received June 22, 2001. On
October 2, 2001, the California Public Utilities Commission ("CPUC") announced
an agreement with Edison that allowed Edison to recover in retail electric rates
its past due obligations. On November 30, 2001, the Settlement Agreements were
amended to reflect when Edison would be required to make the final payment on
past due amounts. On March 1, 2002, Edison obtained $1.8 billion in secured
financing that, when combined with cash on hand, enabled Edison to pay off its
past due debts. The final payment of approximately $67.7 million, representing
the remaining stipulated amounts, was received March 1, 2002. In addition to
these payments, Edison was required to make monthly interest payments calculated
at a rate of 7% per annum on the outstanding stipulated amounts. The amended
Settlement Agreements provide a revised energy pricing structure, whereby Edison
elects to pay the Guarantors' a fixed energy price in lieu of the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. The fixed energy price is 3.25 cents/kWh from December 2001 through
April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year period.
Following the five-year period, the energy payments revert back to the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. Estimates of Edison's future avoided cost of energy vary
substantially from year to year.
As a result of the uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been not renewed, and as such cash distributions are not available to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately $67.6 million, has been funded or the letter of credit has been
renewed or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Turbo Project has not received payment for power sold under the
Transaction Agreements during December 2000 and January 2001 of approximately
$0.8 million.
The Guarantors are contractually entitled to receive payments under the Power
Purchase Agreements, Settlement Agreements and Transactions Agreements. However,
due to the uncertainties associated with Edison's financial condition and
failure to pay contractual obligations at December 31, 2001, along with the
California Power Exchange bankruptcy, the Guarantors have established an
allowance for doubtful accounts of approximately $14.9 million on December 31,
2001.
Southern California Edison - Capacity Bonus Payments
Edison has failed to pay approximately $.9 million of capacity bonus payments
for the months of October, November and December 2001. On December 10, 2001 the
Guarantors filed a lawsuit against Edison in California's Imperial County
Superior Court seeking a court order requiring Edison to make the required
capacity bonus payments under the Power Purchase Agreements. The Guarantor will
vigorously pursue the collection of the capacity bonus payments.
B. Minerals
The Zinc Recovery Project was being constructed by Kvaerner U.S. Inc.
("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering,
procure, construct and manage contract (the "Zinc Recovery Project EPC
Contract"). On June 14, 2001, Minerals LLC issued notices of default,
termination and demand for payment of damages to Kvaerner under the Zinc
Recovery Project EPC Contract due to failure to meet performance obligations. As
a result of Kvaerner's failure to pay monetary obligations under the Zinc
Recovery EPC Contract, the Guarantors drew $29.6 million under the EPC Contract
Letter of Credit on July 20, 2001. The liquidated damages have been accounted
for as a reduction of the capitalized costs of the project. The Guarantors have
entered into a time and materials reimbursable engineer, procure and
construction management contract with AMEC E&C Services, Inc. to complete the
Zinc Recovery Project.
On July 11, 2001, Kvaerner filed an Amended Demand For Arbitration against
Minerals LLC characterizing the nature of the dispute as concerns regarding
change orders and performance penalties. Kvaerner did not state the amount of
its claim.
On August 7, 2001, Minerals LLC filed an Answering Statement and Counterclaim
against Kvaerner. Minerals LLC denied all material allegations in Kvaerner's
Amended Demand for Arbitration, and asserted a counterclaim against Kvaerner for
breach of contract and specific performance. Minerals LLC alleged that its total
estimated damage for Kvaerner's breach of contract are in excess of
approximately $60 million; however, Minerals LLC has offset approximately $42.5
million of these damages by exercising its rights under the EPC Contract to
claim the retainage and by drawing on the letter of credit. Therefore, Minerals
LLC asked for a judgment in excess of approximately $20 million. The arbitration
is scheduled for June 2002.
C. Environmental Liabilities
The Guarantors are subject to numerous legislative and regulatory environmental
protection requirements involving air and water pollution, waste management,
hazardous chemical use, noise abatement, and land use aesthetics.
State and federal environmental laws and regulations currently have, and future
modifications may have, the effect of (i) increasing the lead time for the
construction of new facilities, (ii) significantly increasing the total cost of
new facilities, (iii) requiring modification of the Guarantors' existing
facilities, (iv) increasing the risk of delay on construction projects, (v)
increasing the Guarantors' cost of waste disposal and (vi) reducing the
reliability of service provided by the Guarantors and the amount of energy
available from the Guarantors' facilities. Any of such items could have a
substantial impact on amounts required to be expended by the Guarantors in the
future. Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments indicate that
remediation efforts are probable and the costs can be reasonably estimated.
Estimates of the liability are based upon currently available facts, existing
technology and presently enacted laws and regulations taking into consideration
the likely effects of inflation and other social and economic factors, and
include estimates of associated legal costs. These amounts also consider prior
experience in remediating sites, other companies' clean-up experience and data
released by the Environmental Protection Agency or other organizations. These
estimated liabilities are subject to revision in future periods based on actual
costs or new circumstances, and are included in the accompanying balance sheets
at their undiscounted amounts. As of December 31, 2001 and December 31, 2000,
the environmental liabilities recorded on the balance sheet were not material.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska
We have audited the accompanying balance sheets of the Salton Sea Royalty LLC as
of December 31, 2001 and 2000, and the related statements of operations, equity
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Salton Sea Royalty LLC as of December
31, 2001 and 2000 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, Salton Sea Royalty LLC was
converted to a limited liability company during 1999 and as such the statements
of operations and cash flows for the years ended December 31, 2001 and 2000 are
not comparable due to the change in reporting entity which results in no tax
expense beginning in fiscal 2000.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 17, 2002 (March 1, 2002 as to Note 5)
SALTON SEA ROYALTY LLC
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
December 31,
- ----------------------------------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------
ASSETS
Prepaid expenses and other assets $ 31 $ 82
---------- ---------
Total current assets 31 82
Royalty stream, net 14,865 15,719
Excess of cost over fair value of net assets acquired, net 30,464 31,372
Due from affiliates 33,940 26,497
--------- ---------
$79,300 $73,670
======= =======
LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities $ 29 $ 57
Current portion of long term debt 3,460 4,434
-------- ---------
Total current liabilities 3,489 4,491
Senior secured project note (Note 3) 1,147 4,607
-------- ---------
Total liabilities 4,636 9,098
Commitments and contingencies (Note 3 and 5)
Equity:
Common stock, par value $.01 per share; 100 shares
authorized, issued and outstanding - -
Additional paid-in capital 1,561 1,561
Retained earnings 73,103 63,011
-------- ---------
Total equity 74,664 64,572
-------- ---------
$79,300 $73,670
======= =======
The accompanying notes are an integral part of the financial statements
SALTON SEA ROYALTY LLC
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
Years Ended December 31,
- -------------------------------------------------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------
Revenues:
Royalty income $ 16,882 $ 14,130 $ 26,274
Expenses:
Operating, general and administrative expenses 4,420 3,859 4,610
Amortization of royalty stream and goodwill 1,762 1,965 7,064
Interest expense 608 954 1,682
------- --------- --------
Total expenses 6,790 6,778 13,356
------- --------- --------
Income before income taxes 10,092 7,352 12,918
Income tax benefit --- --- (6,304)
------- --------- ---------
Net income $ 10,092 $ 7,352 $ 19,222
======== ========== ===========
The accompanying notes are an integral part of the financial statements
SALTON SEA ROYALTY LLC
STATEMENTS OF EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
(Dollars in Thousands)
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
------ ------ --------- -------- ------
Balance, January 1, 1999 100 $ - $ 1,561 $36,437 $37,998
Net income - - - 19,222 19,222
------- --------- -------- ---------- -------
Balance, December 31, 1999 100 - 1,561 55,659 57,220
Net income - - - 7,352 7,352
------- -------- -------- ---------- -------
Balance, December 31, 2000 100 - 1,561 63,011 64,572
Net income - - - 10,092 10,092
------- -------- -------- ---------- -------
Balance, December 31, 2001 100 $ - $ 1,561 $ 73,103 $74,664
======= ========= ======== ========= =======
The accompanying notes are an integral part of the financial statements
SALTON SEA ROYALTY LLC
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Years Ended December 31,
- ----------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
Cash flow from operating activities:
Net income $ 10,092 $ 7,352 $ 19,222
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of royalty stream and goodwill 1,762 1,965 7,064
Deferred income taxes --- --- (6,769)
Changes in assets and liabilities:
Prepaid expenses and other assets 51 153 278
Accrued liabilities (28) (25) (9,373)
--------- -------- --------
Net cash flows from operating activities 11,877 9,445 10,422
-------- -------- ------
Net cash flows from financing activities:
Increase in due from affiliates (7,443) (4,672) (1,026)
Repayment of senior secured project note (4,434) (4,773) (9,396)
--------- -------- --------
Net cash flows from financing activities (11,877) (9,445) (10,422)
-------- -------- --------
Net change in cash - - -
Cash at beginning of period - - -
-------- --------- ---------
Cash at end of period $ - $ - $ -
========= ========= ========
Supplemental disclosure:
Interest paid $ 585 $ 978 $ 1,738
========= ========= ========
Income taxes paid $ - $ - $ 465
========= ========= ========
The accompanying notes are an integral part of the financial statements
SALTON SEA ROYALTY LLC
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Salton Sea Royalty LLC (the "Royalty Company") is a special-purpose entity, 99%
owned by Magma Power Company ("Magma") and 1% owned by Salton Sea Funding
Corporation (the "Funding Corporation"). Magma is a wholly-owned subsidiary of
CE Generation LLC ("CE Generation") which is owned equally by MidAmerican Energy
Holdings Company ("MidAmerican") and El Paso CE Generation Holding Company,
which was ultimately merged into EPME an indirect subsidiary of El Paso
Corporation.
The Royalty Company receives an assignment of royalties and certain fees paid by
three partnership projects, Del Ranch, Elmore and Leathers (collectively, the
"Partnership Projects"). All of the Partnership Projects are engaged in the
operation of geothermal power plants in the Imperial Valley in Southern
California. Substantially all of the assigned royalties are based on a
percentage of energy and capacity revenues of the Partnership Projects. Included
in royalty income in 1999 are payments from East Mesa related to a settlement
agreement in 1998 for prior years.
Each of the Partnership Projects, sells electricity generated by the respective
plants pursuant to four long-term power purchase agreements ("SO4 Agreements")
between the projects and Edison. These SO4 Agreements provide for capacity
payments, capacity bonus payments and energy payments. Edison makes fixed annual
capacity payments to the projects, and to the extent that capacity factors
exceed certain benchmarks is required to make capacity bonus payments. The price
for capacity and capacity bonus payments is fixed for the life of the SO4
Agreements. Energy is sold at increasing fixed rates for the first ten years of
each contract and thereafter at a rate based on the cost that Edison avoids by
purchasing energy from the project instead of obtaining the energy from other
sources ("Avoided Cost of Energy"). The fixed energy price periods of the
Partnership Project SO4 Agreements extended until February 1996, December 1998
for Hoch (Del Ranch) and Elmore, and December 1999 for the Leathers Partnership.
In June and November 2001, the Partnership Projects entered into agreements that
provide for a fixed energy payment /kWh in lieu of Edison's Avoided Cost of
Energy. The fixed energy payments are 3.25 cents/kWh from December 1, 2001
through April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year
period. Following the five-year period, the energy payment reverts back to
Edison's Avoided Cost of Energy. In 1998, the East Mesa Project entered into a
Termination Agreement, to which Magma consented, which terminated its SO4
Agreement upon CPUC approval becoming final in 1999.
For the year ended December 31, 2001, 2000 and 1999, Edison's average Avoided
Cost of Energy was 7.4 cents, 5.8 cents and 3.1 cents per kWh, respectively.
Estimates of Edison's future Avoided Cost of Energy vary substantially from year
to year. The Royalty Company cannot predict the likely level of Avoided Cost of
Energy prices.
As discussed above, all revenues except those derived from East Mesa are from,
and all operating expenses are paid by, related parties.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying statement of operations presents revenues and expenses, which
have been assigned to the Royalty Company under the arrangements described above
on the accrual method of accounting. This presentation is a "carve out" of
information from Magma and certain of its affiliates. Such revenues, net of
related expenses, guarantee loans from the Funding Corporation, a wholly-owned
subsidiary of Magma.
The financial statements reflect the acquisition of Magma and the resulting push
down to the Royalty Company of the accounting as a purchase business
combination.
The Royalty Company was converted to a limited liability company during 1999 and
as such the statements of operations and cash flows for the year ended December
31, 2001, 2000 and 1999 are not comparable due to the change in reporting entity
which results in no tax expense beginning in fiscal 2000. Income taxes are now
the responsibility of the partners and the Royalty Company has no obligation to
provide funds to the partners for payment of any tax liabilities. Accordingly,
the Royalty Company has no tax obligations.
Royalty Stream
The Royalty Company's policy is to provide amortization expense beginning upon
the commencement of revenue production over the estimated remaining useful life
of the identifiable assets.
The royalty streams have been assigned values separately for each of (1) the
remaining portion of the fixed price periods of the Projects' power sales
agreements and (2) the 20-year avoided cost periods of the Projects' power sales
agreements and are amortized separately over such periods using the straight
line method. At December 31, 2001 and 2000, accumulated amortization was $45.8
million and $44.8 million, respectively.
Excess of Cost over Fair Value
Total acquisition costs in excess of the fair values assigned to the net assets
acquired are amortized over a 40-year period using the straight-line method. At
December 31, 2001 and 2000, accumulated amortization of the excess of cost over
fair value was $6.3 million and $5.4 million, respectively.
Income Taxes
The Royalty Company is included in consolidated income tax returns with its
parent and affiliates. Income taxes are provided on a separate return basis,
however, tax obligations of the Royalty Company will be remitted to the parent
only to the extent of cash flows available after operating expenses and debt
service. On February 19, 1999, the Royalty Company was converted to a limited
liability company, which is not taxed. Therefore, since that date, no
recognition has been given to federal or state income taxes as that is the
responsibility of the individual members of the LLC.
Fair Values of Financial Instruments
Fair values of financial instruments that are not actively traded are based on
market prices of similar instruments and/or valuation techniques using market
assumptions. Unless otherwise noted, the estimated fair value amounts do not
differ significantly from recorded values.
Impairment of Long-Lived Assets
The Royalty Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized, based on discounted cash flows or various models, whenever
evidence exists that the carrying value is not recoverable.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities", which was delayed by SFAS 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of FASB No. 133" and amended by SFAS 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities". SFAS 133 requires an entity to
recognize all of its derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. The
Royal Company adopted the new standards on January 1, 2001. The initial adoption
of SFAS 133 did not have any impact on the Royalty Company's financial position,
results of operations or cash flows.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 141, "Business Combinations", and
SFAS No. 142, "Goodwill and Other Intangible Assets", which, establish
accounting and reporting for business combinations. SFAS No. 141 requires all
business combinations entered into subsequent to June 30, 2001 to be accounted
for using the purchase method of accounting. SFAS No. 142 provides that goodwill
and other intangible assets with indefinite lives will not be amortized, but
will be tested for impairment on an annual basis. SFAS 142 is effective for the
Royalty Company beginning January 1, 2002. Under the current method of assessing
goodwill for impairment, which uses an undiscounted cash flow approach, no
material impairment existed at December 31, 2001. For 2002, the Royalty Company
will begin to test goodwill for impairment under the new rules, applying a
fair-value-based approach. The Royalty Company is in the process of quantifying
the anticipated impact on its financial condition and results of operations of
adopting the provisions of SFAS No. 142, which could be significant. The
historical impact of not amortizing goodwill would have been to increase net
income for the years ended December 31, 2001, 2000 and 1999 by approximately
$1.0 million, $1.0 million and $1.0 million, respectively. However, impairment
reviews may result in future periodic write-downs.
In August 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations"). This standard addresses financial accounting and reporting for
obligations related to the retirement of tangible long-lived assets and the
related asset retirement costs. SFAS 143 is effective for the Royalty Company's
fiscal year beginning January 1, 2003. The Royalty Company has not quantified
the impact resulting from the adoption of this statement.
In October 2001, FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets". The standard addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and is effective
for the Royalty Company's fiscal year beginning January 1, 2002. The Royalty
Company has not quantified the impact resulting from the adoption of this
standard.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. SENIOR SECURED PROJECT NOTE
The Royalty Company has a project note payable to Salton Sea Funding Corporation
at an interest rate of 7.37%. Principal maturities of the senior secured project
note are as follows (in thousands):
2002 $ 3,460
2003 304
2004 408
2005 435
--------
$ 4,607
The estimated fair values of the senior secured project note at December 31,
2001 and 2000 were $4.6 million and $8.3 million, respectively.
The Royalty Company has also guaranteed, along with other guarantors, the debt
of Salton Sea Funding Corporation, which amounted to $520.3 million at December
31, 2001. The guarantee issued is collateralized by a lien on substantially all
the assets of and a pledge of stock in the Royalty Company. The structure has
been designed to cross collateralize cash flows from each guarantor without
cross collateralizing all of the guarantors' assets.
4. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, consisted
of the following:
Current Deferred Total
------- -------- -------
1999
Federal $ 363 $(5,921) $(5,558)
State 102 (848) (746)
------- -------- ---------
Total $ 465 $(6,769) $(6,304)
======= ======== ========
The Royalty Company's effective tax rate differs from the statutory federal
income tax rate due primarily to percentage depletion in excess of cost
depletion and goodwill amortization.
5. CONTINGENCY
Edison, a wholly-owned subsidiary of Edison International, is a public utility
primarily engaged in the business of supplying electric energy to retail
customers in Central and Southern California, excluding Los Angeles. The Funding
Corporation is aware that there have been public announcements that Edison's
financial condition deteriorated as a result of reduced liquidity. Following
Edison's recent financing, Edison's senior unsecured debt obligations were
upgraded to Ba3 by Moody's and BB by S&P.
Edison failed to pay approximately $119 million due under the Power Purchase
Agreements for power delivered in November and December 2000 and January,
February and March 2001, although the Power Purchase Agreements provide for
billing and payment on a schedule where payments would have normally been
received in early January, February, March, April and May 2001.
On February 21, 2001, certain Guarantors filed a lawsuit against Edison in
California's Imperial County Superior Court seeking a court order requiring
Edison to make the required payments under the Power Purchase Agreements. The
lawsuit also requested, among other things, that the court order permit the
Guarantors to suspend deliveries of power to Edison and to permit the Imperial
Valley Projects to sell such power to other purchasers in California.
On March 22, 2001, the Superior Court granted the Guarantors' Motion for Summary
Adjudication and a Declaratory Judgment ordering that: 1) under the Power
Purchase Agreements, the Guarantors have the right to temporarily suspend
deliveries of capacity and energy to Edison, 2) the Guarantors are entitled to
resell the energy and capacity to other purchasers and 3) the interim suspension
of deliveries to Edison shall not in any respect result in the modifications or
termination of the Power Purchase Agreements and the Power Purchase Agreements
shall in all respects continue in full force and effect other than the temporary
suspension of deliveries to Edison.
As a result of the March 22, 2001 Declaratory Judgment, the Guarantors suspended
deliveries of energy to Edison and entered into a transaction agreement with
EPME in which the Guarantors' available power was sold to EPME based on
percentages of the Dow Jones SP-15 Index. On June 18, 2001 the Superior Court
terminated the Guarantors' right to resell power pursuant to the Declaratory
Judgment.
On June 20, 2001, the Guarantors (excluding the Salton Sea Unit V and Turbo
Projects) entered into Agreements Addressing Renewable Energy Pricing and
Payment Issues with Edison ("Settlement Agreements") and, as a result, resumed
power sales to Edison on June 22, 2001. The Settlement Agreements required that
Edison make an initial payment to repay the past due balances under the Power
Purchase Agreements (the "stipulated amounts"). The initial payment of
approximately $11.6 million, which represented 10% of the stipulated amounts,
was received June 22, 2001. On November 30, 2001, the Settlement Agreements were
amended to reflect when Edison would be required to make the final payment on
past due amounts. The final payment of approximately $104.6, representing the
remaining stipulated amounts, was received March 1, 2002. In addition to these
payments, Edison was required to make monthly interest payments calculated at a
rate of 7% per annum on the outstanding stipulated amounts. The amended
Settlement Agreements provide a revised energy pricing structure, whereby Edison
elects to pay the Guarantors a fixed energy price in lieu of the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements. The fixed energy price is 3.25 cents/kWh from December 1, 2001
through April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five-year
period. Following the five-year period, the energy payments revert back to the
Commission-approved Avoided Cost of Energy Methodology under the Power Purchase
Agreements.
As a result of the uncertainties related to Edison, the letter of credit that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been not renewed, and as such cash distributions are not available to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately $67.6 million, has been funded or the letter of credit has been
renewed or replaced.
In January 2001, the California Power Exchange ("PX") declared bankruptcy. As a
result, the Salton Sea Unit V and CE Turbo Projects have not received payment
for power sold under the Transaction Agreements during December 2000 and January
2001 of approximately $3.8 million.
The Guarantors are contractually entitled to receive payments under the Power
Purchase Agreements and Settlement Agreements. However, due to the uncertainties
associated with Edison's financial condition and failure to pay contractual
obligations, along with the bankruptcy of the PX, the Guarantors established an
allowance for doubtful accounts of approximately $24.8 million at December 31,
2001. The allowance for doubtful accounts has been recorded as a reduction of
net sales in the statement of operations.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Set forth below are the current executive officers of the Funding Corporation
and the Guarantors and their positions with the Funding Corporation and each of
the Guarantors (or general partner thereof):
EXECUTIVE OFFICER POSITION
Gregory E. Abel* Director
Brian K. Hankel Vice President and Treasurer
Joseph M. Lillo Vice President and Controller
Douglas L. Anderson Director, Vice President, and General Counsel
Patrick J. Goodman Director
Larry Kellerman* Director
John L. Harrison* Director
* Gregory E. Abel is Director of CalEnergy Minerals LLC and Salton Sea Minerals
Corp. only.
* Larry Kellerman is Director for all entities except CalEnergy Minerals LLC and
Salton Sea Minerals Corp.
* John L. Harrison is Director for all entities except CalEnergy Minerals LLC
and Salton Sea Minerals Corp.
GREGORY E. ABEL, 39, Director for CalEnergy Minerals LLC and Salton Sea Minerals
Corp. only. Mr. Abel joined MidAmerican in 1992. Mr. Abel is a Chartered
Accountant and from 1984 to 1992 he was employed by Price Waterhouse. As a
Manager in the San Francisco office of Price Waterhouse, he was responsible for
clients in the energy industry.
BRIAN K. HANKEL, 39, Vice President and Treasurer of each Guarantor subsidiary.
Mr. Hankel joined MidAmerican in February 1992 as Treasury Analyst and served in
that position to December 1995. Mr. Hankel was appointed Assistant Treasurer in
January 1996 and was appointed Treasurer in January 1997. Prior to that, Mr.
Hankel was a Money Position Analyst at FirsTier Bank of Lincoln from 1988 to
1992 and Senior Credit Analyst at FirsTier from 1987 to 1988.
JOSEPH M. LILLO, 32, Vice President and Controller. Mr. Lillo joined MidAmerican
in November 1996, and served as Manager of Financial Reporting and was promoted
to Controller/IPP in March 1998. Mr. Lillo was promoted to Controller in July
1999. Prior to joining the Company, Mr. Lillo was a senior associate with
Coopers & Lybrand LLP.
DOUGLAS L. ANDERSON, 44, Director, Senior Vice President and General Counsel of
CalEnergy Minerals LLC and Salton Sea Minerals Corp and Director, Vice President
and General Counsel of the other Guarantor subsidiaries. Mr. Anderson joined
MidAmerican in February 1993. From 1990 to 1993, Mr. Anderson was a business
attorney with Fraser, Stryker in Omaha. Prior to that Mr. Anderson was a
principal in the firm Anderson & Anderson.
PATRICK J. GOODMAN, 35, Director. Mr. Goodman joined MidAmerican in June 1995,
and served as Manager of Consolidation Accounting until September 1996 when he
was promoted to Controller. Mr. Goodman was promoted to Chief Financial Officer
in April 1999. Prior to joining MidAmerican, Mr. Goodman was a financial manager
for National Indemnity Company and a senior associate at Coopers & Lybrand.
LARRY KELLERMAN, 46, President of El Paso Power Services Company and a Director
of each Guarantor subsidiary except CalEnergy Minerals LLC and Salton Sea
Minerals Corp. Mr. Kellerman joined El Paso in February 1998. Prior to joining
El Paso, he was President of Citizens Power, where he initiated Citizens'
activities in the power marketing field in 1988, when Citizens was the initial
power marketer granted FERC authorization. From 1982 through 1988, Mr. Kellerman
was General Manager of Power Marketing and Power Supply for Portland General
Electric. From 1979 through 1982, Mr. Kellerman was Financial Analyst and Power
Contract Negotiator with Southern California Edison, where he negotiated some of
the first Public Utility Regulatory Policies Act qualifying facility contracts
in the nation.
JOHN L. HARRISON, 43, Senior Managing Director and Chief Financial Officer of El
Paso Merchant Energy Group and a Director of each Guarantor subsidiary except
CalEnergy Minerals LLC and Salton Sea Minerals Corp. Mr. Harrison joined El Paso
in June 1996. Prior to joining El Paso , Mr. Harrison was a partner with Coopers
& Lybrand LLP for five years.
Item 11. Executive Compensation
The Funding Corporation's and the Guarantors' directors and executive officers
receive no remuneration for serving in such capacities.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Description of Capital Stock
As of December 31, 2001, the authorized capital stock of the Funding Corporation
consisted of 1,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of which 100 shares were outstanding. There is no public trading market
for the Common Stock. As of December 31, 2001, there was one holder of record of
the Common Stock. Holders of Common Stock are entitled to one vote per share on
any matter coming before the stockholders for a vote.
The Funding Corporation does not expect in the foreseeable future to pay any
dividends on the Common Stock. The Indenture contains certain restrictions on
the payment of dividends with respect to the Common Stock.
Principal Holders
Since the formation of the Funding Corporation in June 1995, all of the
outstanding shares of Common Stock have been owned by Magma. Magma directly or
indirectly owns all of the capital stock of or partnership interests in the
Funding Corporation and the Guarantors.
Item 13. Certain Relationships and Related Transactions
Other Relationships and Related Transactions
The Salton Sea Projects' and the Partnership Projects' geothermal power plants
are owned, administered and operated by Magma or subsidiaries of Magma.
Geothermal fluid supplying these facilities is provided from Magma's (or a
subsidiary's) geothermal resource holdings in the SSKGRA.
In providing rights to geothermal resources and/or geothermal fluids,
administering and operating the geothermal power plants, and disposing of solids
from these facilities, Magma (directly and through subsidiaries) receives
certain royalties, cost reimbursements and fees for its services and the rights
it provides. See the financial statements in Item 8.
The Funding Corporation believes that the transactions with related parties
described above, taking into consideration all of the respective terms and
conditions of each of the relevant contracts and agreements, are at least as
favorable to the Guarantors as those which could have been obtained from
unrelated parties in arms' length negotiations.
Relationship of the Funding Corporation and the Guarantors to Magma and
MidAmerican
The Funding Corporation is a wholly owned direct subsidiary of Magma organized
for the sole purpose of acting as issuer of the Securities. The Funding
Corporation is restricted, pursuant to the terms of the Indenture, to acting as
issuer of the Securities and other indebtedness as permitted under the
Indenture, making loans to the Guarantors pursuant to the Credit Agreements, and
transactions related thereto. The Funding Corporation and each of the Guarantors
(and, in the case of SSBP, SSPG, Elmore, Leathers, Del Ranch and Vulcan, the
general partners thereof) have been organized and are operated as legal entities
separate and apart from MidAmerican, El Paso, CE Generation, Magma and any other
Affiliates of MidAmerican, El Paso, CE Generation or Magma, and, accordingly,
the assets of the Funding Corporation and the Guarantors (and, in the case of
SSBP, SSPG, Elmore, Leathers, Del Ranch and Vulcan, the general partners
thereof) will not be generally available to satisfy the obligations of
MidAmerican, El Paso, CE Generation, Magma or any other Affiliates of
MidAmerican, El Paso, CE Generation or Magma; provided, however, that
unrestricted cash of the Funding Corporation and the Guarantors or other assets
which are available for distribution may, subject to applicable law and the
terms of financing arrangements of such parties, be advanced, loaned, paid as
dividends or otherwise distributed or contributed to MidAmerican, El Paso, CE
Generation, Magma or Affiliates thereof.
PART IV
Item 14. Exhibits, Financial Statements Schedule and Reports on Form 8-K
(a) Financial Statements and Schedules
(i) Financial Statements
Financial Statements are included in Part II of this Form 10-K
(ii) Financial Statement Schedules
See schedule II on page 121.
(b) Reports on Form 8-K
Current Report dated December 14, 2001, reporting that Moody's
Investors Services, Inc. upgraded the rating on the Company's senior
secured debt to Ba3 from Caa2, and that it's affiliates filed suit to
force Edison to meet the terms of agreements it signed to purchase
electricity from the plants.
(c) Exhibits
The exhibits listed on the accompanying Exhibit Index are filed as
part of this Annual Report.
For the purposes of complying with the amendments to the rules governing Form
S-4 effective July 13, 1990 under the Securities Act of 1933, the undersigned
hereby undertakes as follows, which undertaking shall be incorporated by
reference into the Funding Corporation's currently effective Registration
Statements on Form S-4.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Financial statements required by Regulations S-X, which are excluded
from the Annual Report by Rule 14a-3(b).
Not Applicable
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SALTON SEA FUNDING CORPORATION
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- -------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SALTON SEA BRINE PROCESSING, L.P.
a California limited partnership
By: Salton Sea Power Company,
a California corporation, its
general partner
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- -------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SALTON SEA POWER GENERATION, L.P.,
a California limited partnership
By: Salton Sea Power Company, a
California corporation, its
general partner
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
FISH LAKE POWER LLC
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
VULCAN POWER COMPANY
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
CALENERGY OPERATING CORPORATION
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- -------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SALTON SEA ROYALTY LLC
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
LEATHERS, L.P., a
California limited partnership
By: CalEnergy Operating Corporation, a
Delaware corporation, its
general partner
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
ELMORE L.P., a California limited partnership
By: CalEnergy Operating Corporation, a
Delaware corporation, its
general partner
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
DEL RANCH L.P., a
California limited partnership
By: CalEnergy Operating Corporation, a
Delaware corporation, its
general partner
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
VPC GEOTHERMAL LLC., a
Delaware corporation
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
NIGUEL ENERGY COMPANY, a
California corporation
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
CONEJO ENERGY COMPANY, a
California corporation
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SAN FELIPE ENERGY COMPANY, a
California corporation
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
VULCAN/BN GEOTHERMAL POWER COMPANY, a
Nevada general partnership
By: VULCAN POWER COMPANY, a
Nevada corporation, Partner
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SALTON SEA POWER L.L.C., a
Delaware Limited Liability Company
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
CE TURBO LLC, a
Delaware Limited Liability Company
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- --------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
CE SALTON SEA INC., a
Delaware Corporation
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- -------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Larry Kellerman March 29, 2002
- --------------------
Larry Kellerman
Director
/s/ John L. Harrison March 29, 2002
- ---------------------
John L. Harrison
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
CALENERGY MINERALS LLC, a
Delaware Limited Liability Company
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- ------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Gregory E. Abel * March 29, 2002
- --------------------
Greg E. Abel
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
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, in the City of Omaha,
State of Nebraska, on March 29, 2002.
SALTON SEA MINERALS CORP., a
Delaware Corporation
By:/s/ Douglas L. Anderson
Douglas L. Anderson
Director, Vice President and General Counsel
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, each
thereunto duly authorized in the City of Omaha, State of Nebraska, on the dates
indicated.
Signature Date
- ------------------------------------------------------------------------------
/s/ Douglas L. Anderson March 29, 2002
- ------------------------
Douglas L. Anderson
Director, Vice President and General Counsel
(Principal Executive Officer)
/s/ Joseph M. Lillo* March 29, 2002
- --------------------
Joseph M. Lillo
Vice President and Controller
(Principal Accounting Officer)
/s/ Patrick J. Goodman* March 29, 2002
- ------------------------
Patrick J. Goodman
Director
/s/ Gregory E. Abel * March 29, 2002
- --------------------
Greg E. Abel
Director
* By: /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-fact
SALTON SEA FUNDING CORPORATION
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
(in thousands)
SCHEDULE II
Column A Column B Column C Column D Column E
Balance at Additions Balance
Beginning Charged at End
of Year to Income Deductions of Year
Allowance for doubtful accounts
Salton Sea Guarantors:
Year ended 2001 $ - $ 9,829 $ - $ 9,829
========= ========== ========== ===========
Year ended 2000 $ - $ - $ - $ -
========= ========== ========== ===========
Year ended 1999 $ - $ - $ - $ -
========= ========== ========== ===========
Partnership Guarantors:
Year ended 2001 $ - $ 14,925 $ - $ 14,925
========= ========== ========== ===========
Year ended 2000 $ - $ - $ - $ -
========= ========== ========== ===========
Year ended 1999 $ - $ - $ - $ -
========= ========== ========== ===========
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of the Funding Corporation (incorporated by
reference to Exhibit 3.1 to the Funding Corporation Registration
Statement on Form S-4 dated August 9, 1995, 33-95538 ("Form S-4")).
3.2 By-laws of the Funding Corporation (incorporated by reference to
Exhibit 3.2 to the Funding Corporation Form S-4).
3.3 Limited Partnership Agreement of SSBP (incorporated by reference to
Exhibit 3.3 to the Funding Corporation Form S-4).
3.4 Limited Partnership Agreement of SSPG (incorporated by reference to
Exhibit 3.4 to the Funding Corporation Form S-4).
3.5 Certificate of Formation of Fish Lake, LLC (incorporated by reference
to Exhibit 3.5 to the Amendment No. 1 dated June 29, 1999 of the
Funding Corporation Form S-4 ("99 Form S 4)).
3.6 Limited Liability Company Agreement of Fish Lake (incorporated by
reference to Exhibit 3.6 to the Funding Corporation Form 99 Form S-4).
3.7 Articles of Incorporation of VPC (incorporated by reference to Exhibit
3.7 to the Funding Corporation Form S-4).
3.8 By-laws of VPC (incorporated by reference to Exhibit 3.8 to the
Funding Corporation Form S-4).
3.9 Articles of Incorporation of CEOC (incorporated by reference to
Exhibit 3.9 to the Funding Corporation Form S-4).
3.10 By-laws of CEOC (incorporated by reference to Exhibit 3.10 to the
Funding Corporation Form S-4).
3.11 Certificate of Formation of the Royalty Guarantor (incorporated by
reference to Exhibit 3.11 to the Funding Corporation 99 Form S-4).
3.12 Limited Liability Company Agreement of the Royalty Guarantor
(incorporated by reference to Exhibit 3.12 to the Funding Corporation
99 Form S-4).
3.13 Certificate of Formation of VPC Geothermal (incorporated by reference
to Exhibit 3.13 to the Funding Corporation 99 Form S 4).
3.14 Limited Liability Company Agreement of VPG Geothermal (incorporated by
reference to Exhibit 3.14 to the Funding Corporation 99 Form S-4).
3.15 Articles of Incorporation of San Felipe (incorporated by reference to
Exhibit 3.15 to the Funding Corporation Registration Statement of Form
S-4 dated July 2, 1996, 333-07527 ("Funding Corporation II Form
S-4")).
3.16 By-laws of San Felipe (incorporated by reference to Exhibit 3.16 to
the Funding Corporation II Form S-4).
3.17 Articles of Incorporation of Conejo (incorporated by reference to
Exhibit 3.17 to the Funding Corporation II Form S-4).
3-18 By-laws of Conejo (incorporated by reference to Exhibit 3.18 to the
Funding Corporation II Form S-4).
3.19 Articles of Incorporation of Niguel (incorporated by reference to
Exhibit 3.19 to the Funding Corporation II Form S-4).
3.20 By-laws of Niguel (incorporated by reference to Exhibit 3.20 to the
Funding Corporation II Form S-4).
3.21 General Partnership Agreement of Vulcan (incorporated by reference to
Exhibit 3.21 to the Funding Corporation II Form S-4).
3.22 Limited Partnership Agreement of Leathers (incorporated by reference
to Exhibit 3.22 to the Funding Corporation II Form S-4).
3.23 Amended and Restated Limited Partnership Agreement of Del Ranch
(incorporated by reference to Exhibit 3.23 to the Funding Corporation
II Form S-4).
3.24 Amended and Restated Limited Partnership Agreement of Elmore
(incorporated by reference to Exhibit 3.24 to the Funding Corporation
II Form S-4).
3.25 Certificate of Formation of Minerals LLC (incorporated by reference to
Exhibit 3.25 to the Funding Corporation 99 Form S-4)
3.26 Limited Liability Company Agreement of Minerals LLC (incorporated by
reference to Exhibit 3.26 to the Funding Corporation 99 Form S-4).
3.27 Certificate of Formation of Turbo LLC (incorporated by reference to
Exhibit 3.27 to the Funding Corporation 99 Form S-4).
3.28 Limited Liability Company Agreement of turbo LLC (incorporated by
reference to Exhibit 3.28 to the Funding Corporation 99 Form S-4).
3.29.Articles of Incorporation of CESS (incorporated by reference to
Exhibit 3.29 to the Funding Corporation 99 Form S-4).
3.30 By-laws of CESS (incorporated by reference to Exhibit 3.30 to the
Funding Corporation 99 Form S-4).
3.31 Articles of Incorporation of SSMC (incorporated by reference to
Exhibit 3.31 to the Funding Corporation 99 Form S-4).
3.32 By-laws of SSMC (incorporated by reference to Exhibit 3.32 to the
Funding Corporation 99 Form S-4).
3.33 Certificate of Formation of Power LLC (incorporated by reference to
Exhibit 3.33 to the Funding Corporation 99 Form S-4).
3.34 Limited Liability Company Agreement of Power LLC (incorporated by
reference to Exhibit 3.34 to the Funding Corporation 99 Form S-4).
4.1(a) Indenture, dated as of July 21, 1995, between Chemical Trust Company
of California and the Funding Corporation (incorporated by reference
to Exhibit 4.1(a) to the Funding Corporation Form S-4).
4.1(b) First Supplemental Indenture, dated as of October 18, 1995, between
Chemical Trust Company of California and the Funding Corporation
(incorporated by reference to Exhibit 4.1(b) to the Funding
Corporation Form S-4).
4.1(c) Second Supplemental Indenture, dated as of June 20, 1996, between
Chemical Trust Company of California and the Funding Corporation
(incorporated by reference to Exhibit 4.1(c) to the Funding
Corporation II Form S-4).
4.1(d) Third Supplemental Indenture between Chemical Trust Company of
California and the Funding Corporation (incorporated by reference to
Exhibit 4.1(d) to the Funding Corporation II Form S-4).
4.1(e) Fourth Supplemental Indenture between Chemical Trust Company of
California and the Funding Corporation (incorporated by reference to
Exhibit 4.1(e) to the Funding Corporation Form 10-K/A for the year
ending December 31, 1998).
4.2 Amended and Restated Salton Sea Secured Guarantee, dated as of July
21, 1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.2 to the
Funding Corporation Form S-4).
4.3 Second Amended and Restated Partnership Secured Limited Guarantee,
dated as of October 13, 1998 by CEOC, and VPC, Conejo, Niguel, Sal
Felipe, BNG, Del Ranch, Elmore, Leathers and Vulcan in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.3(c) to the Funding Corporation Form 10-K/A for the year
ending December 31, 1998).
4.4 Royalty Guarantor Secured Limited Guarantee, dated as of July 21,
1995, by the Royalty Guarantor in favor of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.4 to the Funding
Corporation Form S-4).
4.5(a) Exchange and Registration Rights Agreement, dated July 21, 1995, by
and among CS First Boston Corporation, Lehman Brothers Inc. and the
Funding Corporation (incorporated by reference to Exhibit 4.5 to the
Funding Corporation Form S-4).
4.5(b) Exchange and Registration Rights Agreement, dated June 20, 1996, by
and between CS First Boston Corporation and the Funding Corporation
(incorporated by reference to Exhibit 4.5 to the Funding Corporation
II Form S-4).
4.5(c) Exchange and Registration Rights Agreement, dated October 13, 1998
by and among CS First Boston Corporation, Goldman Sachs & Co., and the
Funding Corporation (incorporated by reference to Exhibit 4.5(c) of
the 99 Form S-4).
4.6(a) Collateral Agency and Intercreditor Agreement, dated as of July 21,
1995, by and among Credit Suisse, Chemical Trust Company of
California, the Funding Corporation and the Guarantors (incorporated
by reference to Exhibit 4.6 to the Funding Corporation Form S-4).
4.6(b) First Amendment to the Collateral Agency and Intercreditor
Agreement, dated as of June 20, 1996, by and among Credit Suisse,
Chemical Trust Company of California, the Funding Corporation and the
Guarantors (incorporated by reference to Exhibit 4.6(b) to the Funding
Corporation II Form S-4).
4.6(c) Second Amendment to the Collateral Agency and Intercreditor
Agreement, dated as of October 13, 1998, by and among Credit Suisse,
Chemical Trust Company of California, the Funding Corporation and the
Guarantors (incorporated by reference to Exhibit 4.6(c) to the Funding
Corporation Form 10-K/A for the year ending December 31, 1998).
4.7 Stock Pledge Agreement, dated as of July 21, 1995, by Magma Power
Company in favor of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.7 to the Funding Corporation Form S-4).
4.8(a) Purchase Agreement, dated July 18, 1995, by and among CS First
Boston Corporation, Lehman Brothers Inc., the Guarantors and the
Funding Corporation (incorporated by reference to Exhibit 4.8 to the
Funding Corporation Form S-4).
4.8(b) Purchase Agreement, dated June 17, 1996, by and among CS First
Boston Corporation, the Guarantors and the Funding Corporation
(incorporated by reference to Exhibit 4.8 to the Funding Corporation
II Form S-4).
4.8(c) Purchase Agreement, dated October 13, 1998 by and among CS First
Boston Corporation, the Guarantors and the Funding Corporation
(incorporated by reference to Exhibit 4.8(c) to the Funding
Corporation Form 10-K/A for the year ending December 31, 1998).
4.9 Support Letter, dated as of July 21, 1995, by and among Magma Power
Company, the Funding Corporation and the Guarantors (incorporated by
reference to Exhibit 4.9 to the Funding Corporation Form S-4).
4.10 Debt Service Reserve Letter of Credit and Reimbursement Agreement,
dated as of July 21, 1995, by and among the Funding Corporation,
certain banks and Credit Suisse, as agent (incorporated by reference
to Exhibit 4.10 to the Funding Corporation Form S-4).
4.10(a) Amendment to Notes and to Amended Debt Service Reserve Letter of
Credit and Reimbursement Agreement, dated October 13, 1998, by and
among the Funding Corporation, certain banks and Credit Suisse, as
agent (incorporated by reference to Exhibit 4.10(a) to the Funding
Corporation Form 10-K/A for the year ending December 31, 1998).
4.11 Revolving Credit Agreement, dated as of July 21, 1995, by and among
Credit Suisse and the Funding Corporation (incorporated by reference
to Exhibit 4.11 to the Funding Corporation Form S-4).
4.12 Amended and Restated Salton Sea Credit Agreement, dated October 13,
1998, by and among SSBP, SSPG, Power LLC and Fish Lake (incorporated
by reference to Exhibit 4.12 to the Funding Corporation 99 Form S-4).
4.13 Salton Sea Project Note (SSI), dated October 13, 1998, by SSBP, SSPG,
Power LLC and Fish Lake in favor of the Funding Corporation
(incorporated by reference to Exhibit 4.13 to the Funding Corporation
99 Form S-4).
4.13aSalton Sea Project Note (SSIII), dated October 13, 1998, by SSBP,
SSPG, Power LLC and Fish Lake in favor of the Funding Corporation
(incorporated by reference to Exhibit 4.13(a) to the Funding
Corporation 99 Form S-4).
4.14 Amended and Restated Deposit and Disbursement Agreement, dated as of
October 13, 1998, by and among the Funding Corporation, Chemical Trust
Company of California and the Guarantors. (incorporated by reference
to Exhibit 4.14 to the Funding Corporation 99 Form S-4).
4.15 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by
Magma Power Company and Salton Sea Power Company in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.15
to the Funding Corporation Form S-4).
4.16 Partnership Interest Pledge Agreement, dated as of July 21, 1995, by
SSBP and Salton Sea Power Company in favor of Chemical Trust Company
of California (incorporated by reference to Exhibit 4.16 to the
Funding Corporation Form S-4).
4.17 Stock Pledge Agreement (Pledge of Stock of Fish Lake by Magma Power
Company and the Funding Corporation), dated as of July 21, 1995, by
Magma Power Company and the Funding Corporation in favor of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.17
to the Funding Corporation Form S-4).
4.18 Cost Overrun Commitment, dated as of July 21, 1995, between
MidAmerican, SSPG, SSBP and Fish Lake (incorporated by reference to
Exhibit 4.18 to the Funding Corporation Form S-4).
4.19 Second Amended and Restated Partnership Guarantors Credit Agreement,
dated October 13, 1998, by and among the Partnership Guarantors and
the Funding Corporation (incorporated by reference to Exhibit 4.19(c)
to the Funding Corporation Form 10-K/A).
4.20 Partnership Guarantors Security Agreement and Assignment of Rights,
dated as of July 21, 1995, by CEOC and VPC in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.20 to
the Funding Corporation Form S-4).
4.21 Stock Pledge Agreement (Pledge of Stock of CEOC by Magma Power Company
and the Funding Corporation), dated as of July 21, 1995, by Magma
Power Company and Funding Corporation in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.21 to
the Funding Corporation Form S-4).
4.22 Stock Pledge Agreement (Pledge of Stock of VPC by Magma Power Company
and the Funding Corporation), dated as of July 21, 1995, by Magma
Power Company and the Funding Corporation in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.22 to
the Funding Corporation Form S-4).
4.23 Royalty Guarantor Credit Agreement, among the Royalty Guarantor and
the Funding Corporation, dated as of July 21, 1995 (incorporated by
reference to Exhibit 4.23 to the Funding Corporation Form S-4).
4.24 Royalty Project Note, dated as of July 21, 1995, by the Royalty
Guarantor in favor of the Funding Corporation (incorporated by
reference to Exhibit 4.24 to the Funding Corporation Form S-4).
4.25 Royalty Security Agreement and Assignment of Revenues, dated as of
July 21, 1995, by the Royalty Guarantor in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.25 to
the Funding Corporation Form S-4).
4.26 Royalty Deed of Trust, dated as of July 21, 1995, by the Royalty
Guarantor to Chicago Title Company for the use and benefit of Chemical
Trust Company of California (incorporated by reference to Exhibit 4.26
to the Funding Corporation Form S-4).
4.27 Stock Pledge Agreement (Pledge of Stock of Royalty Guarantor by Magma
Power Company and the Funding Corporation), dated as of July 21, 1995,
by Magma Power Company and the Funding Corporation in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.27 to the Funding Corporation Form S-4).
4.28 Collateral Assignment of the Imperial Irrigation District Agreements,
dated as of July 21, 1995, by SSBP, SSPG and Fish Lake in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.28 to the Funding Corporation Form S-4).
4.29 Collateral Assignments of Certain Salton Sea Agreements, dated as of
July 21, 1995, by SSBP, SSPG and Fish Lake in favor of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.29 to
the Funding Corporation Form S-4).
4.30 Debt Service Reserve Letter of Credit by Credit Suisse in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.30 to the Funding Corporation Form S-4).
4.31 Partnership Project Note (SSI), dated October 13, 1998, by VPC and
CEOC, Conejo, San Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore,
Leathers, Vulcan, Turbo LLC and Minerals LLC in favor of the Funding
Corporation (incorporated by reference to Exhibit 4.31(a) to the
Funding Corporation Form 10-K/A).
4.31(a) Partnership Project Note (SSII), dated October 13, 1998, by VPC and
CEOC, Conejo, San Felipe, Niguel, VPC Geothermal, Del Ranch, Elmore,
Leathers, Vulcan, Turbo LLC and Minerals LLC in favor of the Funding
Corporation (incorporated by reference to Exhibit 4.31(b) to the
Funding Corporation Form 10-K/A).
4.31(b) Partnership Project Note (SSIII), dated October 13, 1998, by VPC
and CEOC, Conejo, San Felipe, Niguel, VPC Geothermal, Del Ranch,
Elmore, Leathers, Vulcan, Turbo LLC and Minerals LLC in favor of the
Funding Corporation (incorporated by reference to Exhibit 4.31(c) to
the Funding Corporation Form 10-K/A).
4.32 Collateral Assignment of the Imperial Irrigation District Agreements,
dated as of June 20, 1996, by Vulcan, Elmore, Leathers, VPC and Del
Ranch in favor of Chemical Trust Company of California (incorporated
by reference to Exhibit 4.29 to the Funding Corporation II Form S-4).
4.33 Collateral Assignments of Certain Partnership Agreements, dated as of
June 20, 1996, by Vulcan Elmore, Leathers and Del Ranch in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.31 to the Funding Corporation II Form S-4).
4.34 Debt Service Reserve Letter of Credit by Credit Suisse in favor of
Chemical Trust Company of California (incorporated by reference to
Exhibit 4.32 to the Funding Corporation II Form S-4).
4.35 Intentionally Omitted
4.36 Intentionally Omitted
4.37 Deed of Trust, dated as of June 20, 1996, by Vulcan to Chicago Title
Company for the use and benefit of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.35 to the Funding
Corporation II Form S-4).
4.37(a) First Amendment to Deed of Trust, dated October 13, 1998 by Vulcan
to Chicago Title Company for the use and benefit of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.37(a) to
the Form 10-K/A).
4.38 Deed of Trust, dated as of June 20, 1996, by Elmore to Chicago Title
Company for the use and benefit of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.36 to the Funding
Corporation II Form S-4).
4.38(a) First Amendment to Deed of Trust, dated October 13, 1998, by Elmore
to Chicago Title Company for the use and benefit of Chemical Trust
Company of California (incorporated by reference to Exhibit 4.38(a) to
the Form 10-K/A).
4.39 Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title
Company for the use and benefit of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.37 to the Funding
Corporation II Form S-4).
4.39(a) First Amendment to Deed of Trust, dated October 13, 1998, by
Leathers to Chicago Title Company for the use and benefit of Chemical
Trust Company of California (incorporated by reference to Exhibit
4.39(a) to the Form 10-K/A).
4.40 Deed of Trust, dated as of June 20, 1996, by Del Ranch to Chicago
Title Company for the use and benefit of Chemical Trust Company of
California (incorporated by reference to Exhibit 4.38 to the Funding
Corporation II Form S-4).
4.40(a) First Amendment to Deed of Trust, dated October 13, 1998, by Del
Ranch to Chicago Title Company for the use and benefit of Chemical
Trust Company of California (incorporated by reference to Exhibit
4.40(a) to the Form 10-K/A).
4.41 Stock Pledge Agreement, Dated as of June 20, 1996, by CEOC, pledging
the stock of Conejo, Niguel and San Felipe in favor of Chemical Trust
Company of California for the benefit of the Secured Parties and the
Funding Corporation (incorporated by reference to Exhibit 4.39 to the
Funding Corporation II Form S-4).
4.42 Stock Pledge Agreement, dated as of June 20, 1996, by VPC, pledging
the stock of BNG in favor of Chemical Trust Company of California for
the benefit of the Secured Parties and the Funding Corporation
(incorporated by reference to Exhibit 4.40 to the Funding Corporation
II Form S-4).
4.43 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by
VPC and BNG, pledging the partnership interests in Vulcan in favor of
Chemical Trust Company of California for the benefit of the Secured
Parties and the Funding Corporation (incorporated by reference to
Exhibit 4.41 to the Funding Corporation II Form S-4).
4.44 Partnership Interest Pledge Agreement, dated as of June 20, 1996, by
Magma, CEOC and each of Conejo, Niguel, San Felipe, respectively,
pledging the partnership interests in Del Ranch, Elmore and Leathers,
respectively, in favor of Chemical Trust Company of California for the
benefit of the Secured Parties and the Funding Corporation
(incorporated by reference to Exhibit 4.42 to the Funding Corporation
II Form S-4).
4.45 Agreement regarding Security Documents, dated as of June 20, 1996, by
and among the Initial Guarantors, Magma, SSPC, the Funding Corporation
and Chemical Trust Company of California (incorporated by reference to
Exhibit 4.45 to the Funding Corporation II Form S-4).
5.1 Opinion of Willkie Farr & Gallagher (incorporated by reference to
Exhibit 5.1 of the 99 Form S-4).
5.2 Opinion of Latham & Watkins (incorporated by reference to Exhibit 5.2
of the 99 Form S-4).
5.3 Opinion of Lionel Sawyer & Collines (incorporated by reference to
Exhibit 5.3 of the 99 Form S-4).
10.1(a) Salton Sea Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, dated as of July 21, 1995, by SSBP, SSPG and Fish
Lake to Chicago Title Company for the use and benefit of Chemical
Trust Company of California (incorporated by reference to Exhibit 10.1
to the Funding Corporation Form S-4) .
10.1(b) First Amendment to Salton Sea Deed of Trust, Assignment of Rents,
Security Agreement and Fixed Filing, dated as of June 20, 1996, by
SSBP, SSPG and Fish Lake to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by
reference to Exhibit 10.2 to the Funding Corporation II Form S-4).
10.1(c) Second Amendment to Salton Sea Deed of Trust, Assignment of Rents,
Security Agreement and Fixed Filing, dated as of October 13, 1998, by
SSBP, SSPG and Fish Lake to Chicago Title Company for the use and
benefit of Chemical Trust Company of California (incorporated by
reference to Exhibit 10.1(c) to the Form 10-K/A).
10.2 Collateral Assignment of Southern California Edison Company
Agreements, dated as of July 21, 1995, by SSPG and Fish Lake in favor
of Chemical Trust Company of California (incorporated by reference to
Exhibit 10.3 to the Funding Corporation Form S-4).
10.3 Contract for the Purchase and Sale of Electric Power from the Salton
Sea Geothermal Facility, dated May 9, 1987 (the "Unit 1 Power Purchase
Agreement"), between Southern California Edison Company and Earth
Energy, Inc. (incorporated by reference to Exhibit 10.4 to the Funding
Corporation Form S-4).
10.4 Amendment No. 1 to the Unit 1 Power Purchase Agreement, dated as of
March 30, 1993, between Southern California Edison Company and Earth
Energy, Inc. (incorporated by reference to Exhibit 10.5 to the Funding
Corporation Form S-4).
10.5 Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29,
1994, between Southern California Edison Company and SSPG
(incorporated by reference to Exhibit 10.6 to the Funding Corporation
Form S-4).
10.6 Contract for the Purchase and Sale of Electric Power, dated April 16,
1985 (the "Unit 2 Power Purchase Agreement"), between Southern
California Edison Company and Westmoreland Geothermal Associates
(incorporated by reference to Exhibit 10.7 to the Funding Corporation
Form S-4).
10.7 Amendment No. 1 to Unit 2 Power Purchase Agreement, dated as of
December 18, 1987, between Southern California Edison Company and
Earth Energy, Inc. (incorporated by reference to Exhibit 10.8 to the
Funding Corporation Form S-4).
10.8 Power Purchase Contract, dated April 16, 1985 (the "Unit 3 Power
Purchase Agreement"), between Southern California Edison Company and
Union Oil Company of California (incorporated by reference to Exhibit
10.9 to the Funding Corporation Form S-4).
10.9 Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated
November 29, 1994, between Southern California Edison Company, SSPG
and Fish Lake (incorporated by reference to Exhibit 10.10 to the
Funding Corporation Form S-4).
10.10Plant Connection Agreement (Unit 2), dated October 3, 1989, between
the Imperial Irrigation District and Earth Energy, Inc. (incorporated
by reference to Exhibit 10.11 to the Funding Corporation Form S-4).
10.11Plant Connection Agreement, dated August 2, 1988 (Unit 3), between
the Imperial Irrigation District and Desert Power Company
(incorporated by reference to Exhibit 10.12 to the Funding Corporation
Form S-4).
10.12Imperial Irrigation District Funding and Construction Agreements as
amended (Units 2 and 3), dated as of June 29, 1987, among the Imperial
Irrigation District, Earth Energy, Inc., Chevron Geothermal Company of
California, Geo East Mesa No. 3, Inc., Magma Power Company, Desert
Power Company, Geo East Mesa No. 2, Inc., Heber Geothermal Company,
Ormesa Geothermal, Ormesa Geothermal II, Vulcan/BN Geothermal Power
Company, Union Oil Company of California, Del Ranch L.P., Elmore L.P.,
Leathers L.P., Geo East Mesa Limited Partnership and Imperial Resource
Recovery Associates, L.P. (incorporated by reference to Exhibit 10.13
to the Funding Corporation Form S-4).
10.13Transmission Service Agreement, dated as of October 3, 1989 (Unit 2),
between the Imperial Irrigation District and Earth Energy, Inc.
(incorporated by reference to Exhibit 10.14 to the Funding Corporation
Form S-4).
10.14Transmission Service Agreement, dated as of August 2, 1988 (Unit 3),
between the Imperial Irrigation District and Desert Power Company
(incorporated by reference to Exhibit 10.15 to the Funding Corporation
Form S-4).
10.15Plant Connection Agreement (Unit 4), dated as of July 14, 1995, by
and between the Imperial Irrigation District, SSPG and Fish Lake
(incorporated by reference to Exhibit 10.16 to the Funding Corporation
Form S-4).
10.16Letter Agreement, dated February 2, 1995, between Magma Power Company
and the Imperial Irrigation District (incorporated by reference to
Exhibit 10.17 to the Funding Corporation Form S-4).
10.17Transmission Service Agreement (Unit 4), dated as of July 14, 1995,
by and between the Imperial Irrigation District, SSPG and Fish Lake
(incorporated by reference to Exhibit 10.18 to the Funding Corporation
Form S-4).
10.18Transmission Line Construction Agreement (Unit 4), dated July 14,
1995, between the Imperial Irrigation District, SSPG and Fish Lake
(incorporated by reference to Exhibit 10.19 to the Funding Corporation
Form S-4).
10.19Funding Agreement, dated June 15, 1988 (Unit 2), between Southern
California Edison Company and Earth Energy, Inc. (incorporated by
reference to Exhibit 10.20 to the Funding Corporation Form S-4).
10.20Second Amended and Restated Administrative Services Agreement, by and
among CEOC, SSBP, SSPG and Fish Lake, dated as of July 15, 1995
(incorporated by reference to Exhibit 10.21 to the Funding Corporation
Form S-4).
10.21Second Amended and Restated Operating and Maintenance Agreement,
dated as of July 15, 1995, by and among Magma Power Company, SSBP,
SSPG and Fish Lake (incorporated by reference to Exhibit 10.22 to the
Funding Corporation Form S-4).
10.22 Intentionally Omitted.
10.23Collateral Assignment of Southern California Edison Company
Agreements, dated as of June 20, 1996, by Vulcan, Elmore, Leathers and
Del Ranch in favor of Chemical Trust Company of California
(incorporated by reference to Exhibit 10.23 to the Funding Corporation
II Form S-4).
10.24Administrative Services Agreement, dated as of June 17, 1996, between
CEOC and Vulcan (incorporated by reference to Exhibit 10.24 to the
Funding Corporation II Form S-4).
10.25Amended and Restated Construction, Operating and Accounting
Agreement, dated as of June 17, 1996, between VPC and Vulcan
(incorporated by reference to Exhibit 10.25 to the Funding Corporation
II Form S-4).
10.26Long Term Power Purchase Contract, dated March 1, 1984, as amended,
between SCE and Vulcan, as successor to Magma Electric Company
(incorporated by reference to Exhibit 10.26 to the Funding Corporation
II Form S-4).
10.27Transmission Service Agreement, dated December 1, 1988, between VPC
and IID (incorporated by reference to Exhibit 10.27 to the Funding
Corporation II Form S-4).
10.28Plant Connection Agreement, dated as of December 1, 1988, between VPC
and IID (incorporated by reference to Exhibit 10.28 to the Funding
Corporation II Form S-4).
10.29Amended and Restated Administrative Services Agreement, dated as of
June 17, 1996 between CEOC and Elmore (incorporated by reference to
Exhibit 10.29 to the Funding Corporation II Form S-4).
10.30Amended and Restated Operating and Maintenance Agreement, dated as of
June 17, 1996, between CEOC and Elmore (incorporated by reference to
Exhibit 10.30 to the Funding Corporation II Form S-4).
10.31Long Term Power Purchase Contract, dated June 15, 1984, as amended,
between SCE and Elmore, as successor to Magma Electric Company
(incorporated by reference to Exhibit 10.31 to the Funding Corporation
II Form S-4).
10.32Transmission Service Agreement, dated as of August 2, 1988, as
amended, between Elmore and IID (incorporated by reference to Exhibit
10.32 to the Funding Corporation II Form S-4).
10.33Plant Connection Agreement, dated as of August 2, 1988, between
Elmore and IID (incorporated by reference to Exhibit 10.33 to the
Funding Corporation II Form S-4).
10.34Amended and Restated Administrative Services Agreement, dated as of
June 17, 1996, between CEOC and Leathers (incorporated by reference to
Exhibit 10.34 to the Funding Corporation II Form S-4).
10.35Amended and Restated Operating and Maintenance Agreement, dated as of
June 17, 1996, between CEOC and Leathers (incorporated by reference to
Exhibit 10.35 to the Funding Corporation II Form S-4).
10.36Long Term Power Purchase Contract, dated August 16, 1985, as amended,
between SCE and Leathers, as successor to Imperial Energy Corporation
(incorporated by reference to Exhibit 10.36 to the Funding Corporation
II Form S-4).
10.37Transmission Service Agreement, dated as of October 3, 1989, as
amended, between Leathers and IID (incorporated by reference to
Exhibit 10.37 to the Funding Corporation II Form S-4).
10.38Plant Connection Agreement, dated as of October 3, 1989, between
Leathers and IID (incorporated by reference to Exhibit 10.38 to the
Funding Corporation II Form S-4).
10.39Amended and Restated Administrative Services Agreement, dated as of
June 17, 1996, between CEOC and Del Ranch (incorporated by reference
to Exhibit 10.39 to the Funding Corporation II Form S-4).
10.40Amended and Restated Operating and Maintenance Agreement, dated as of
June 17, 1996, between CEOC and Del Ranch (incorporated by reference
to Exhibit 10.40 to the Funding Corporation II Form S-4).
10.41Long Term Power Purchase Contract, dated February 22, 1984, as
amended, between SCE and Del Ranch, as successor to Magma
(incorporated by reference to Exhibit 10.41 to the Funding Corporation
II Form S-4).
10.42Transmission Service Agreement, dated as of August 2, 1988, as
amended, between Del Ranch and IID (incorporated by reference to
Exhibit 10.42 to the Funding Corporation II Form S-4).
10.43Plant Connection Agreement, dated as of August 2, 1988, between Del
Ranch and IID (incorporated by reference to Exhibit 10.43 to the
Funding Corporation II Form S-4).
10.44Funding Agreement, dated May 18, 1990, between SCE and Del Ranch
(incorporated by reference to Exhibit 10.44 to the Funding Corporation
II Form S-4).
10.45Funding Agreement, dated May 18, 1990, between SCE and Elmore
(incorporated by reference to Exhibit 10.45 to the Funding Corporation
II Form S-4).
10.46Funding Agreement, dated June 15, 1990, between SCE and Leathers
(incorporated by reference to Exhibit 10.46 to the Funding Corporation
II Form S-4).
10.47Funding Agreement, dated May 18, 1990, between SCE and Leathers
(incorporated by reference to Exhibit 10.47 to the Funding Corporation
II Form S-4).
10.48Funding Agreement, dated May 18, 1990, between SCE and Vulcan
(incorporated by reference to Exhibit 10.48 to the Funding Corporation
II Form S-4).
24.1 Power of Attorney
24.2 Power of Attorney
Exhibit 24.1
POWER OF ATTORNEY
The undersigned, members of the Board of Directors and Officers of the following
companies:
Salton Sea Brine Processing L.P. Salton Sea Power Generation L.P.
Fish Lake Power LLC Vulcan Power Company
CalEnergy Operating Corporation Salton Sea Royalty LLC
VPC Geothermal LLC San Felipe Energy Company
Conejo Energy Company Niguel Energy Company
Vulcan/BN Geothermal Power Company Leathers, L.P.
Del Ranch, L.P. Elmore, L.P.
Salton Sea Power L.L.C. CE Turbo LLC
CE Salton Sea Inc.
hereby constitute and appoint Douglas L. Anderson and Paul J. Leighton and each
of them, as his/her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for and in his stead, in any and all
capacities, to sign on his behalf the Salton Sea Funding Corporation's (the
"Company") Form 10-K Annual Report for the fiscal year ending December 31, 2001
and to execute any amendments thereto and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission and applicable stock exchanges, with the full power and
authority to do and perform each and every act and thing necessary or advisable
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Dated as of March 29, 2002.
/s/ Douglas L. Anderson
DOUGLAS L. ANDERSON
/s/ Patrick J. Goodman
PATRICK J. GOODMAN
/s/ Joseph M. Lillo
JOSEPH M. LILLO
Exhibit 24.2
POWER OF ATTORNEY
The undersigned, members of the Board of Directors and Officers of the following
companies:
CalEnergy Minerals LLC
Salton Sea Minerals Corp.
hereby constitute and appoint Douglas L. Anderson and Paul J. Leighton and each
of them, as his/her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for and in his/her stead, in any and all
capacities, to sign on his/her behalf the Salton Sea Funding Corporation's (the
"Company") Form 10-K Annual Report for the fiscal year ending December 31, 2001
and to execute any amendments thereto and to file the same, with all exhibits
thereto, and all other documents in connection therewith, with the Securities
and Exchange Commission and applicable stock exchanges, with the full power and
authority to do and perform each and every act and thing necessary or advisable
to all intents and purposes as he/she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his/her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Executed as of March 29, 2002.
/s/ Gregory E. Abel
GREGORY E. ABEL
/s/ Patrick J. Goodman
PATRICK J. GOODMAN
/s/ Joseph M. Lillo
JOSEPH M. LILLO