SECURITIES AND EXCHANGE COMMISSION		 	Washington, D.C. 20549 	FORM 10-Q 	Annual Report Pursuant to Section 13 or 15 (d) of 	the Securities Exchange Act of 1934 	For the quarterly period ended March 31, 1997 	Commission File No. 33-95538 	SALTON SEA FUNDING CORPORATION 	(Exact name of registrant as specified in its charter) 	47-0790493 	(IRS Employer 	Identification No.) Salton Sea Brine Processing L.P.	 California 	33-0601721	 Salton Sea Power Generation L.P. 	California 	33-0567411 Fish Lake Power Company	 Delaware	 33-0453364 Vulcan Power Company	 Nevada	 95-3992087 CalEnergy Operating Company	 Delaware	 33-0268085 Salton Sea Royalty Company	 Delaware	 47-0790492 BN Geothermal Inc.	 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 (Exact name of Registrants 	(State or other	(I.R.S. Employer as specified in their charters)	 jurisdiction of	Identification No.) 		incorporation or 		organization) 302 S. 36th Street, Suite 400-A, Omaha, NE 68131 (Address of principal executive offices and Zip Code of Salton Sea Funding Corporation) Salton Sea Funding Corporation's telephone number, including area code: (402) 231-1641 	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 All common stock of Salton Sea Funding Corporation is indirectly held by Magma Power Company. 	100 shares of Common Stock were outstanding on March 31, 1997. SALTON SEA FUNDING CORPORATION Form 10-Q March 31, 1997 ------------------------------------------------------- C O N T E N T S PART I: FINANCIAL INFORMATION Item 1.	Financial Statements	 Page SALTON SEA FUNDING CORPORATION Independent Accountants' Reports	 4 Balance Sheets, March 31, 1997 and December 31, 1996	 5 Statements of Operations for the Three Months Ended March 31, 1997 and 1996	 6 Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996	 7 Notes to Financial Statements	 8 SALTON SEA GUARANTORS Independent Accountants' Report	 9 Combined Balance Sheets, March 31, 1997 and December 31, 1996	 10 Combined Statements of Operations for the Three Months Ended March 31, 1997 and 1996	 11 Combined Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996	 12 Notes to Combined Financial Statements	 13 PARTNERSHIP GUARANTORS Independent Accountants' Report	 14 Combined Balance Sheets, March 31, 1997 and December 31, 1996	 15 Combined Statements of Operations for the Three Months Ended March 31, 1997 and 1996	 16 Combined Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996	 17 Notes to Combined Financial Statements	 18 SALTON SEA ROYALTY COMPANY Independent Accountants' Report	 20 Balance Sheets, March 31, 1997 and December 31, 1996 	21 Statements of Operations for the Three Months Ended March 31, 1997 and 1996	 22 Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996	 23 Notes to Financial Statements	 24 Item 2.	Management's Discussion and Analysis of 		Financial Condition and Results of Operations	 25 	PART II: OTHER INFORMATION Item 1.	Legal Proceedings	 30 Item 2.	Changes in Securities	 30 Item 3.	Defaults on Senior Securities	 30 Item 4.	Submission of Matters to a Vote of Security Holders	 30 Item 5.	Other Information	 30 Item 6.	Exhibits and Reports on Form 8-K	 30 Signatures		 31 Exhibit Index		 32 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Salton Sea Funding Corporation Omaha, Nebraska We have reviewed the accompanying balance sheet of the Salton Sea Funding Corporation as of March 31, 1997, and the related statements of operations and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Salton Sea Funding Corporation as of December 31, 1996, and the related statements of operations, stockholder's equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 29, 1997 SALTON SEA FUNDING CORPORATION BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) ------------------------------------------------------------------------ 		March 31, 	December 31, 		1997 	1996 --------------- --------------- 		(unaudited) ASSETS Cash	 $ 51,340	 $ 13,218 Restricted cash and short-term investments	 12,411	 14,044 Prepaid expenses and other assets 	13,597	 3,452 Notes receivables from affiliates 	538,982	 538,982 Investment in 1% of net assets of 	Guarantors 	6,422	 6,293 		-------------	 ------------- 		$622,752	 $575,989 		======= 	======= LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Accrued liabilities	 $ 13,065	 $ 3,291 Due to affiliates	 61,711	 25,022 Senior secured notes and bonds	 538,982	 538,982 		------------- 	------------- 	Total liabilities	 613,758	 567,295 Stockholder's equity: Common stock, par value $.01 per share; 	authorized 1,000 shares, 	issued and outstanding 100 shares	 - 	- Additional paid-in capital	 5,352	 5,366 Retained earnings	 3,642 	3,328 		-------------	 ------------- 	Total stockholder's equity 	8,994	 8,694 		------------- 	------------- 		$622,752 	$575,989 		=======	 ======= 	The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- Three Months Ended March 31, 	 1997 1996 	 Revenues:	 -------------	 ------------ Interest income 	$10,405	 $ 8,953 	 Equity in earnings of Guarantors 	143 	88	 		----------- 	-----------	 Total revenues	 10,548 	9,041 		----------- 	-----------	 Expenses: General and administrative expenses 	240 	181	 Interest expense 	9,774	 7,990	 		----------- 	-----------	 Total expenses 	10,014 	8,171	 		-----------	 -----------	 Income before income taxes	 534 	870 	 Provision for income taxes	 220 	357	 		-----------	 -----------	 Net income	 $ 314	 $ 513	 		====== 	====== 	The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 			Three Months Ended 			 March 31, 			 1997 	1996 			 ---------- 	----------- Cash flows from operating activities: 	Net income	 $ 314 	 $ 513 	Adjustments to reconcile net income to net 		cash provided by operating activities: 	Equity in earnings of guarantors	 (143) 	(88) 	Changes in assets and liabilities: 		Prepaid expenses and other assets	 (10,145) 	(7,875) 		Accrued liabilities	 9,774 	6,942 			----------- 	----------- 	Net cash flows from operating activities	 (200)	 (508) 			----------- 	----------- Cash flows from investing activities: Decrease in restricted cash and short-term investments	 1,633	 13,040 			----------- 	----------- Cash flows from financing activities: Due to affiliates 	36,689	 (6,795) 		----------- 	----------- Net change in cash	 38,122	 5,737 Cash at the beginning of period 	13,218	 4,393 			----------- 	----------- Cash at the end of period 	$ 51,340	 $ 10,130 			====== 	======= Non-cash investing and financing activities: Adjustments resulting from capital transactions 		of Guarantors 	$ (14) 	$ 112 		====== 	======= 	The accompanying notes are an integral part of these financial statements. SALTON SEA FUNDING CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 1.	General: In the opinion of management of the Salton Sea Funding Corporation (the "Funding Corporation"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1997 and the results of operations for the three months ended March 31, 1997 and 1996 and cash flows for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. The Funding Corporation was formed on June 20, 1995 for the sole purpose of acting as issuer of senior secured notes and bonds. 2.	Other Footnote Information: Reference is made to the Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Funding Corporation's business and financial statement presentations. In particular, the significant accounting policies and practices were presented as Note 2 to the Funding Corporation financial statements included in that filing. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Salton Sea Guarantors as of March 31, 1997, and the related combined statements of operations and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Guarantors' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such combined financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the combined balance sheet of the Salton Sea Guarantors as of December 31, 1996, and the related combined statements of operations, Guarantors' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, we expressed an unqualified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying combined balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 29, 1997 SALTON SEA GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) ------------------------------------------------------- 			March 31, 	December 31, 			1997 1996 	---------------- 	--------------- 			(unaudited) ASSETS Accounts receivable	 $ 15,501	 $ 14,954 Prepaid expenses and other assets	 14,314	 16,008 Property, plant, contracts and equipment, net	 483,314 	484,182 Excess of cost over fair value of net assets acquired, net	 50,464 	50,790 			------------- 	------------- 			$563,593 	$565,934 			======= 	======= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable	 $ 160	 $ 642 Accrued liabilities 	15,802 	9,989 Due to affiliates	 48,598 	64,091 Senior secured project note 	299,840 	299,840 			------------- 	------------- 	Total liabilities 	364,400 	374,562 Total Guarantors' equity	 199,193 	191,372 			------------- 	------------- 			$563,593 	$565,934 			======= 	======= 	The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 			Three Months Ended	 			March 31, 			----------------------------------	 			1997	 1996	 			------------ 	------------ Revenues: Sales of electricity	 $23,254 	$16,221	 Interest and other income	 9	 68	 			----------- 	-----------	 Total revenues	 23,263	 16,289 	 			----------- 	-----------	 Expenses: Operating, general and administration 	7,161	 5,789	 Depreciation and amortization 	3,642	 2,682	 Interest expense	 5,864 	6,257	 Less capitalized interest 	(1,225)	 (3,300)	 		----------- 	-----------	 Total expenses	 15,442 	11,428	 			----------- 	-----------	 Net income	 $ 7,821	 $ 4,861	 		======	 ======	 	The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 				Three Months Ended 				March 31, 				---------------------------------- 				1997 	1996 				-----------	 ----------- Cash flows from operating activities: Net income	 $ 7,821 	 $ 4,861 Adjustments to reconcile net income to net 	cash provided by operating activities: 		Depreciation and amortization	 3,642 	 2,682 		Changes in assets and liabilities: 			Accounts receivable	 (547) 	(5,809) 			Prepaid expenses and other assets 	1,694 	2,276 			Accounts payable and accrued 			 liabilities	 5,331 	7,996 				------------	------------- Net cash flows from operating activities	 17,941 	12,006 				------------	------------- Cash flows from investing activities: Capital expenditures	 (2,448)	 (30,623) 			------------	------------- Cash flows from financing activities: Due to (from) affiliates	 (15,493)	 18,163 				------------	------------- Net change in cash	 -	 (454) Cash at beginning of period	 -	 454 				------------	------------- Cash at end of period 	$ -	 $ - 				=======	 ======== 	The accompanying notes are an integral part of these financial statements. SALTON SEA GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) ------------------------------------------------------- 1.	General: In the opinion of management of the Salton Sea Guarantors (the "Guarantors"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1997 and the results of operations for the three months ended March 31, 1997 and 1996 and cash flows for the three months ended March 31, 1997 and 1996. The combined financial statements include the accounts of the partnerships in which the Guarantors have a 100% interest. The results of operations for the three months ended March 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 2.	Other Footnote Information: Reference is made to the Salton Sea Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Guarantors' business and financial statement presentations. In particular, the Guarantors' significant accounting policies and practices were presented as Note 2 to the Guarantors' combined financial statements included in that filing. 3.	Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following: 				March 31, 	December 31, 				1997	 1996 				--------------------	------------------- Plant and equipment	 $329,842	 $329,458 Power sale agreements	 64,609 	64,609 Mineral reserves 	68,056 	66,831 Exploration and development costs 	43,059 	42,220 				------------- 	------------- 				505,566	 503,118 Less accumulated depreciation 	and amortization	 (22,252) 	(18,936) 				------------- 	------------- 				$483,314 	$484,182 			======== 	======== INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying combined balance sheet of the Partnership Guarantors as of March 31, 1997, and the related combined statements of operations and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Guarantors' management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such combined financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the combined balance sheet of the Partnership Guarantors as of December 31, 1996, and the related combined statements of operations, Guarantors' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, we expressed an unqualified opinion on those combined financial statements. In our opinion, the information set forth in the accompanying combined balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the combined balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 29, 1997 PARTNERSHIP GUARANTORS COMBINED BALANCE SHEETS (Dollars in Thousands) ------------------------------------------------------- 			March 31, 	December 31, 			1997 	1996 			--------------------	------------------ 			(unaudited) ASSETS Accounts receivable	 $ 22,800 	 $ 22,766 Due from affiliates	 141,828	 129,278 Prepaid expenses and other assets 	16,024 	19,083 Property, plant, contracts and equipment, net	 366,699	 364,849 Management fee 	67,660 	67,521 Excess of cost over fair value of net assets acquired, net	 137,795 	138,686 			------------- 	------------- 			$752,806 	$742,183 		=======	 ======= LIABILITIES AND GUARANTORS' EQUITY Liabilities: Accounts payable 	 $ 901	 $ 663 Accrued liabilities	 26,773	 22,977 Senior secured project notes	 182,204	 182,204 Deferred income taxes	 111,380 	108,277 			------------ 	------------- Total liabilities	 321,258 	314,121 Guarantors' equity: Common stock	 3	 3 Additional paid-in capital	 387,663 	387,663 Retained earnings	 43,882 	40,396 			------------- 	------------- Total Guarantors' equity 	431,548	 428,062 			-------------	 ------------- 			$752,806 	$742,183 			======= 	======= 	The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 			Three Months Ended 			March 31,	 			-------------------------------------	 		1997 	1996 			----------- 	-----------	 Revenues: Sales of electricity	 $34,746 	$15,159	 Interest and other income 	545	 2,220	 			----------- 		----------	 Total revenues	 35,291 	17,379	 			----------- 	----------	 Expenses: Operating, general and administration	 16,282	 7,612	 Depreciation and amortization	 9,644 	4,373	 Interest expense	 3,651 	2,007	 Less capitalized interest 	(2,246) 	 (2,007)	 			-----------	 -----------	 Total expenses	 27,331	 11,985	 		----------- 	-----------	 Income before income taxes	 7,960	 5,394	 Provision for income taxes	 3,103 	2,249	 			----------- 	-----------	 Net income	 $ 4,857	 $ 3,145	 		======= 	 =======	 	The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS COMBINED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 	Three Months Ended 	March 31, 	----------------------------------- 	1997 	1996 	------------	------------ Cash flows from operating activities: Net income	 $ 4,857	 $ 3,145 Adjustments to reconcile net income to net 	cash provided by operating activities: 		Depreciation and amortization 	 9,644 	4,373 		Deferred income taxes	 3,103	 2,249 		Changes in assets and liabilities: 			Accounts receivable 	(34) 	2,226 			Prepaid expenses and other assets	 3,059 	(2,163) 			Accounts payable and accrued liabilities	 4,034 	(15,094) ____________ _____________ Net cash flows from operating activities	 24,663 	(5,264) 				------------	------------- Cash flows from investing activities: Capital expenditures	 (10,236)	 (3,736) Management fee 	(506) 	(841) Increase in restricted cash and short-term investments 	- 	(717) 				------------ ------------- Net cash flows from investing activities	 (10,742) 	(5,294) 				------------	------------- Cash flows from financing activities: Increase in amounts due from affiliates	 (12,550) 	(914) Repayments on loans payable	 - 	(5,133) Contributions from parent 	- 	16,501 Distributions to parent	 (1,371) 	- 				------------	------------- Net cash flows from financing activities	 (13,921)	 10,454 				------------	------------- Net change in cash	 -	 (104) Cash at beginning of period	 - 	11,146 			------------	------------- Cash at end of period	 $ -	 $ 11,042 				=======	 ======= 	The accompanying notes are an integral part of these financial statements. PARTNERSHIP GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) ------------------------------------------------------- 1.	General: In the opinion of management of the Partnership Guarantors (the "Guarantors"), the accompanying unaudited combined financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1997 and the results of operations for the three months ended March 31, 1997 and 1996 and cash flows for the three months ended March 31, 1997 and 1996. The combined financial statements include the proportionate share of the accounts of the partnerships in which the Guarantors have an interest. The results of operations for the three months ended March 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 2.	Other Footnote Information: Reference is made to the Salton Sea Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Guarantors' business and financial statement presentations. In particular, the Guarantors' significant accounting policies and practices were presented as Note 2 to the Guarantors' combined financial statements included in that filing. 3.	Property, Plant, Contracts and Equipment: Property, plant, contracts and equipment consisted of the following: 				March 31, 	December 31, 				1997	 1996 				--------------------	------------------- Plant and equipment	 $ 62,776 	$ 60,272 Power sale agreements	 123,588	 123,588 Process license	 46,290 	46,290 Mineral reserves	 123,445	 121,199 Exploration and development costs 	62,610 	59,303 				------------ 	------------- 				418,709 	410,652 Less accumulated depreciation 	and amortization	 (52,010) 	(45,803) 				------------ 	------------- 				$366,699 	$364,849 				======== 	======== PARTNERSHIP GUARANTORS NOTES TO COMBINED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) ------------------------------------------------------- 4.	Purchase of Edison Mission Energy's Partnership Interests On April 17, 1996 CECI completed the indirect acquisition of Edison Mission Energy's partnership interests in the Vulcan, Hoch (Del Ranch), Leathers and Elmore geothermal operating facilities. Magma Power Company, a wholly-owned subsidiary of CECI, currently operates these facilities and directly or indirectly owns 100% interest in these facilities. Magma's ownership interest related to Del Ranch, Leathers, Elmore and Vulcan is assigned to the Partnership Guarantors. Unaudited pro forma combined revenue and net income of the Guarantors on a purchase, push down basis of accounting, for the three months ended March 31, 1996, as if the acquisition had occurred at the beginning of the period after giving effect to certain pro forma adjustments related to the acquisition were $36,065 and $4,238, respectively. INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Stockholder Magma Power Company Omaha, Nebraska We have reviewed the accompanying balance sheet of the Salton Sea Royalty Company as of March 31, 1997, and the related statements of operations and cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of the Salton Sea Royalty Company as of December 31, 1996, and the related statements of operations, equity, and cash flows for the year then ended (not presented herein); and in our report dated January 31, 1997, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying balance sheet as of December 31, 1996 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Omaha, Nebraska April 29, 1997 SALTON SEA ROYALTY COMPANY BALANCE SHEETS (Dollars in Thousands, Except per Share Amounts) ------------------------------------------------------------------------- 		March 31, 	December 31, 			1997 	 1996 	------------------ 	----------------- 			(unaudited) ASSETS Due from affiliates	 $ 15,992	 $ 10,008 Royalty stream, net	 42,150	 44,372 Excess of cost over fair value of net assets acquired, net	 34,777	 35,004 Prepaid expenses and other assets	 1,512	 1,689 			------------- 	------------- 		 	$ 94,431 	$ 91,073 			======= 	======= LIABILITIES AND EQUITY Liabilities: Accrued liabilities	 $ 14,640 	$ 12,070 Senior secured project note 	56,936	 56,936 Deferred income taxes	 11,349 	12,227 			-------------- 	------------- Total liabilities	 82,925	 81,233 Equity: Common stock, par value $.01 per share; 100 shares authorized 	issued and outstanding	 -	 - Additional paid-in capital	 1,561 	 1,561 Retained earnings	 9,945	 8,279 			------------- 	------------- Total equity	 11,506 	9,840 			-------------	 ------------- 			 $ 94,431	 $ 91,073 			======= 	======= 	The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 	Three Months Ended	 	March 31, ---------------------------------	 		1997 	1996	 		----------- 	----------	 Revenues: Royalty income	 $ 7,861	 $ 6,941	 Expenses: Operating, general and administrative expenses	 1,877	 1,707	 Amortization of royalty stream and goodwill 	2,449	 2,570	 Interest expense	 1,132	 1,358	 	--------- 	 -----------	 Total expenses	 5,458 	5,635	 			--------- 	-----------	 Income before income taxes 	2,403 	1,306	 Provision for income taxes 	737	 478	 			--------- 	-----------	 Net income 	$ 1,666	 $ 828	 			 ======= ====	 	The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited) ------------------------------------------------------- 				Three Months Ended 				March 31, ------------------------ 				1997	 1996 				----------- 	----------- Cash flows from operating activities: Net income	 $1,666 	$ 828 Adjustments to reconcile net income to net 	cash provided by operating activities: 		Amortization of royalty stream and goodwill	 2,449	 2,570 		Changes in assets and liabilities: 		Prepaid expenses and other assets	 177 	222 		Accrued liabilities and deferred income taxes 	1,692	 1,614 				----------- 	----------- Net cash flows from operating activities 	5,984 	5,234 Net cash flows from investing activities	 -	 - 			----------- 	----------- Net cash flows from financing activities: Decrease (increase) in due from affiliates (5,984) 	125 Distribution to parent	 - (5,359) 				----------- 	----------- Net cash flows from financing activities	 (5,984)	 (5,234) 				-----------	 ----------- Net change in cash	 -	 - Cash at beginning of period	 - 	- 				----------- 	----------- Cash at end of period	 $ -	 $ - 	 		====== 	====== 	The accompanying notes are an integral part of these financial statements. SALTON SEA ROYALTY COMPANY NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) ------------------------------------------------------- 1.	General: In the opinion of management of the Salton Sea Royalty Company (the "Company"), the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 1997 and the results of operations for the three months ended March 31, 1997 and 1996 and cash flows for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 and 1996 are not necessarily indicative of the results to be expected for the full year. 2.	Other Footnote Information: Reference is made to the Salton Sea Funding Corporation's most recently issued annual report on Form 10-K that included information necessary or useful to the understanding of the Guarantor's business and financial statement presentations. In particular, the Guarantor's significant accounting policies and practices were presented in Note 2 to the Company's financial statements included in that report. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands, Except per kWh Data) -------------------------------------------------------------- Results of Operations: The following is management's discussion and analysis of certain significant factors which have affected the Funding Corporation's and Guarantors' financial condition and results of operations during the periods included in the accompanying statements of operations. Funding Corporation was organized for the sole purpose of acting as issuer of senior secured notes and bonds (the "Securities"). The Securities are payable from the proceeds of payments made of principal and interest on the senior secured project notes by the Guarantors, as defined, to the Funding Corporation. The Securities are guaranteed on a joint and several basis by the Guarantors. The guarantees of the Partnership Guarantors and Salton Sea Royalty Company are limited to available cash flow. The Funding Corporation does not conduct any operations apart from the Securities. The Partnership Projects sell all electricity generated by the respective plants pursuant to four long-term SO4 Agreements between the projects and Southern California Edison Company ("Edison"). These SO4 Agreements provide for capacity payments, capacity bonus payments and energy payments. Edison makes fixed annual capacity bonus 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 and the capacity payments are significantly higher in the months of June through September. Energy is sold at increasing scheduled rates for the first ten years of each contract and thereafter at Edison's Avoided Cost of Energy. The scheduled energy price periods of the Partnership Project SO4 Agreements extended until February 1996 for the Vulcan Partnership and extend until December 1998, December 1998, and December 1999 for each of the Hoch (Del Ranch), Elmore and Leathers Partnerships, respectively. Excluding Vulcan, which is receiving Edison's Avoided Cost of Energy, the Company's SO4 Agreements provide for energy rates ranging from 13.6 cents per kWh in 1997 to 15.6 cents per kWh in 1999. The Salton Sea I Project sells electricity to Edison pursuant to a 30-year negotiated power purchase agreement, as amended (the "Salton Sea I PPA"), which provides for capacity and energy payments. The initial contract capacity and contract nameplate are each 10 MW. The energy payment is calculated using a Base Price which is subject to quarterly adjustments based on a basket of indices. The time period weighted average energy payment for Salton Sea I was 5.22 cents per kWh during the three months ended March 31, 1997. 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 and Salton Sea III Projects sell electricity to Edison pursuant to 30-year modified SO4 Agreements. The contract capacities and contract nameplates are 15 MW and 20 MW for Salton Sea II and 47.5 MW and 49.8 MW for Salton Sea III, respectively. The contracts require Edison to make capacity payments, capacity bonus payments and energy payments. The price for contract capacity and contract capacity bonus payments is fixed for the life of the modified SO4 Agreements. The energy payments for the first ten year period, which expires April 4, 2000 for Salton Sea II and February 13, 1999 for Salton Sea III, are levelized at a time period weighted average of 10.6 cents per kWh and 9.8 cents per kWh for Salton Sea II and Salton Sea III, respectively. Thereafter, the monthly energy payments will be at Edison's Avoided Cost of THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands, Except per kWh Data) -------------------------------------------------------------- Results of Operations: (continued) Energy. For Salton Sea II only, Edison is entitled to receive, at no cost, 5% of all energy delivered in excess of 80% of contract capacity through March 31, 2004. The Salton Sea IV Project sells 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 PPA option (20 MW) and to the original 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 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. For the three months ended March 31, 1997, Edison's average Avoided Cost of Energy was 3.8 cents per kWh which is substantially below the contract energy prices earned for the three months ended March 31, 1997. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. The Company cannot predict the likely level of Avoided Cost of Energy prices under the SO4 Agreements and the modified SO4 Agreements at the expiration of the scheduled payment periods. The revenues generated by each of the projects operating under SO4 Agreements could decline significantly after the expiration of the respective scheduled payment periods. The following data represents the aggregate capacity and electricity production of Salton Sea Units I, II, III and IV: 	Three Months Ended	 	March 31, 	 	----------------------------------	 				1997 	1996	 				----------- 	-----------	 Overall capacity factor	 98.8%	 89.6%	 Capacity NMW (average)	 119.4 	79.8	 kWh produced (in thousands)	 254,800	 156,200	 The overall capacity factor for the Salton Sea Project has increased for the three months ended March 31, 1997 compared to the same period in 1996 primarily as a result of the commencement of operations at the Salton Sea IV project and operating efficiencies resulting in greater production at Salton Sea Units I, II and III. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands, Except per kWh Data) -------------------------------------------------------------- Results of Operations: (continued) The following data represents the aggregate capacity and electricity production of Vulcan, Del Ranch, Elmore and Leathers: 	Three Months Ended	 	March 31, 	------------------------------- 			 	1997	 1996	 				-----------	-----------	 Overall capacity factor	 101.8% 	97.6%	 Capacity NMW (average) 	148.0 	 148.0 	 kWh produced (in thousands)	 325,300 	315,600 	 The overall capacity factor for the Partnership Project increased for the first quarter of 1997 compared to the first quarter of 1996 due to increased production at Leathers and Elmore as both facilities had scheduled turbine overhauls in 1996. The Salton Sea Guarantors' sales of electricity increased to $23,254 for the three months ended March 31, 1997 from $16,221 for the same period of 1996, a 43.4% increase. This increase was primarily due to the addition of Unit IV production in June 1996 and increased electric production at the other plants. The Partnership Guarantors' sales of electricity increased to $34,746 for the three months ended March 31, 1997 from $15,159 for the same period in 1996, a 129.2% increase. This increase was primarily due to the purchase of Edison Mission Energy's 50% partnership interest in the four geothermal operating facilities in April 1996. The Royalty Guarantor's revenues increased to $7,861 for the three months ended March 31, 1997 from $6,941 for the same period last year. This increase was due primarily to higher energy sales at Elmore and Leathers compared to the same period last year. The Salton Sea Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $7,161, for the three months ended March 31, 1997 from $5,789 for the same period in 1996. This increase was primarily due to the commencement of operations at the Salton Sea Unit IV plant in June 1996. The Partnership Guarantors' operating expenses, which include royalty, operating, and general and administrative expenses, increased to $16,282 for the three months ended March 31, 1997 from $7,612 for the same period in 1996. This increase was primarily due to the Edison Mission Energy Partnership Interest Acquisition. The Royalty Guarantors' operating expenses increased to $1,877 for the three months ended March 31, 1997 from $1,707 for the same period in 1996, a 10.0% increase. This increase was due to a scheduled increase in third party lessor royalties related to the increase in the Partnership Projects' sales of electricity. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands, Except per kWh Data) --------------------------------------------------------------- Results of Operations: (continued) The Salton Sea Guarantors' depreciation and amortization increased to $3,642 for the three months ended March 31, 1997 from $2,682 for the same period of 1996, a 35.8% increase. This increase was due primarily to the depreciation related to Salton Sea Unit IV plant. The Partnership Guarantors' depreciation and amortization increased to $9,644 for the three months ended March 31, 1997 from $4,373 for the same period in 1996, a 120.5% increase. This increase was due primarily to the Edison Mission Energy Partnership Interest Acquisition. The Royalty Guarantors' amortization decreased to $2,449 for the three months ended March 31, 1997 from $2,570 for the same period of 1996, a 4.7% decrease. This decrease is a result of scheduled amortization. The Salton Sea Guarantors' interest expense, net of capitalized amounts, increased to $4,639 for the three months ended March 31, 1997 from $2,957 for the same period in 1996, a 56.9% increase. This increase was due primarily to the capitalization of interest related to the Salton Sea Unit IV expansion during the construction period in 1996, offset partially by the decreased indebtedness in 1997 due to the scheduled payments on the debt. The Partnership Guarantors' interest expense, net of capitalized amounts, increased to $1,405 for the three months ended March 31, 1997 from $0 for the same period in 1996 as the result of additional indebtedness primarily related to the Edison Mission Energy Partnership Interest Acquisition. The Royalty Guarantors' interest expense decreased to $1,132 for the three months ended March 31, 1997 from $1,358 from the same period in 1996. The decrease was the result of scheduled payments on the debt. The Salton Sea Guarantors are primarily 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 $3,103 for the three months ended March 31, 1997 from $2,249 for the same period in 1996, a 38.0% increase. This increase was primarily due to an increase in income before income taxes resulting from the Edison Mission Energy Partnership Interest Acquisition. Income taxes will be paid by the parent of the Guarantors from distributions to the parent company by the Guarantors which occur after operating expenses and debt service. The Royalty Guarantor's income tax provision was $737 for the three months ended March 31, 1997 compared to $478 for the same period in 1996. This increase was due primarily to increased earnings in the current year. Tax obligations of the Royalty Guarantor will be remitted to the parent company only to the extent of cash flows available after operating expenses and debt service. THE SALTON SEA FUNDING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in Thousands, Except per kWh Data) -------------------------------------------------------------- Results of Operations: (continued) The Salton Sea Funding Corporation's net income for the three months ended March 31, 1997 was $314 compared to $513 for the same period in 1996. Net income primarily represented interest income and expense, net of applicable tax, and the Salton Sea Funding Corporation's 1% equity in earnings of the Guarantors. The Salton Sea Guarantors' net income increased to $7,821 for the three months ended March 31, 1997 compared to $4,861 for the same period of 1996. The Partnership Guarantors' net income increased to $4,857 for the three months ended March 31, 1997 compared to $3,145 for the same period of 1996. The Royalty Guarantors' net income increased to $1,666 for the three months ended March 31, 1997 compared to $828 for the same period of 1996. Liquidity and Capital Resources: The Salton Sea Guarantors' only source of revenue is payments received pursuant to long term power sales agreements with Edison, other than interest earned on funds on deposit. The Partnership Guarantors' primary source of revenue is payments received pursuant to long term power sales agreements with Edison. The Partnership Guarantors' also receive a special distribution. The Royalty Guarantor receives royalties pursuant to resource lease agreements with the Partnership Projects and the East Mesa Project. 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. SALTON SEA FUNDING CORPORATION PART II - OTHER INFORMATION Item 1 -	Legal proceedings. 	The Salton Sea Funding Corporation is not a party to any material legal matters. Item 2 -	Changes in Securities. 	Not applicable. Item 3 -	Default on Senior Securities. 	Not applicable. Item 4 -	Submission of Matters to a Vote of Security Holders. 	Not applicable. Item 5 -	Other Information. 	Not applicable. Item 6 -	Exhibits and Reports on Form 8-K. 	(a)	Exhibits: 	Exhibit 27 - Financial Data Schedule 	(b)	Report on Form 8-K: 	Not applicable. SIGNATURES Pursuant to the requirements 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. 				SALTON SEA FUNDING CORPORATION 				/s/	Gregory E. Abel	 Date: May 14, 1997		 Gregory E. Abel 					Executive Vice President and 					Chief Accounting Officer 		 	/s/	John G. Sylvia	 					John G. Sylvia 					Senior Vice President and 					Chief Financial Officer EXHIBIT INDEX Exhibit	 	Page No. 		 No. 27	Financial Data Schedule 	33