1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number (Under the Securities Act of 1933) 33-37977
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-2726166
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State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
100 PROGRESS PLACE, MIDLAND, MICHIGAN 48640
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (517) 839-6000
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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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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS AS OF
(In Thousands)
September 30,
1999 December 31,
ASSETS (Unaudited) 1998
------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents $ 168,057 $ 193,116
Restricted cash and cash equivalents 5,669 8,913
Accounts and notes receivable 110,442 104,315
Gas inventory 17,078 15,144
Unamortized property taxes 23,088 15,742
Prepaid expenses and other 5,233 4,031
------------- ---------------
Total current assets 329,567 341,261
------------- ---------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment 2,406,721 2,392,829
Pipeline 21,222 21,222
------------- ---------------
Total property, plant and equipment 2,427,943 2,414,051
Accumulated depreciation (692,177) (640,659)
------------- ---------------
Net property, plant and equipment 1,735,766 1,773,392
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OTHER ASSETS:
Restricted investment securities held-to-maturity 139,837 143,444
Deferred financing costs, net of accumulated amortization of
$11,174 and $10,416, respectively 7,403 8,161
Prepaid gas costs, materials and supplies 23,858 20,248
------------- ---------------
Total other assets 171,098 171,853
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TOTAL ASSETS $ 2,236,431 $ 2,286,506
============= ===============
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 50,276 $ 60,718
Interest payable 37,648 78,959
Current portion of long-term debt 139,095 64,331
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Total current liabilities 227,019 204,008
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NON-CURRENT LIABILITIES:
Long-term debt 1,584,865 1,723,960
Other 1,463 990
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Total non-current liabilities 1,586,328 1,724,950
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CONTINGENCIES (Note 6)
TOTAL LIABILITIES 1,813,347 1,928,958
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PARTNERS' EQUITY 423,084 357,548
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TOTAL LIABILITIES AND PARTNERS' EQUITY $ 2,236,431 $ 2,286,506
============= ===============
The accompanying condensed notes are an integral part of these statements.
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MIDLAND COGENERATON VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- --------------- --------------
OPERATING REVENUES:
Capacity $ 105,110 $ 102,677 $ 305,577 $ 304,489
Electric 47,444 47,005 149,903 147,422
Steam and other 2,714 6,322 10,010 20,016
------------ ------------- -------------- -------------
Total operating revenues 155,268 156,004 465,490 471,927
------------ ------------- -------------- -------------
OPERATING EXPENSES:
Fuel costs 61,405 60,739 179,350 185,681
Depreciation 23,771 23,807 71,270 73,365
Operations 3,465 3,574 10,819 11,279
Maintenance 3,033 3,070 9,278 9,053
Property and single business taxes 6,529 6,439 19,416 19,276
Administrative, selling and general 2,253 1,898 7,292 6,832
------------ ------------- -------------- -------------
Total operating expenses 100,456 99,527 297,425 305,486
------------ ------------- -------------- -------------
OPERATING INCOME 54,812 56,477 168,065 166,441
------------ ------------- -------------- -------------
OTHER INCOME (EXPENSE):
Interest and other income 5,094 4,627 14,429 16,161
Interest expense (38,042) (39,366) (116,958) (123,002)
------------ ------------- -------------- -------------
Total other income (expense), net (32,948) (34,739) (102,529) (106,841)
------------ ------------- -------------- -------------
NET INCOME $ 21,864 $ 21,738 $ 65,536 $ 59,600
============ ============= ============== =============
The accompanying condensed notes are an integral part of these statements.
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (Unaudited)
(In Thousands)
Nine Months Ended
September 30, 1999
----------------------------------------------------
General Limited
Partners Partners Total
-------------- --------------- ---------------
BALANCE, BEGINNING OF PERIOD $ 299,927 $ 57,621 $ 357,548
Net income 57,058 8,478 65,536
-------------- --------------- ---------------
BALANCE, END OF PERIOD $ 356,985 $ 66,099 $ 423,084
============== =============== ===============
The accompanying condensed notes are an integral part of these statements.
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands)
Nine Months Ended
September 30,
--------------------------------------
1999 1998
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 65,536 $ 59,600
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 72,028 74,162
(Increase) in accounts receivable (6,127) (4,037)
(Increase) decrease in gas inventory (1,934) 124
(Increase) in unamortized property taxes (7,346) (6,055)
(Increase) decrease in prepaid expenses and other (1,202) 359
(Increase) decrease in prepaid gas costs, materials and supplies (3,610) 71
(Decrease) increase in accounts payable and accrued liabilities (10,442) 1,787
(Decrease) in interest payable (41,311) (46,130)
Increase in other non-current liabilities 473 166
--------------- ---------------
Net cash provided by operating activities 66,065 80,047
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CASH FLOWS FROM INVESTING ACTIVITIES:
Plant modifications and purchases of plant and equipment (33,644) (32,178)
--------------- ---------------
Net cash used in investing activities (33,644) (32,178)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of financing obligation (64,331) (140,950)
Maturity of restricted investment securities held-to-maturity 300,202 269,113
Purchase of restricted investment securities held-to-maturity (296,595) (272,395)
--------------- ---------------
Net cash used in financing activities (60,724) (144,232)
--------------- ---------------
NET DECREASE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH - CURRENT
(28,303) (96,363)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT, AT BEGINNING
OF PERIOD 202,029 234,526
--------------- ---------------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH - CURRENT, AT END OF
PERIOD $ 173,726 $ 138,163
=============== ===============
The accompanying condensed notes are an integral part of these statements.
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements and condensed notes should be read along
with the audited financial statements and notes as contained in the Annual
Report on Form 10-K for the year ended December 31, 1998 of Midland Cogeneration
Venture Limited Partnership ("MCV") which includes the Report of Independent
Public Accountants. In the opinion of management, the unaudited information
herein reflects all adjustments (which include only normal recurring
adjustments) necessary to assure the fair presentation of financial position,
results of operations and cash flows for the periods presented. Prior period
amounts have been reclassified for comparative purposes. These reclassifications
had no effect on net income. The consolidated financial statements include the
accounts of MCV and its wholly-owned subsidiaries. All material transactions and
balances among entities which comprise MCV have been eliminated in the
consolidated financial statements.
(1) THE PARTNERSHIP AND ASSOCIATED RISKS
MCV was organized to construct, own and operate a combined-cycle, gas-fired
cogeneration facility (the "Facility") located in Midland, Michigan. MCV
was formed on January 27, 1987, and the Facility entered into commercial
operation in 1990.
In 1992, MCV acquired the outstanding common stock of PVCO Corp., a
previously inactive company. MCV and PVCO Corp. entered into a partnership
agreement to form MCV Gas Acquisition General Partnership ("MCV GAGP") for
the purpose of buying and selling natural gas on the spot market and other
transactions involving natural gas activities. Currently, MCV GAGP is not
actively engaged in any business activity.
The Facility was originally designed to provide approximately 1,370
megawatts ("MW") of electricity and approximately 1.5 million pounds of
process steam per hour. Subsequent improvements to the Facility have
increased net electrical generating capacity. MCV has entered into three
principal energy sales agreements. MCV has contracted to supply up to 1,240
MW of electric capacity ("Contract Capacity") to Consumers Energy Company
("Consumers") under the Power Purchase Agreement ("PPA"), for resale to its
customers, to supply electricity and steam to The Dow Chemical Company
("Dow") under the Steam and Electric Power Agreement ("SEPA") and to supply
steam to Dow Corning Corporation ("DCC") under the Steam Purchase Agreement
("SPA"). From time to time, MCV enters into other short-term sales
agreements for the sale of excess capacity and/or energy available above
MCV's internal use and obligations under the PPA, SEPA and SPA. Results of
operations are primarily dependent on successfully operating the Facility
at or near contractual capacity levels and on Consumers' honoring its
obligations under the PPA with MCV. Sales pursuant to the PPA have
historically accounted for over 90% of MCV's revenues.
The PPA permits Consumers, under certain conditions, to reduce the capacity
and energy charges payable to MCV and/or to receive refunds of capacity and
energy charges paid to MCV if the Michigan Public Service Commission
("MPSC") does not permit Consumers to recover from its customers the
capacity and energy charges specified in the PPA (the "regulatory out"
provision). Pursuant to Amendment 3 of the PPA, for the first 17-1/2 years
of commercial operation, the capacity charge may not be reduced below an
average capacity rate of 3.77 cents per kWh for the available Contract
Capacity notwithstanding the "regulatory out" provision. Consumers and MCV
are required to support and defend the terms of the PPA.
The Facility is a qualifying cogeneration facility ("QF") originally
certified by the Federal Energy Regulatory Commission ("FERC") under the
Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"). In
order to maintain QF status, certain operating and efficiency standards
must be maintained on a calendar-year basis and certain ownership
limitations must be met. In the case of a topping-cycle generating plant
such as the Facility, the applicable operating standard requires that the
portion of total energy output that is put to some useful purpose other
than facilitating the production of power (the "Thermal Percentage") be at
least 5%. In addition, the Facility must achieve a PURPA efficiency
standard (the sum of the useful power output plus one-half of the useful
thermal energy output, divided by the energy input (the "Efficiency
Percentage")) of at least 45%. If the Facility maintains a Thermal
Percentage of 15% or higher, the required Efficiency Percentage is reduced
to 42.5%. Since 1990, the Facility has achieved the applicable Thermal and
Efficiency Percentages. For the nine months ended September 30, 1999, the
Facility achieved a Thermal Percentage of 17.8% and a
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
PURPA Efficiency Percentage of 47.1%. The loss of QF status could, among
other things, cause the Facility to lose its rights under PURPA to sell
power to Consumers at Consumers' "avoided cost" and subject the Facility to
additional federal and state regulatory requirements. MCV believes that the
Facility will meet the required Thermal and the corresponding Efficiency
Percentages in 1999 and beyond.
MCN Energy Group Inc. ("MCN"), the parent company of Source Midland Limited
Partnership ("SMLP") and a 50% partner of MEI Limited Partnership ("MEI")
through SMLP, both partners of MCV, announced on October 5, 1999 that it
has signed a definitive merger agreement with DTE Energy Company. The
merger has been unanimously approved by the Board of Directors of both
companies. The transaction is subject to the approval of the shareholders
of both companies, regulatory approvals and other customary merger
conditions. The transaction is expected to close in the second quarter of
2000. Since the merger would cause SMLP and MEI to become electric
utilities under PURPA, MCV expects that MCN will sell its interest in the
MCV partnerships or make other arrangements in order to keep the utility
ownership in MCV below 50% in compliance with PURPA QF ownership
requirements. In the event MCN fails to take such action, the MCV Amended
and Restated Limited Partnership Agreement provides for automatic
assignment or extinguishment of such partnership interests in order to
assure compliance with the ownership requirements under PURPA. Currently,
MCV meets the ownership requirements of PURPA.
The Facility is wholly dependent upon natural gas for its fuel supply and a
substantial portion of the Facility's operating expenses consist of the
costs of natural gas. MCV recognizes that its existing gas contracts are
not sufficient to satisfy the anticipated gas needs over the term of the
PPA and, as such, no assurance can be given as to the availability or price
of natural gas after the expiration of the existing gas contracts.
Commencing in 1998, and each year thereafter, MCV must provide at Consumers
request, continuing annual assurances of such capability for each
succeeding five-year period. If MCV is unable to provide these continuing
assurances, Consumers is entitled to withhold in a separate escrow fund a
portion of capacity charges until these assurances are provided. MCV
believes it can meet the requirement of continuing assurances. In addition,
to the extent that the costs associated with production of electricity rise
faster than the energy charge payments, MCV's financial performance will be
negatively affected. The amount of such impact will depend upon the amount
of the average energy charge payable under the PPA, which is based upon
costs incurred at Consumers' coal-fired plants and upon the amount of
energy scheduled by Consumers for delivery under the PPA. However, given
the unpredictability of these factors, the overall economic impact upon MCV
of changes in energy charges payable under the PPA and in future fuel costs
under new or existing contracts cannot accurately be predicted.
At both the state and federal level, efforts continue on restructuring the
electric industry. Two issues generally involved in these restructuring
efforts which could impact MCV the most are stranded assets or transition
cost recovery by utilities for PPA charges and contract (PPA) sanctity. At
the state level, the MPSC entered a series of orders from June 5, 1997
through February 11, 1998 (collectively the "Restructuring Orders"), now
final at the MPSC level, mandating that utilities "wheel" third-party power
to the utilities' customers, thus permitting customers to choose their
power provider. MCV, as well as others, filed an appeal in the Michigan
Court of Appeals. In June 1999, the Michigan Supreme Court issued an
opinion in the appeal of an order in an MPSC "retail wheeling" experiment
case holding, among other things, that the MPSC lacks the statutory
authority to mandate that utilities transmit power of third parties to the
utilities' customers ("Michigan Supreme Court Order"). While this Michigan
Supreme Court Order was not directed at the Restructuring Orders, it is
likely to be applied to them. On August 17, 1999, the MPSC issued an order
making retail wheeling under the Restructuring Orders voluntary on the part
of the utilities. On September 1, 1999, Consumers filed a statement with
the MPSC stating that it intends to voluntarily implement the Restructuring
Orders.
At the federal level, MCV filed a complaint in the U.S. District Court for
the Western District of Michigan challenging the Restructuring Orders. In
an order dated July 7, 1999, the U.S. District Court for the Western
District of Michigan granted MCV's Motion for Summary Judgment declaring
that the Restructuring Orders are preempted by PURPA and the Supremacy
Clause of the United States Constitution to the extent that they prohibit
any utility from recovering from its customers any charge for avoided costs
(or "stranded costs") to be paid to MCV and the other QFs under PURPA
pursuant to their PPAs. The order further provides that the
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
MPSC's prior orders approving the avoided cost rates set forth in MCV's and
the other QFs' PPAs take precedence over the Restructuring Orders. The
Defendants in the lawsuit (the Commissioners of the MPSC) were permanently
enjoined from enforcing the Restructuring Orders in any manner which denies
any utility from recovering its avoided costs as set forth in MCV's and the
other QFs' PPAs or which precludes them from recovering the full avoided
cost rate as set forth in the PPAs, including but not limited to
interpreting or enforcing the Restructuring Orders to preclude any utility
from recovering all or any portion of its avoided costs previously approved
by the MPSC from its customers, whether before, during, or after the year
2007. This order and the Commission's August 17, 1999 order are being
appealed.
To date, these restructuring efforts have not negatively impacted MCV's
cash flow, but if the MPSC's Restructuring Orders are construed so as to
deny stranded cost recovery of above-market PPA costs, and if such order is
not reversed on appeal, MCV's cash flows may be negatively impacted in the
period after 2007. MCV continues to monitor and participate in these
matters as appropriate, and to evaluate potential impacts on both cash
flows and recoverability of the carrying value of property, plant and
equipment. MCV management cannot, at this time, predict the impact or
outcome of these matters.
(2) SIGNIFICANT ACCOUNTING POLICIES
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents and short-term investments
approximate fair value because of the short maturity of these instruments.
MCV's short-term investments, which are made up of investment securities
held-to-maturity, as of September 30, 1999 and December 31, 1998, have
original maturity dates of less than one year. The unique nature of the
negotiated financing obligation discussed in Note 5 makes it impractical to
estimate the fair value of the lessor group ("Owner Participants")
underlying debt and equity instruments supporting such financing
obligation.
Forward Foreign Exchange Contracts
An amended service agreement was entered into between MCV and ABB Power
Generation ("ABB Power") (the "amended Service Agreement"), under which ABB
Power provides hot gas path parts for MCV's twelve gas turbines through the
sixth series of major gas turbine generator ("GTG") inspections, which are
expected to be completed by year-end 2008. The payments due to ABB Power
under this amended Service Agreement are adjusted annually based on the
ratio of the U.S. dollar to Swiss franc currency exchange rate. MCV
maintains a foreign currency hedging program to be used only with respect
to MCV payments subject to foreign currency exposure under the amended
Service Agreement.
To manage this currency exchange rate risk and hedge against adverse
currency fluctuations impacting the payments under this amended Service
Agreement, MCV periodically enters into forward purchase contracts for
Swiss francs. The forward foreign currency exchange contracts qualify as
hedges under Statement of Financial Accounting Standards ("SFAS") 52,
"Foreign Currency Translation," since they hedge the identifiable foreign
currency commitment of the amended Service Agreement. The gains and losses
on these transactions, accounted for as hedges, are deferred on the balance
sheet and included in the measurement of the underlying capitalized major
renewal costs when incurred. As of September 30, 1999, MCV had forward
purchase contracts involving Swiss Francs in the notional amount of $5.0
million, with a deferred $.1 million loss, recorded in prepaid expenses and
other. On December 29, 1998, MCV closed out its forward purchase contracts
involving Swiss francs in the notional amount of $10.0 million, resulting
in a deferred $1.0 million gain recorded in current liabilities.
Natural Gas Options and Futures
To manage market risks associated with the volatility of natural gas
prices, MCV maintains a gas hedging program. MCV enters into natural gas
options and futures contracts in order to hedge against unfavorable changes
in the market price of natural gas in future months when gas is expected to
be needed. These financial
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
instruments are being utilized only to secure anticipated natural gas
requirements necessary for projected electric sales at a cost of gas less
than that available under MCV's long-term natural gas contracts and to
hedge sales of natural gas previously obtained in order to optimize MCV's
existing gas supply, storage and transportation arrangements. The natural
gas futures contracts qualify as hedges under SFAS 80, "Accounting for
Futures Contracts," since the contracts cover probable future transactions.
Cash is deposited with the broker in a margin account, at the time futures
or options contracts are initiated. The change in market value of these
contracts requires adjustment of the margin account balances. The margin
balance, recorded in prepaid expenses and other, was $.9 million and $.5
million as of September 30, 1999 and December 31, 1998, respectively. MCV's
deferred gains and losses on futures and options contracts, recorded in
current liabilities, will be offset by the corresponding underlying
physical transaction and then included in operating expenses as part of
fuel cost in the same period the natural gas is burned to operate the
Facility. As of September 30, 1999, MCV had net open futures and options
contracts of 2.0 Billion cubic feet ("Bcf") with a deferred gain of $.1
million. As of December 31, 1998, MCV had net open futures and options
contracts of 1.7 Bcf with a deferred gain of $.9 million. In addition, MCV
recorded approximately $.1 million in net deferred losses on contracts
closed prior to September 30, 1999, related to 1999 and 2000 purchase
commitments, and had approximately $.2 million in net deferred gains on
contracts closed prior to December 31, 1998, related to 1999 purchase
commitments.
Interest Rate Swap Hedges
To manage the effects of interest rate volatility on interest income while
maximizing return on permitted investments, MCV established an interest
rate hedging program. The notional amounts of the hedges are tied directly
to MCV's anticipated cash investments, without physically exchanging the
underlying notional amounts.
Cash may be deposited with the broker at the time the interest rate swap
transactions are initiated. The change in market value of these contracts
may require further adjustment of the margin account balance. The margin
balance recorded in prepaid expenses and other, was approximately $.2
million and $.2 million, as of September 30, 1999 and December 31, 1998,
respectively. In December 1998 and December 1997, MCV entered into separate
interest rate swap hedges in the notional amount of $20 million each, with
the periods of performance from July 23, 1999 through January 23, 2000 and
from April 1, 1998 through December 1, 2002, respectively. The difference
between the amounts received and paid under the interest rate swap
transaction is accrued and recorded as an adjustment to the interest income
over the life of the hedged agreement. For the year-to-date period ending
September 30, 1999, MCV had an immaterial net gain under the interest rate
swap hedges while for the year ended 1998, MCV had an immaterial loss under
the December 1997 interest rate swap hedge.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".
This statement establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either
an asset or liability measured at its fair value. The statement requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges in some cases allows a derivative's gains
and losses to offset related results on the hedged item in the income
statement or permits recognition of the hedge results in other
comprehensive income. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133." This statement defers the
effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. MCV expects to adopt the new statement effective January 1, 2001. MCV
is continuing to study the impact of SFAS No. 133, however, MCV does not
expect the application of this standard to materially affect its financial
position or results of operations.
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(3) RESTRICTED CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES HELD-TO-MATURITY
Current and non-current restricted cash and cash equivalents and investment
securities held-to-maturity consist of the following as of (in thousands):
September 30, December 31,
1999 1998
---------------- ----------------
Current:
Funds restricted for plant modifications $ 5,669 $ 8,913
=============== ===============
Non-current:
Funds restricted for rental payments pursuant to the Overall Lease
Transaction $ 138,380 $ 142,453
Funds restricted for management non-qualified plans 1,457 991
--------------- ---------------
Total $ 139,837 $ 143,444
=============== ===============
(4) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following as of (in
thousands):
September 30, December 31,
1999 1998
---------------- ----------------
Accounts payable
Related parties $ 11,768 $ 17,231
Trade creditors 22,916 27,457
Property and single business taxes 13,089 11,822
Other 2,503 4,208
--------------- ---------------
Total 50,276 $ 60,718
============== ===============
(5) LONG-TERM DEBT
Long-term debt consists of the following as of (in thousands):
September 30, December 31,
1999 1998
---------------- ---------------
Financing obligation, maturing through 2015, effective interest
rate of approximately 8.7%, payable in semi-annual installments
of principal and interest, secured by property, plant and equipment $ 1,723,960 $ 1,788,291
Less current portion (139,095) (64,331)
---------------- --------------
Total long-term debt $ 1,584,865 $ 1,723,960
================ ==============
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Financing Obligation
In 1990, MCV obtained permanent financing for the Facility by entering into
sale and leaseback agreements ("Overall Lease Transaction") with the Owner
Participants, related to substantially all of MCV's fixed assets. Proceeds
of the financing were used to retire borrowings outstanding under existing
loan commitments, make a capital distribution to the Partners and retire a
portion of the notes issued by MCV to MEC Development Corporation ("MDC")
in connection with the transfer of certain assets by MDC to MCV. In
accordance with SFAS No. 98, "Accounting For Leases," the sale and
leaseback transaction has been accounted for as a financing arrangement.
Interest and fees incurred related to long-term debt arrangements during
the nine months ended September 30, 1999 and 1998 were $116.2 million and
$122.1 million, respectively. Interest and fees paid for the nine months
ended September 30, 1999 and 1998 were $157.5 million and $168.3 million,
respectively.
(6) CONTINGENCIES
PPA - Settlement of PPA Issues
MCV and Consumers entered into a settlement agreement ("Settlement
Agreement"), effective January 1, 1999, which resolves (for the various
time periods specified in the Settlement Agreement, but in no event sooner
than 2002) all disputed issues under the PPA and includes definitive
obligations for Consumers to make energy payments calculated in accordance
with the PPA. MCV recognized a one-time net $6.4 million increase in
electric revenues in the first quarter of 1999 based upon the resolution of
these issues. On an ongoing basis and for the various time periods
specified in the Settlement Agreement, the Settlement Agreement is not
expected to materially affect MCV's earnings and cash flows.
PPA - Sale and Assignment
On March 10, 1999, Consumers announced that it signed a contract with PECO
Energy Company ("PECO") whereby Consumers will sell 1240 MW of capacity and
associated energy to PECO from the MCV PPA beginning January 1, 2002 and
ending in September 2007. In addition, Consumers will sell PECO between 100
MW to 150 MW in 1999 through 2001. The announcement also states the
contract with PECO is subject to satisfactory regulatory approvals. On
March 19, 1999, Consumers filed an application with the MPSC seeking
regulatory approval of various ratemaking and accounting treatments
associated with the PECO contract. On April 30, 1999, the MPSC entered an
order which did not grant all of the relief Consumers requested, but does
permit the transaction to go forward. Consumers sought clarification and/or
rehearing of that order. On August 31, 1999, the Commission entered an
order on rehearing, clarifying and amending its April 30, 1999 order.
Consumers has asked the Commission for clarification of its August 31, 1999
order. At this time, MCV Management cannot predict whether Consumers will
accept the MPSC's orders. MCV does not expect the sale of Consumers' rights
to capacity and associated energy under the PPA to materially affect its
financial position or results of operations.
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(7) PARTNERS' EQUITY AND RELATED PARTY TRANSACTIONS
The following table summarizes the nature and amount of each of MCV's
Partner's equity interest, interest in profits and losses of MCV at
September 30, 1999, and the nature and amount of related party transactions
or agreements that existed with the Partners or affiliates as of September
30, 1999 and 1998, and for each of the nine month periods ended September
30, (in thousands).
Equity Partner, Type of Partner and Equity
Nature of Related Party Interest Interest Related Party Transactions and Agreements 1999 1998
- ----------------------------------- -------- -------- ---------------------------------------------- -------- --------
CMS Midland, Inc. $207,311 49.0% Power purchase agreements $441,621 $439,827
General Partner; wholly-owned Purchases under gas transportation agreements 14,251 7,221
subsidiary of Consumers Energy Purchases under spot gas agreements 207 487
Company (formerly Consumers Purchases under gas supply agreements 6,765 6,543
Power Company) Gas storage agreement 1,922 1,922
Land lease/easement agreements 450 450
Accounts receivable 46,212 49,176
Accounts payable 6,719 15,871
Gas exchanges 430 1,148
The Dow Chemical Company 44,718 7.5 Steam and electric power agreement 20,165 30,918
Limited Partner Steam purchase agreement - Dow Corning Corp
(affiliate) 2,415 2,353
Purchases under demineralized water supply
agreement 4,688 4,723
Accounts receivable 1,948 1,822
Accounts payable 519 521
Standby and backup fees 489 572
Source Midland Limited Partnership 71,273 18.1 Purchases under spot gas agreements 3,466 5,832
("SMLP") General Partner; wholly- Purchases under gas supply agreements 10,035 9,621
owned limited partnership of MCN Accounts receivable 2,058 --
Energy Group Inc. Accounts payable 1,323 1,794
Gas exchanges 5,950 --
Partner cash withdrawal (including accrued
interest) (1) 23,601 18,091
Coastal Midland, Inc. ("Coastal") 42,763 10.9 Purchases under gas transportation agreements 10,203 10,112
General Partner; wholly-owned Purchases under spot gas agreement 3,623 9,691
subsidiary of The Coastal Purchases under gas supply agreement 3,008 2,875
Corporation Gas agency agreement 1,337 1,137
Deferred reservation charges under gas purchase
agreement 5,910 4,925
Accounts receivable -- 79
Accounts payable 3,207 2,818
Gas exchanges 749 4,998
Partner cash withdrawal (including accrued
interest) (1) 20,823 15,936
MEI Limited Partnership ("MEI") (2) MEI - Under Ownership of Coastal and SMLP
A General and Limited Partner; See related party activity listed under Coastal
50% interest owned by Coastal Midland, Inc. and Source Midland Limited Partnership
Midland, Inc. and 50% interest
owned by SMLP
MEI - Under Ownership of ASEA Brown Boveri, Inc.
General Partnership Interest 35,638 9.1 Gas turbine maintenance and spare parts agreement -- 23,377
Limited Partnership Interest 3,563 .9
Micogen Limited Partnership 17,817 4.5 MLP - Under Ownership of The Coastal Corporation
("MLP") Limited Partner; owned See related party activity listed under Coastal
by subsidiaries of The Coastal Midland Inc.
Corporation (3)
C-E Midland Energy, Inc. ("C-E") (4) -- -- Service Agreement -- 1,252
Interest in MCV acquired by MEI
Limited Partnership
Alanna Corporation 1 (5) .00001 Note receivable 1 1
Limited Partner; wholly-owned
subsidiary of Alanna Holdings
Corporation
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MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Footnotes to Partners' Equity and Related Party Transactions
(1) Letters of credit have been issued and recorded as notes receivables from
various equity partners, pursuant to the Participation Agreement. In the
case of SMLP, the amount includes their share of the cash available to MEI
Limited Partnership ("MEI"). In the case of Coastal Midland, Inc.
("Coastal"), the amount includes their share of cash available to both MEI
and Micogen Limited Partnership ("MLP").
(2) On June 16, 1998, Coastal and SMLP, each acquired a 50% interest in MEI.
All MEI related party activity under the ownership of Coastal and SMLP is
shown under the equity partners, Coastal and SMLP. All MEI related party
activity under the ownership of ASEA Brown Boveri, Inc. is for the period
ended June 16, 1998, and as of June 16, 1998.
(3) On April 30, 1998 Coastal and an affiliate of The Coastal Corporation
acquired all of the partnership interests in MLP from Fluor Corporation
("Fluor"). All MLP related party activity under the ownership of The
Coastal Corporation is shown under the equity partner, Coastal, which is
also wholly-owned by The Coastal Corporation.
(4) C-E Midland Energy, Inc.'s ("C-E") limited partnership interest was
acquired by MEI, which was subsequently acquired by Coastal and SMLP. All
C-E related party activity under the ownership of ASEA Brown Boveri, Inc.
is for the period ended June 16, 1998 and as of June 16, 1998.
(5) Alanna's capital stock is pledged to secure MCV's obligation under the
lease and other overall lease transaction documents.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (MD&A)
MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
This MD&A should be read along with the MD&A in the Annual Report on Form 10-K
for the year ended December 31, 1998 of the Midland Cogeneration Venture Limited
Partnership ("MCV").
Results of Operations:
Operating Revenues Statistics
The following represents significant operating revenue statistics for the
following periods (dollars in thousands except average rates):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------ -------------
Operating Revenues $ 155,268 $ 156,004 $ 465,490 $ 471,927
Capacity Revenue $ 105,110 $ 102,677 $ 305,577 $ 304,489
PPA Contract Capacity (MW) 1,240 1,240 1,240 1,240
Billed PPA Availability (1) 98.5% 99.3% 98.5% 99.3%
Electric Revenue $ 47,444 $ 47,005 $ 149,903 $ 147,422
PPA Delivery as a Percentage of Contract Capacity 74.9% 76.3% 77.5% 81.1%
PPA, SEPA and Other Electric Deliveries (MWh) 2,289,643 2,247,027 6,866,662 7,027,697
Average PPA Variable Energy Rate ($/MWh) $ 15.85 $ 16.63 $ 16.10 $ 16.83
Average PPA Fixed Energy Rate ($/MWh) $ 3.50 $ 3.70 $ 3.53 $ 3.76
Steam Revenue $ 2,714 $ 2,504 $ 10,010 $ 8,563
Steam Deliveries (Mlbs) 1,216,600 1,199,045 4,288,880 4,127,163
Other Revenue $ -- $ 3,818 $ -- $ 11,453
(1) As part of the Settlement Agreement (see Part I, Item 1, "Condensed Notes to
Unaudited Consolidated Financial Statements," Note 6, "Contingencies, PPA -
"Settlement of PPA Issues", effective January 1, 1999, MCV agreed not to
bill Consumers for PPA availability greater than 98.5% in each calendar
year.
Comparison of the Three Months ended September 30, 1999 and 1998
Overview
For the third quarter of 1999, MCV recorded net income of $21.9 million as
compared to net income of $21.7 million for the third quarter of 1998. The
slight earnings increase for the third quarter of 1999 from 1998 is primarily
due to increased capacity and electric revenues outside of the PPA and lower
interest expense on MCV's financing obligation. This increase is partially
offset by the expiration of the installment payments under the SEPA with Dow.
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Operating Revenues
For the third quarter of 1999, MCV's operating revenues decreased by $.7 million
from the third quarter of 1998. This decrease is due to the expiration of the
installment payments under the SEPA with Dow, lower energy rates under the PPA
and lower capacity revenues under the PPA resulting from the capping of the
capacity payments under the Settlement Agreement. This decrease was partially
offset by additional capacity revenues and electric sales outside of the PPA.
Operating Expenses
For the third quarter of 1999, MCV's operating expenses were $100.5 million,
which includes $61.4 million of fuel costs. During this period, MCV purchased
approximately 20.5 Bcf of natural gas, of which a net .8 Bcf was used for
transportation fuel and as a net change to gas in storage. During this same
period. MCV consumed 20.2 Bcf, of which .5 Bcf of this total was gas provided by
Dow. The average commodity cost of fuel for the third quarter of 1999 was $2.57
per MMBtu. For the third quarter of 1998, MCV's operating expenses were $99.5
million, which includes $60.7 million of fuel costs. During this period, MCV
purchased approximately 20.3 Bcf of natural gas, of which .7 Bcf was used for
transportation fuel and as a net change to gas in storage. During this same
period, MCV consumed 20.3 Bcf, of which .7 Bcf of this total was gas provided by
Dow. The average commodity cost of fuel for the third quarter of 1998 was $2.53
per MMBtu. Fuel costs for the third quarter of 1999 compared to 1998 increased
$.7 million. This increase was primarily due to a higher average commodity cost
of fuel resulting from higher gas cost on the spot market and due to a higher
overall electric dispatch.
For the third quarter of 1999, operating expenses other than fuel costs
increased $.3 million from the third quarter of 1998. All expenses incurred in
these periods were considered normal expenditures to achieve the recorded
operating revenues.
Other Income (Expenses)
The increase in interest and other income in the third quarter of 1999 compared
to 1998 reflects a higher average investment partially offset by lower interest
rates on MCV's average cash investments. The decrease in interest expense in the
third quarter of 1999 from the third quarter of 1998 is due to a lower principal
balance on MCV's financing obligation.
Comparison of the Nine Months ended September 30, 1999 and 1998
Overview
For the first nine months of 1999, MCV recorded net income of $65.5 million as
compared to net income of $59.6 million for the first nine months of 1998. The
earnings increase for the first nine months of 1999 over 1998 is primarily due
to a Settlement Agreement between MCV and Consumers effective January 1, 1999,
which resolved a number of disputed issues under the PPA between the parties.
MCV recognized a one-time net $6.4 million increase in operating revenues in
1999 based upon the resolution of these issues. Also contributing to this
increase was additional power sales outside of the PPA, lower interest expense
on MCV's financing obligation and lower depreciation expense. This increase was
partially offset by lower revenues from Dow.
Operating Revenues
For the first nine months of 1999, MCV's operating revenues decreased by $6.4
million from the first nine months of 1998. This decrease is due to the
expiration of the installment payments under the SEPA with Dow, a lower electric
dispatch under the PPA, resulting from Consumers change to economic dispatch of
the facility in mid-March 1998, lower energy rates under the PPA and lower
capacity revenues under the PPA resulting from the capping of the capacity
payments under the Settlement Agreement. This decrease was partially offset by
the $6.4 million increase in electric revenues as a result of the Settlement
Agreement with Consumers and additional capacity revenues and electric sales
outside of the PPA.
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Operating Expenses
For the first nine months of 1999, MCV's operating expenses were $297.4 million,
which includes $179.4 million of fuel costs. During this period, MCV purchased
approximately 62.6 Bcf of natural gas, of which a net 2.8 Bcf was used for
transportation fuel and as a net change to gas in storage. During this same
period, MCV consumed 61.2 Bcf, of which 1.4 Bcf of this total was gas provided
by Dow. The average commodity cost of fuel for the first nine months of 1999 was
$2.46 per MMBtu. For the first nine months of 1998, MCV's operating expenses
were $305.5 million, which includes $185.7 million of fuel costs. During this
period, MCV purchased approximately 64.4 Bcf of natural gas, of which 2.4 Bcf
was used for transportation fuel and as a net change to gas in storage. During
this same period MCV consumed 64.4 Bcf, or which 2.4 Bcf of this total was gas
provided by Dow. The average commodity cost of fuel for the first nine months of
1998 was $2.45 per MMBtu. Fuel costs for the first nine months of 1999 compared
to 1998 decreased $6.3 million. This decrease was primarily due to a lower
electric dispatch by Consumers under the PPA.
For the first nine months of 1999, operating expenses other than fuel costs
decreased $1.8 million from the first nine months of 1998, primarily resulting
from lower depreciation expense. All other expenses incurred in these periods
were considered normal expenditures to achieve the recorded operating revenues.
Other Income (Expenses)
The decrease in interest and other income in the first nine months of 1999
compared to 1998 reflects the 1998 accrual for the interest income refund from
Great Lakes Gas Transmission, pursuant to a Federal Appeals Court decision made
in January, 1998 and lower interest rates during 1999 on MCV's average cash
investments. The decrease in interest expense in the first nine months of 1999
from the first nine months 1998 is due to a lower principal balance on MCV's
financing obligation.
Market Risk Sensitivity
Market risks relating to MCV's operations result primarily from changes in
commodity prices, interest rates and foreign exchange rates. To address these
risks, MCV enters into various hedging transactions as described below. MCV does
not use financial instruments for trading purposes and does not use leveraged
instruments. Fair values included herein have been determined based upon quoted
market prices. The information presented below should be read in conjunction
with Note 2, " Significant Accounting Policies" and Note 5, "Long-Term Debt" to
the Unaudited Consolidated Financial Statements of MCV.
Interest Rate Risks. In 1990, MCV obtained permanent financing for the Facility
by entering into sale and leaseback agreements ("Overall Lease Transaction")
with a lessor group, related to substantially all of MCV's fixed assets. In
accordance with SFAS No. 98, "Accounting For Leases," the sale and leaseback
transaction has been accounted for as a financing arrangement. Under the terms
of the Overall Lease Transaction, MCV sold undivided interests in all of the
fixed assets of the Facility for approximately $2.3 billion, to the Owner Trusts
established for the benefit of the Owner Participants. The financing
arrangement, entered into for a term of 25 years, maturing in 2015, has an
effective interest rate of approximately 8.7%, payable in semi-annual
installments of principal and interest. Due to the unique nature of the
negotiated financing obligation it is impractical to estimate the fair value of
the Owner Participants' underlying debt and equity instruments supporting this
financing obligation.
The carrying amounts of MCV's short-term investments approximate fair value
because of the short term maturity of these instruments. MCV's short-term
investments are made up of investment securities held to maturity and as of
September 30, 1999 have original maturity dates of less than one year. In
addition, to manage the effects of interest rate volatility on interest income
while maximizing return on permitted investments, MCV has established an
interest rate hedging program.
For MCV's debt obligations, the table below presents principal cash flows and
the related interest rate by expected maturity dates. The interest rate reflects
the fixed effective rate of interest of the financing arrangement. For the
interest rate swap transactions, the table presents the notional amounts and
related interest rates by fiscal year of maturity. The variable rates presented
are the average of the forward rates for the term of each contract, as valued at
September 30, 1999:
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Expected Maturity
-------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Debt:
Long-Term Debt
Fixed Rate $288.6 $292.2 $309.2 $214.0 $247.9 $1,542.6 $2,894.5 N/A
(in millions)
Avg. Interest Rate 8.7% 8.7% 8.7% 8.7% 8.7% 8.7% 8.7%
Interest Rate Swaps:
- -------------------
Variable to Fixed $ 20.0 $(.1)
(in millions)
Avg. Pay Rate 6.22%
Avg. Receive Rate 4.89%
Floating to Floating $ 20.0 $(.1)
(in millions)
Avg. Pay Rate 6.41%
Avg. Receive Rate 6.22%
Commodity Risk. MCV is a purchaser of natural gas. MCV enters into natural gas
futures and option contracts in order to hedge against unfavorable changes in
the market price of natural gas in future months when gas is expected to be
needed. These financial instruments are being utilized only to secure
anticipated natural gas requirements necessary for projected electric sales at a
cost of gas less than that available under MCV's long term natural gas contracts
and to hedge sales of natural gas previously obtained in order to optimize MCV's
existing gas supply, storage and transportation arrangements. The natural gas
futures and option contracts qualify as hedges under SFAS No. 80, "Accounting
for Futures Contracts," since the contracts cover probable future transactions.
MCV's futures and forward contracts generally have maturities not exceeding
twelve months.
The following table provides information about MCV's futures contracts that are
sensitive to changes in natural gas prices; these futures contracts have
maturity dates ranging from one to nine months. The table presents the carrying
amounts and fair values at September 30, 1999:
Expected Maturity in Fair Value
-------------------- ----------
1999/2000
---------
Futures Contracts:
Contract Volumes (10,000 MMBtu) Long/Buy 300 --
Contract Volumes (10,000 MMBtu) Short/Sold (95)
Weighted Average Price Long (per 10,000 MMBtu) $2.447 $2.522
Weighted Average Price Short (per 10,000 MMBtu) $2.846 $2.941
Contract Amount ($US in Millions) $ 4.6 $ 4.8
Foreign Currency Risks. MCV periodically enters into foreign exchange forward
purchase contracts for Swiss Francs to hedge its foreign currency exposure
against adverse currency fluctuations impacting the payments under the amended
Service Agreement with ABB Power. The gains and losses on these transactions,
accounted for as hedges, are deferred on the balance sheet and included in the
measurement of the underlying capitalized major renewal costs when incurred.
Forward contracts which are entered into have maturity dates of less than one
year. As of September 30, 1999, MCV had forward purchase contracts involving
Swiss Francs in the notional amount of $5.0 million, with a deferred $.1 million
loss.
Liquidity and Financial Resources
During the nine months ended September 30, 1999 and 1998, net cash generated by
MCV's operations was $66.1 million and $80.0 million, respectively. The primary
use of net cash was for the payment of principal on the financing obligation and
capital expenditures. MCV's cash and cash equivalents have a normal cycle of
collecting six months of revenues less operating expenses prior to making the
semiannual interest and principal payments of the financing obligation due in
January and July for the next sixteen years. During 1999 and 1998, MCV paid the
basic rent requirements of $221.7 million and $309.0 million, respectively, as
required under the Overall Lease
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Transaction. MCV also has arranged for a $50 million working capital line
("Working Capital Facility") from the Bank of Montreal to provide temporary
financing, as necessary, for operations. The Working Capital Facility has been
secured by MCV's natural gas inventory and earned receivables. At any given
time, borrowings and letters of credit are limited by the amount of the
borrowing base, defined as 90% of earned receivables. The borrowing base varies
over the month as receivables are earned, billed and collected. At September 30,
1999, the borrowing base was $43.0 million. The Working Capital Facility term
currently extends to August 31, 2001. MCV did not utilize the Working Capital
Facility during the first nine months of 1999, except for letters of credit
associated with normal business practices. MCV believes that amounts available
under the Working Capital Facility will be sufficient to meet any working
capital shortfalls which might occur.
For the foreseeable future, MCV expects to fund current operating expenses,
payments under the amended Service Agreement and rental payments primarily
through cash flow from operations. If necessary, MCV could fund any operating
cash flow shortfalls from cash reserves to the extent available for such
purposes. As of September 30, 1999, there was $323.8 million (which includes
$79.0 million reserved for capital improvements and spare parts purchases),
including accrued interest, in available reserves for such purposes.
Outlook
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995. The following discussion of the outlook for MCV contains certain
"forward-looking statements" as defined by the Private Securities Litigation
Reform Act of 1995 (the "Act"), including, without limitation, discussion as to
expectations, beliefs, plans, objectives and future financial performance, or
assumptions underlying or concerning matters discussed reflecting MCV's current
expectations of the manner in which the various factors discussed therein may
affect its business in the future. Any matters that are not historical facts are
forward-looking and, accordingly, involve estimates, assumptions, and
uncertainties which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. Accordingly, this "Safe
Harbor" Statement contains additional information about such factors relating to
the forward-looking statements. There is no assurance that MCV's expectations
will be realized or that unexpected events will not have an adverse impact on
MCV's business.
Some important factors that could cause actual results or outcomes to differ
materially from those discussed in the forward-looking statements include the
final outcome of the MPSC Restructuring Orders and challenges thereto,
governmental policies, legislation and other regulatory actions (including those
of the Michigan Legislature, Congress, Federal Energy Regulatory Commission and
the Michigan Public Service Commission) with respect to cost recovery under the
PPA, industry restructuring or deregulation, operation and construction of plant
facilities including natural gas pipeline and storage facilities, and present or
prospective wholesale and retail competition, among others. The business and
profitability of MCV is also influenced by other factors such as weather
conditions, pricing and transportation of commodities, environmental
legislation/regulation, Year 2000 compliance issues and inflation, among other
important factors. All such factors are difficult to predict, contain
uncertainties which may materially affect actual results, and are beyond the
control of MCV.
Results of operations are largely dependent on successfully operating the
Facility at or near contractual capacity levels, the availability of natural
gas, the level of energy rates paid to MCV relative to the cost of fuel used for
generation, Consumers' performance of its obligations under the PPA and
maintenance of the Facility's QF status.
Operating Outlook. In the first nine months of 1999, approximately 69% of PPA
revenues were capacity payments which are billed on availability, subject to an
annual availability cap of 98.5% pursuant to the Settlement Agreement, beginning
January 1, 1999. PPA availability was 99.4% in 1998 and 98.9% in 1997.
Availability depends on the level of scheduled and unscheduled maintenance
outages, and on the sustained level of output from each of the GTGs and the
steam turbines. MCV expects long-term PPA availability to exceed 90%.
In mid-March 1998, Consumers began economically dispatching the Facility by
scheduling energy deliveries on an economic basis relative to the cost of other
energy resources, instead of at the higher dispatch levels experienced over the
past several years. MCV consequently has seen both electric operating revenues
and operating costs decline. However, MCV Management does not expect this change
to have a material impact on MCV's financial position.
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Natural Gas. The Facility is wholly dependent upon natural gas for its fuel
supply and a substantial portion of the Facility's operating expenses consist of
the costs of natural gas. While MCV continues to pursue the acquisition of fuel
supply beyond the year 2004, MCV recognizes that its existing gas contracts are
not sufficient to satisfy the anticipated gas needs over the term of the PPA
and, as such, no assurance can be given as to the availability or price of
natural gas after the expiration of the existing gas contracts.
Energy Rates and Cost of Production. Under the PPA, energy charges are based on
the costs associated with fuel inventory, operations and maintenance, and
administrative and general expenses associated with certain of Consumers' coal
plants. However, MCV's costs of producing electricity are tied, in large part,
to the cost of natural gas. To the extent that the costs associated with
production of electricity with natural gas rise faster than the energy charge
payments, which are based largely on Consumers' coal plant operation and
maintenance costs, MCV's financial performance would be negatively affected. For
the period April 1990 through September 1999, the energy charge (fixed and
variable) paid to MCV has declined by .36 cents per kWh, while the average
variable cost of delivered fuel for the period 1990 - 1998, has risen by $0.26
per MMBtu.
The divergence between variable revenues and costs will become greater if the
energy charge (based largely on the cost of coal) declines or escalates more
slowly than the spot market or contract prices under which MCV purchases fuel
(contract prices generally escalate at a fixed price, a fixed price with an
escalator, an index based on Consumers' energy charges under the PPA, or a
combination thereof). The difference could be further exacerbated in
approximately five years as MCV's gas contracts begin to expire if the cost of
uncontracted fuel is materially higher than the prices in the expiring
contracts.
Capacity and Energy Payments Under the PPA. The PPA permits Consumers, under
certain conditions, to reduce the capacity and energy charges payable to MCV
and/or to receive refunds of capacity and energy charges paid to MCV if the MPSC
does not permit Consumers to recover from its customers the capacity and energy
charges specified in the PPA (the "regulatory out" provision). Pursuant to
Amendment 3 of the PPA, for the first 17-1/2 years of commercial operation, the
capacity charge may not be reduced below an average capacity rate of 3.77 cents
per kWh for the available Contract Capacity notwithstanding the "regulatory out"
provision. Consumers and MCV are required to support and defend the terms of the
PPA.
MCV and Consumers entered into a Settlement Agreement, effective January 1,
1999, which resolves (for the various time periods specified in the Settlement
Agreement, but in no event sooner than 2002) all disputed issues under the PPA
and includes definitive obligations for Consumers to make energy payments
calculated in accordance with the PPA. MCV recognized a one-time net $6.4
million increase in electric revenues in the first quarter of 1999 based upon
the resolution of these issues. On an ongoing basis and for the various time
periods specified in the Settlement Agreement, the Settlement Agreement is not
expected to materially affect MCV's earnings and cash flows.
PPA - Sale and Assignment.
On March 10, 1999, Consumers announced that it signed a contract with PECO
Energy Company ("PECO") whereby Consumers will sell 1240 MW of capacity and
associated energy to PECO from the MCV PPA beginning January 1, 2002 and ending
in September 2007. In addition, Consumers will sell PECO between 100 MW to 150
MW in 1999 through 2001. The announcement also states the contract with PECO is
subject to satisfactory regulatory approvals. On March 19, 1999, Consumers filed
an application with the MPSC seeking regulatory approval of various ratemaking
and accounting treatments associated with the PECO contract. On April 30, 1999,
the MPSC entered an order which did not grant all of the relief Consumers
requested, but does permit the transaction to go forward. Consumers sought
clarification and/or rehearing of that order. On August 31, 1999, the Commission
entered an order on rehearing, clarifying and amending its April 30, 1999 order.
Consumers has asked the Commission for clarification of its August 31, 1999
order. At this time, MCV Management cannot predict whether Consumers will accept
the MPSC's orders. MCV does not expect the sale of Consumers' rights to capacity
and associated energy under the PPA to materially affect its financial position
or results of operations.
Michigan Electric Industry Restructuring Proceedings. On December 20, 1996, the
MPSC issued an order on its own motion to consider the restructuring of the
electric industry in Michigan. After public hearings and contested case hearings
the MPSC issued orders on June 5, 1997, October 29, 1997, January 14, 1998 and
February 11, 1998
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(collectively the "Restructuring Orders"). While the Restructuring Orders are
not entirely clear, they generally provide for a transition to a competitive
regime whereby electric retail customers will be able to chose their power
supplier and pay negotiated or market-based rates for such power supply. The
Restructuring Orders also mandate that utilities "wheel" third-party power to
the utilities' customers. An issue involved in this restructuring which could
significantly impact MCV is stranded cost recovery. The Restructuring Orders
allow recovery by utilities (including Consumers) of stranded costs including
capacity charges previously approved by the MPSC in power contracts incurred
during the regulated era that will be above market prices during the new
competitive regime. However, it appears that stranded cost recovery of
above-market capacity charges in power purchase contracts (i.e., MCV's PPA) is
limited to the period 1998 through 2007 (MCV's PPA expires in 2025). The
Restructuring Orders do not specifically address the recovery of PPA capacity
charges after 2007. The Restructuring Orders permitted Consumers to elect to
suspend the power supply cost recovery ("PSCR") process and freeze its PSCR rate
factor through which charges under the PPA are recovered from retail customers.
The MPSC has suspended the annual PSCR (plan and reconciliation case) process
indefinitely, and froze Consumers' PSCR rate factor. The suspension of the PSCR
process and the PSCR "rate freeze" were effective January 1, 1998, and are to
remain in effect through 2001. This PCSR rate freeze is subject to the final
outcome of Consumers' 1997 PSCR reconciliation case (conducted by the MPSC to
reconcile actual costs incurred by Consumers in providing power supply to its
retail customers with actual revenue it collected that same year) for which
rehearing petitions have been filed at the MPSC. This case will determine the
level at which Consumers' PSCR rates (including recover of MCV capacity and
energy charges) will be frozen during the period 1998 through 2001. MCV is a
party in the 1997 PSCR reconciliation case.
In the restructuring cases before the MPSC, MCV has advocated, among other
things, full recovery of PPA charges (capacity and energy) for the life of the
PPA. MCV, as well as others, filed an appeal in the Michigan Court of Appeals
and a complaint in the U.S. District Court for the Western District of Michigan
challenging the Restructuring Orders. In June 1999, the Michigan Supreme Court
issued an opinion in an MPSC "retail wheeling" experiment case holding, among
other things, that the MPSC lacks the statutory authority to mandate that
utilities transmit power of third parties to the utilities' customers ("Michigan
Supreme Court Order"). While this Michigan Supreme Court Order was not directed
at the Restructuring Orders, it is likely to be applied to them. On August 17,
1999, the MPSC issued an order making retail wheeling under the Restructuring
Orders voluntary on the part of the utilities. On September 1, 1999, Consumers
filed a statement with the MPSC stating that it intends to voluntarily implement
the Restructuring Orders. In an order dated July 7, 1999, the U.S. District
Court granted MCV's Motion for Summary Judgment declaring that the Restructuring
Orders are preempted by PURPA and the Supremacy Clause of the United States
Constitution to the extent that they prohibit any utility from recovering from
its customers any charge for avoided costs (or "stranded costs") to be paid to
MCV and the other QFs under PURPA pursuant to their PPAs. The order further
provides that the MPSC's prior orders approving the avoided cost rates set forth
in MCV's and the other QFs' PPAs take precedence over the Restructuring Orders.
The Defendants in the lawsuit (the Commissioners of the MPSC) were permanently
enjoined from enforcing the Restructuring Orders in any manner which denies any
utility from recovering its avoided costs as set forth in MCV's and the other
QFs' PPAs or which precludes them from recovering the full avoided cost rate as
set forth in the PPAs, including but not limited to interpreting or enforcing
the Restructuring Orders to preclude any utility from recovering all or any
portion of its avoided costs previously approved by the MPSC from its customers,
whether before, during, or after the year 2007. This order and the Commission's
August 17, 1999 order are being appealed. The Michigan legislature has also
begun the process to consider electric industry restructuring and deregulation.
While restructuring could have a material impact on MCV, MCV Management cannot,
at this time, predict the impact or the outcome of these administrative,
judicial and legislative proceedings.
Federal Electric Industry Restructuring. FERC has jurisdiction over wholesale
energy sales in interstate commerce and is moving towards "market" based pricing
of electricity in some circumstances as opposed to traditional cost-based
pricing. In April 1996, FERC issued Order No. 888 requiring all utilities FERC
regulates to file uniform transmission tariffs providing for, among other
things, non-discriminatory "open access" to all wholesale buyers and sellers,
including the transmission owner, on terms and conditions established by FERC.
Order No. 888 also requires utilities to "functionally unbundle" transmission
and separate transmission personnel from those responsible for marketing
generation. Appeals of Order No. 888 and subsequent related orders are pending
before the United States Court of Appeals for the D.C. Circuit. In addition,
several bills have been introduced in Congress to require states to permit
consumers to choose their supplier of electricity and manage other issues such
as transition cost recovery and FERC jurisdiction of retail electric sales. MCV
Management cannot predict the impact on MCV or the outcome of these proceedings.
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Maintaining QF Status. In the case of a topping-cycle generating plant such as
the Facility, to maintain QF Status the applicable operating standard requires
that the portion of total energy output that is put to some useful purpose other
than facilitating the production of power (the "Thermal Percentage") be at least
5%. In addition, the plant must achieve and maintain an average PURPA efficiency
standard (the sum of the useful power output plus one-half of the useful thermal
energy output, divided by the energy input (the "Efficiency Percentage")) of at
least 45%. However, if the plant maintains a Thermal Percentage of 15% or
higher, the required Efficiency Percentage is reduced to 42.5%. The tests are
applied on a calendar year basis. The Facility has achieved the applicable
Efficiency Percentage of 42.5% in each year since commercial operation, and in
the years 1995 through 1998 the Facility achieved an Efficiency Percentage in
excess of 45%.
The Facility's achievement of a Thermal Percentage of 15% (thereby requiring
compliance with the reduced Efficiency Percentage of 42.5%) is dependent upon
both the amount of Dow and DCC steam purchases and the level of electricity
generated by the Facility. Dow has agreed to take as much steam as is necessary
for the Facility to retain its QF status under the FERC regulations in effect on
November 1, 1986 (which regulations have not been revised in relevant part in
any material respect), subject to an annual average purchase obligation of no
less than approximately 440,000 lbs/hr. of steam (less amounts supplied by the
Standby Facilities and less 50% of the amount sold by MCV to other steam
customers). The SEPA can be terminated by Dow under certain circumstances. Such
termination would likely lead to a loss of QF status for the Facility. Dow and
DCC steam purchases for the first nine months of 1999 averaged 654,491 lbs/hr.
Actual steam usage has varied and will vary with product mix, seasonal delivery
fluctuations and other factors which may change over time. MCV believes annual
steam sales will be sufficient to allow the Facility to exceed the 15% Thermal
Percentage.
MCV believes that the Facility will be able to maintain QF status and be capable
of achieving a 45% PURPA Efficiency Percentage on a long-term basis. However, no
assurance can be given that factors outside MCV's control will not cause the
Facility to fail to satisfy the annual PURPA qualification requirements and thus
lose its QF status. In 1998, MCV achieved an Efficiency Percentage of 45.7% and
a Thermal Percentage of 17.3%. During the first nine months of 1999, MCV
achieved an Efficiency Percentage of 47.1% and a Thermal Percentage of 17.8%.
MCN Energy Group Inc. ("MCN"), the parent company of Source Midland Limited
Partnership ("SMLP") and a 50% partner of MEI Limited Partnership ("MEI")
through SMLP, both partners of MCV, announced on October 5, 1999 that it has
signed a definitive merger agreement with DTE Energy Company. The merger has
been unanimously approved by the Board of Directors of both companies. The
transaction is subject to the approval of the shareholders of both companies,
regulatory approvals and other customary merger conditions. The transaction is
expected to close in the second quarter of 2000. Since the merger would cause
SMLP and MEI to become electric utilities under PURPA, MCV expects that MCN will
sell its interest in the MCV partnerships or make other arrangements in order to
keep the utility ownership in MCV below 50% in compliance with PURPA QF
ownership requirements. In the event MCN fails to take such action, the MCV
Amended and Restated Limited Partnership Agreement provides for automatic
assignment or extinguishment of such partnership interests in order to assure
compliance with the ownership requirements under PURPA. Currently, MCV meets the
ownership requirements of PURPA.
The loss of QF status could, among other things, cause the Facility to lose its
right under PURPA to sell power to Consumers at Consumers' "avoided cost" and
subject the Facility to additional federal and state regulatory requirements,
including the Federal Power Act (under which FERC has authority to establish
rates for electricity, which may be different than existing contractual rates).
If the Facility were to lose its QF status, the Partners of MCV, the Owner
Participants, the bank acting as the Owner Trustee and their respective parent
companies could become subject to regulation under the 1935 Act (under which,
among other things, the Securities and Exchange Commission has authority to
order divestiture of assets under certain circumstances). The loss of QF status
would not, however, entitle Consumers to terminate the PPA. Under the PPA,
Consumers is obligated to continue purchasing power from MCV at FERC-approved
rates (provided that the FERC-approved rates do not exceed the existing
contractual rates) and MCV, not Consumers, is entitled to terminate the PPA
(which MCV has covenanted not to do under the Participation Agreements). There
can be no assurance that FERC-approved rates would be the same as the rates
currently in effect under the PPA. If the FERC-approved rates are materially
less than the rates under the PPA, MCV may not have sufficient revenue to make
rent payments under the Overall Lease Transaction. The loss of QF status would
constitute an Event of Default under the Lease (and a corresponding Event of
Default under the Indenture) unless, among other requirements, FERC approves (or
accepts for filing) rates under the PPA or
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other contracts of MCV for the sale of electricity sufficient to meet certain
target coverage ratios (as defined in the Overall Lease Transaction).
Year 2000
Risks of MCV's Year 2000 Issues. MCV utilizes information technologies and
non-information technologies (collectively "Systems") in the Facility, some of
which may be affected by the year 2000 ("Y2K") date change. If uncorrected, the
Y2K date change could cause, among other things, MCV to incur failures and
outages of the Facility's generating equipment, the equipment operating systems
and business systems. In particular, if MCV's critical systems, i.e., GTGs,
steam turbines and the control system, are adversely affected, these negative
conditions could result in a failure to keep the GTGs running and inhibit MCV's
ability to produce electricity and steam.
Because of the integrated nature of MCV's business with third party suppliers,
customers and other vendors (collectively "associates") MCV may also be affected
by Y2K compliance complications of these associates. MCV's key associates
include vendors supplying MCV's plant control system, natural gas vendors,
Consumers as a transmission provider and certain financial institutions. Y2K
compliance complications of these associates could adversely impact MCV's
ability to transmit power and cause difficulties in obtaining natural gas to
fuel the Facility, among other things.
State of Readiness. In 1997, MCV staff developed a Y2K plan to address the
Systems. MCV's Y2K plan addresses the Y2K issues in four phases: (1) the
awareness phase, completed in April 1998, brought the Y2K issues to the
attention of all employees; (2) the assessment phase, completed in September
1998, identified, inventoried and prioritized all Systems; (3) the renovation
phase, now complete, consisted of converting and replacing Systems or components
and applications in Systems which are business critical and non Y2K compliant;
and (4) the validation and testing phase, which culminated in the successful
integrated testing of the plant control system in October 1999. Testing and
validation of the business network and associated applications were completed
successfully in early 1999. As a result of MCV's efforts, the GTGs, steam
turbine and back-pressure steam turbine and all critical plant and business
systems appear to have no Y2K problems.
In 1997, MCV began contacting key associates to determine their organizations'
Y2K state of preparedness and is continuing to follow up based on each entity's
Y2K target completion dates. In addition, Y2K status and readiness meetings have
been and will continue to be conducted with key gas suppliers, customers and
other third-party entities. At this time, there are no indications that critical
third parties will not be Y2K ready.
Contingency Plans. MCV has developed and continues to refine various contingency
plans and procedures which include alternative operating plans for the most
reasonably likely worst-case scenarios. These plans and procedures outline
alternate methods of operations (manual or otherwise) and all resources
required, including staffing needs where necessary. Training and refresher
training of plant personnel has begun and will be conducted throughout the
remainder of the year on emergency and manual operations of plant equipment and
emergency communication systems.
Costs. Anticipated spending to make the Systems Y2K compliant will be expensed
as incurred, except costs for new software which will be capitalized and
amortized over the software's useful life. At this time, MCV estimates the
aggregate expenditures for Y2K compliance and new software to be $300,000. This
estimate does not include any estimated costs that may be incurred by MCV as a
result of the failure of any associate to become Y2K compliant or costs to
implement any contingency plans.
See Part I, Item 1, "Financial Statements -- Notes 1 and 6 to the Condensed
Notes to Unaudited Consolidated Financial Statements" for a further discussion
of associated risks and contingencies.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Settlement of Power Purchase Agreement Issues Relating to Capacity and Energy
Charges
MCV and Consumers entered into a settlement agreement ("Settlement Agreement"),
effective January 1, 1999, which resolves (for the various time periods
specified in the Settlement Agreement, but in no event sooner than 2002) all
disputed issues under the PPA and includes definitive obligations for Consumers
to make energy payments calculated in accordance with the PPA. MCV recognized a
one-time net $6.4 million increase in electric revenues in the first quarter of
1999 based upon the resolution of these issues. On an ongoing basis and for the
various time periods specified in the Settlement Agreement, the Settlement
Agreement is not expected to materially affect MCV's earnings and cash flows.
PPA - Sale or Assignment
On March 10, 1999, Consumers announced that it signed a contract with PECO
Energy Company ("PECO") whereby Consumers will sell 1240 MW of capacity and
associated energy to PECO from the MCV PPA beginning January 1, 2002 and ending
in September 2007. In addition, Consumers will sell PECO between 100 MW to 150
MW in 1999 through 2001. The announcement also states the contract with PECO is
subject to satisfactory regulatory approvals. On March 19, 1999, Consumers filed
an application with the MPSC seeking regulatory approval of various ratemaking
and accounting treatments associated with the PECO contract. On April 30, 1999,
the MPSC entered an order which did not grant all of the relief Consumers
requested, but does permit the transaction to go forward. Consumers sought
clarification and/or rehearing of that order. On August 31, 1999, the Commission
entered an order on rehearing, clarifying and amending its April 30, 1999 order.
Consumers has asked the Commission for clarification of its August 31, 1999
order. At this time, MCV Management cannot predict whether Consumers will accept
the MPSC's orders. MCV does not expect the sale of Consumers' rights to capacity
and associated energy under the PPA to materially affect its financial position
or results of operations.
Michigan Electric Industry Restructuring Proceedings
On December 20, 1996, the MPSC issued an order on its own motion to consider the
restructuring of the electric industry in Michigan. After public hearings and
contested case hearings the MPSC issued orders on June 5, 1997, October 29,
1997, January 14, 1998 and February 11, 1998 (collectively the "Restructuring
Orders"). While the Restructuring Orders are not entirely clear, they generally
provide for a transition to a competitive regime whereby electric retail
customers will be able to chose their power supplier and pay negotiated or
market-based rates for such power supply. The Restructuring Orders also mandate
that utilities "wheel" third-party power to the utilities' customers. An issue
involved in this restructuring which could significantly impact MCV is stranded
cost recovery. The Restructuring Orders allow recovery by utilities (including
Consumers) of stranded costs including capacity charges previously approved by
the MPSC in power contracts incurred during the regulated era that will be above
market prices during the new competitive regime. However, it appears that
stranded cost recovery of above-market capacity charges in power purchase
contracts (i.e., MCV's PPA) is limited to the period 1998 through 2007 (MCV's
PPA expires in 2025). The Restructuring Orders do not specifically address the
recovery of PPA capacity charges after 2007. The Restructuring Orders permitted
Consumers to elect to suspend the PSCR process and freeze its PSCR rate factor
through which charges under the PPA are recovered from retail customers. The
MPSC has suspended the annual PSCR (plan and reconciliation case) process
indefinitely, and froze Consumers' PSCR rate factor. The suspension of the PSCR
process and the PSCR "rate freeze" were effective January 1, 1998, and are to
remain in effect through 2001. This PSCR rate freeze is subject to the final
outcome of Consumers' 1997 PSCR reconciliation case (conducted by the MPSC to
reconcile actual costs incurred by Consumers in providing power supply to its
retail customers with actual revenue it collected that same year) for which
rehearing petitions have been filed at the MPSC. This case will determine the
level at which Consumers' PSCR rates (including recovery of MCV capacity and
energy charges) will be frozen during the period 1998 through 2001. MCV is a
party in the 1997 PSCR reconciliation case.
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In the restructuring cases before the MPSC, MCV has advocated, among other
things, full recovery of PPA charges (capacity and energy) for the life of the
PPA. MCV, as well as others, filed an appeal in the Michigan Court of Appeals
and a complaint in the U.S. District Court for the Western District of Michigan
challenging the Restructuring Orders. In June 1999, the Michigan Supreme Court
issued an opinion in an MPSC "retail wheeling" experiment case holding, among
other things, that the MPSC lacks the statutory authority to mandate that
utilities transmit power of third parties to the utilities' customers ("Michigan
Supreme Court Order"). While this Michigan Supreme Court Order was not directed
at the Restructuring Orders, it is likely to be applied to them. On August 17,
1999, the MPSC issued an order making retail wheeling under the Restructuring
Orders voluntary on the part of the utilities. On September 1, 1999, Consumers
filed a statement with the MPSC stating that it intends to voluntarily implement
the Restructuring Orders. In an order dated July 7, 1999, the U.S. District
Court granted MCV's Motion for Summary Judgment declaring that the Restructuring
Orders are preempted by PURPA and the Supremacy Clause of the United States
Constitution to the extent that they prohibit any utility from recovering from
its customers any charge for avoided costs (or "stranded costs") to be paid to
MCV and the other QFs under PURPA pursuant to their PPAs. The order further
provides that the MPSC's prior orders approving the avoided cost rates set forth
in MCV's and the other QFs' PPAs take precedence over the Restructuring Orders.
The Defendants in the lawsuit (the Commissioners of the MPSC) were permanently
enjoined from enforcing the Restructuring Orders in any manner which denies any
utility from recovering its avoided costs as set forth in MCV's and the other
QFs' PPAs or which precludes them from recovering the full avoided cost rate as
set forth in the PPAs, including but not limited to interpreting or enforcing
the Restructuring Orders to preclude any utility from recovering all or any
portion of its avoided costs previously approved by the MPSC from its customers,
whether before, during, or after the year 2007. This order and the Commission's
August 17, 1999 order are being appealed. The Michigan legislature has also
begun the process to consider electric industry restructuring and deregulation.
While restructuring could have a material impact on MCV, MCV Management cannot,
at this time, predict the impact or the outcome of these administrative,
judicial and legislative proceedings.
Federal Electric Industry Restructuring
FERC has jurisdiction over wholesale energy sales in interstate commerce and is
moving towards "market" based pricing of electricity in some circumstances as
opposed to traditional cost-based pricing. In April 1996, FERC issued Order No.
888 requiring all utilities FERC regulates to file uniform transmission tariffs
providing for, among other things, non-discriminatory "open access" to all
wholesale buyers and sellers, including the transmission owner, on terms and
conditions established by FERC. Order No. 888 also requires utilities to
"functionally unbundle" transmission and separate transmission personnel from
those responsible for marketing generation. Appeals of Order No. 888 and
subsequent related orders are pending before the United States Court of Appeals
for the D.C. Circuit. In addition, several bills have been introduced in
Congress to require states to permit consumers to choose their supplier of
electricity and manage other issues such as transition cost recovery and FERC
jurisdiction of retail electric sales. MCV Management cannot predict the impact
on MCV or the outcome of these proceedings.
Property Tax Appeal
MCV has filed property tax appeals contesting the assessed value of MCV's
property for 1997 and 1998 taxes, which are pending before the Michigan Tax
Tribunal. MCV also filed an appeal for 1999 taxes.
MCV Management cannot predict the outcome of these proceedings.
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Item 6. Exhibits and Reports on Form 8-K
a.) List of Exhibits
(10) Gas Sales Agreement, dated July 1, 1999, between MCV and CMS Marketing
Services and Trading Company.
(27) Financial Data Schedule
b.) Reports on Form 8-K
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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.
MIDLAND COGENERATION VENTURE
LIMITED PARTNERSHIP
---------------------------------------
(Registrant)
Dated: November 12, 1999 /s/ James M. Kevra
-------------------- --------------------------------------
James M. Kevra
President and Chief Executive Officer
Dated: November 12, 1999 /s/ James M. Rajewski
-------------------- ---------------------------------------
James M. Rajewski
Vice President and Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 Gas Sales Agreement, dated July 1, 1999,
between MCV and CMS Marketing Services and
Trading Company
27 Financial Data Schedule