SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1994
Commission File No. 1-9874
CALIFORNIA ENERGY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-2213782
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10831 Old Mill Road, Omaha, NE 68154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 330-8900
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
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Common Stock, $0.0675 New York Stock Exchange
par value ("Common Stock") Pacific Stock Exchange
London Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: N/A
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of Common Stock on the New York Stock
Exchange on March 13, 1995, the aggregate market value of the Common Stock held
by non-affiliates of the Company was $660,189,676.
50,036,621 shares of Common Stock were outstanding on March 13, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference into this Form 10-K, in response to Item 3 Part I,
Items 6 through 8 of Part II, and Items 10 through 13 of Part III, are the
portions indicated herein of (i) the annual report of California Energy
Company, Inc. (the "Company") to security holders for the fiscal year ended
December 31, 1994 (the "Annual Report"), and (ii) the Company's proxy statement
dated March 27, 1995 for the annual meeting of stockholders to be held on May
11, 1995 (the "Proxy Statement").
Documents Incorporated By Reference................................................................ ii
Table of Contents ................................................................................. iii
PART 1 ........................................................................................... 1
Item 1. BUSINESS................................................................ 1
Magma Acquisition....................................................... 1
Expansion and Enhancement of Development Efforts........................ 3
Benefits of Increased Size.............................................. 3
Opportunities for Operational and Administrative Cost Savings........... 3
Diversification in Sources of Revenue and Operations.................... 3
Geothermal Energy....................................................... 4
The Global Power Market.......................................................... 5
Strategy......................................................................... 6
The Company's Projects........................................................... 7
International Projects-Discussion................................................ 10
Projects in Construction....................................... 10
The Philippines................................................. 10
Upper Mahiao.................................................... 10
Mahanagdong..................................................... 12
Malitbog........................................................ 13
Projects in Development................................................. 13
Casecnan........................................................ 13
Alto Peak....................................................... 14
Indonesia....................................................... 14
Dieng........................................................... 15
Patuha.......................................................... 16
Bali............................................................ 16
Domestic Projects................................................................ 16
Projects in Operation................................................... 16
The Coso Project....................................... 16
The Navy I Project..................................... 17
The BLM Project........................................ 17
The Navy II Project.................................... 17
Salton Sea Known Geothermal Resource Area Projects..... 18
Vulcan................................................. 18
Hoch (Del Ranch)....................................... 18
Elmore................................................. 19
Leathers............................................... 19
Salton Sea 1 Project................................... 19
Salton Sea 2 Project................................... 20
Salton Sea 3 Project................................... 20
Yuma................................................... 21
Roosevelt Hot Springs.................................. 21
Desert Peak............................................ 21
Mammoth Plants......................................... 21
The East Mesa Plant ................................... 21
Projects in Development........................................ 22
The BRPU Process....................................... 22
Fish Lake/Salton Sea 1 Expansion....................... 22
Newberry............................................... 22
Regulatory and Environmental Matters............................................. 23
Environmental Regulation................................................ 23
Federal Energy Regulations.............................................. 23
Employees........................................................................ 23
Item 2. Properties....................................................................... 24
Item 3. Legal Proceedings................................................................ 24
Item 4. Submission of Matters to a Vote of Security Holders.............................. 24
PART II............................................................................................ 24
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER'S MATTERS................................................... 24
The Company...................................................................... 24
Item 6. Selected Financial Data.......................................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation........................................................................ 25
Item 8. Financial Statements and Supplementary Data...................................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 26
PART III........................................................................................... 26
Item 10. Directors and Executive Officers of the Registrant.......................... 26
Item 11. Executive Compensation...................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 28
Item 13. Certain Relationships and Related Transactions.............................. 28
PART IV............................................................................................ 28
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.............. 28
Exhibit Index ..................................................................................... 32
PART 1
ITEM 1. BUSINESS
California Energy Company, Inc. (the "Company") was founded in 1971.
The Company is primarily engaged in the exploration for, and development and
operation of, environmentally responsible independent power production
facilities worldwide utilizing geothermal resources or other energy sources,
such as hydroelectric, natural gas, oil and coal.
With the completion of the acquisition of Magma Power Company
("Magma"), the Company became the largest independent geothermal power producer
in the world (on the basis of aggregate megawatts ("MW") of electric generating
capacity in operation and under construction). The Company has an aggregate net
ownership interest of 354 MW of electric generating capacity in power
production facilities in the United States having an aggregate net capacity of
571 MW. All of these facilities are managed and operated by the Company and are
principally located in California. In addition to the electricity sales revenue
earned from its net ownership position in such facilities, the Company receives
significant fee and royalty income from operating such plants and managing
production from the geothermal reservoirs for such facilities. Additionally,
the Company has an aggregate net ownership interest of 409 MW of electric
generating capacity in three geothermal power projects in the Philippines,
having an aggregate net capacity of 500 MW, which projects are financed and
under construction. The Company is also developing eight additional projects
with executed or awarded power sales contracts in the Philippines, Indonesia
and the United States which could potentially represent an aggregate net
capacity of 1,589 MW of additional electric generating capacity, of which the
Company's approximate net ownership interest is expected to be 935 MW. Actual
MW may vary depending on operating and reservoir conditions and plant design.
The Company's Common Stock is traded on the New York, Pacific and
London Stock Exchanges. As of the record date for the annual meeting of
stockholders, March 13, 1995, Peter Kiewit Sons' Inc. ("PKS") was an
approximate 34% stockholder of the Company (on a fully diluted basis). The
percentage ownership of PKS reflects the direct sale to Kiewit Energy Company
of 1.5 million shares of the Company's Common Stock on February 24, 1995 (the
"Direct Sale") and the public offering (the "Offering"), including an
overallotment thereunder, of 16,670,000 shares of the Company's Common Stock in
connection with financing the acquisition of Magma, but not the exchange by the
Company of the Company's 9.5% Convertible Subordinated Debentures Due 2003
("Subordinated Debentures") for the Company's Series C Redeemable Convertible
Exchangeable Preferred Stock ("Series C Preferred Stock") effective March 15,
1995. As of March 15, 1995, the Subordinated Debentures were convertible into
3,529,252 shares of the Company's Common Stock. PKS is a large employee-owned
construction, mining and telecommunications company with approximately $3
billion in revenues in 1994. PKS is one of the largest construction companies
in North America and has been in the construction business since 1884.
The principal executive offices of the Company are located at 10831
Old Mill Road, Omaha, Nebraska 68154 and its telephone number is (402)
330-8900. The Company was incorporated in 1971 under the laws of the State of
Delaware.
MAGMA ACQUISITION
On December 5, 1994, the Company and its subsidiary, CE Acquisition
Company, Inc., signed a definitive Agreement and Plan of Merger with Magma.
Pursuant to such Agreement, the Company completed a cash tender offer for about
51% of Magma's shares of Common Stock and assumed control of Magma on January
10, 1995. The merger was consummated and Magma became a wholly owned subsidiary
of the Company on February 24, 1995. A total of approximately $957 million was
required to complete the Magma acquisition. A secured bank financing facility
of $500 million ("the Merger Facilities") was provided on specified terms and
subject to customary conditions. Such funds, together with the net proceeds of
the Offering, the proceeds of the Direct Sale and general corporate funds of
the Company, were sufficient to complete the Magma acquisition.
The Merger Facilities are comprised of (i) a six year term loan ("Term
Loan A") in a principal amount of $350 million, to be amortized in semi-annual
payments, (ii) a seven year term loan ("Term Loan B") in a principal amount of
$75 million, to be amortized in semi-annual payments in the seventh year of
such Term Loan and (iii) an eight year term loan ("Term Loan C") in a principal
amount of $75 million to be amortized in semi-annual payments in the eighth
year of such Term Loan. Loans under the Merger Facilities were made to the
Company on a non-recourse basis, and the Company lent the proceeds of such
loans to Magma in exchange for a secured term note of Magma (the "Magma Note").
The loans under the Merger Facilities are amortized from payments received by
the Company from Magma pursuant to a promissory note from Magma (the "Magma
Note") which is amortized from internally generated funds of Magma. Loans under
the Merger Facilities are secured by an assignment and pledge by the Company of
the Magma Note and 100% of the capital stock of Magma. The Magma Note is
secured by an assignment of certain otherwise unencumbered assets of Magma.
The Company may elect to have loans bear interest based on either
LIBOR or the Base Rate (as defined in the Merger Facilities). Interest on loans
under the Merger Facilities is expected to be payable at spreads of 2.50% above
LIBOR (adjusted for reserves) or 1.50% above the Base Rate for Term Loan A, and
3.50% above LIBOR (adjusted for reserves) or 2.50% above the Base Rate for Term
Loan B and Term Loan C.
The Merger Facilities contain affirmative and negative covenants
customary for similar non-recourse credit facilities. Such covenants include a
negative pledge of all stock and unencumbered assets of Magma; a limitation on
contingent obligations by Magma; a limitation on mergers and sales of assets by
Magma; a limitation on investments in other persons by Magma; a limitation on
dividends and certain other payments by Magma to the Company unless the
proceeds are used to pay down the Merger Facilities; a prohibition on the sale
of ownership interests in Magma; a limitation on the incurrence of additional
debt by Magma; a requirement that the Company deliver each fiscal quarter a
certificate as to the absence of material adverse changes in the Company or
Magma which could reasonably be expected to materially affect the ability of
the Company to repay the Merger Facilities or the ability of the lenders to
realize on the collateral for the Merger Facilities; a restriction on a change
in the nature of the business of the Company and Magma; and requirements that
certain levels of debt service coverage, interest coverage, cash balances and
net worth be maintained.
The Merger Facilities also contain financial covenants and customary
events of default, including events of default based on breaches of certain
representations, warranties and covenants; cross defaults with respect to
certain debt of the Company and Magma; bankruptcy and similar events; the
failure to pay certain final judgments; the failure to make a payment with
respect to the Merger Facilities when due; and the failure of the pledge
agreement with respect to the capital stock of Magma and the Magma Note to be
in full force and effect.
The Offering consisted of the sale of 13,170,000 shares of the
Company's Common Stock to the public in the United States and Canada and
2,000,000 shares of the Company's Common Stock to the public outside the United
States and Canada. In addition, the underwriter's exercised an overallotment
option and acquired an additional 1,500,000 shares of the Company's Common
Stock. The Offering closed on February 24, 1995 at a price of $17 per share.
Net proceeds to the Company from the Offering after underwriting discounts and
commissions (but before expenses payable by the Company of about $2.5 million)
was approximately $16.49 per share or an aggregate of approximately $250
million.
The Direct Sale consisted of the sale of 1,500,000 shares of the
Company's Common Stock directly to Kiewit Energy Company, a wholly owned
subsidiary of PKS. The Direct Sale closed on February 24, 1995 at a price of
$17 per share or an aggregate of $25.5 million. No commissions were paid on the
Direct Sale.
The Company believes that Magma is an excellent strategic fit and that
the acquisition of Magma creates significant benefits, including:
o EXPANSION AND ENHANCEMENT OF DEVELOPMENT EFFORTS
Development of new opportunities, particularly internationally, is a
key component of the Company's strategy. Since 1990, the Company and Magma have
each pursued international development opportunities, primarily in Southeast
Asia. By pursuing additional development opportunities rather than competing
with Magma for the same opportunities, the Company expects to expand its
development efforts to cover additional projects and thereby more effectively
capitalize on the numerous opportunities in the growing international
independent power market. Furthermore, the Company now has the technology of
both companies available to it. The Company now owns production technology
compatible with the relatively low mineral content of its wells at the Coso
Project and technology compatible with the high levels of mineral precipitates
found in the geothermal resource at the Imperial Valley Projects. The Company
expects that access to these technologies will enable it to compete for new
power development projects from geothermal reservoirs encompassing a wide range
of geothermal resource characteristics.
o BENEFITS OF INCREASED SIZE
The Company believes that size is an important factor in determining
the success of an independent power producer. This view is based on the
Company's belief that potential customers consider both the price of power and
the provider's capability to fulfill its obligations as primary factors in the
selection of power suppliers. The Company's expanded size and capabilities are
expected to further enhance the Company's reputation and credibility with
sovereign governments and state utility customers and therefore enhance its
ability to successfully compete for new projects. Following the Merger, the
Company has over $2 billion of total assets and an aggregate net ownership
interest of 1,698 MW of electric generating capacity in projects in operation,
under construction or in development, which projects have an aggregate net
generating capacity of 2,660 MW. The Company also believes that the acquisition
of Magma creates the opportunity to reduce the Company's average cost per kWh
by expanding its asset base, without materially expanding its cost structure.
This is expected to allow the Company to be more price competitive with other
geothermal power producers and traditional fossil fuel power plants, which the
Company believes will be its primary competition in the future.
o OPPORTUNITIES FOR OPERATIONAL AND ADMINISTRATIVE COST SAVINGS
Based in part on its experience in restructuring the operations of the
Company since 1991, management of the Company believes that it can achieve
meaningful cost savings from the combination of Magma and the Company. Through
the implementation of the Company's existing organizational structure,
management policies and cost controls, the Company presently expects that the
cost of duplicate functions will be substantially eliminated and that the
productivity of its combined operating and administrative staff will be
significantly increased.
o DIVERSIFICATION IN SOURCES OF REVENUE AND OPERATIONS
The combination of the Company's and Magma's operations increased the
Company's sources of revenue and increased the number of operating sites
(including projects under construction) from eight to 16. The Company believes
that the resulting diversification in sources of revenue and operations can be
expected to reduce the risk profile of the Company, thereby enhancing its
overall credit position and improving its access to capital in relation to
competitors with more concentrated sources of revenue and operations.
However, as a result of the Magma acquisition, the Company's total
assets, liabilities and total resources will each approximately double. Such
rapid expansion could divert the resources and management of the Company and
will require integration of Magma's operations with those of the Company. There
can be no assurance that the Company will be successful in managing such growth
or that it will be able to achieve any of the anticipated benefits of the Magma
acquisition.
GEOTHERMAL ENERGY
Geothermal energy is a clean, renewable and generally sustainable
energy source that releases significantly lower levels of emissions than result
from energy generation based on the burning of fossil fuels. Geothermal energy
is derived from the natural heat of the earth when water comes sufficiently
close to hot rock to heat the water to temperatures of 400 degrees Fahrenheit
or more. The heated water then ascends naturally toward the surface of the
earth where it can be extracted by drilling geothermal wells. The energy
necessary to operate a geothermal power plant is typically obtained from
several such wells, which are drilled using established technology similar to
that employed in the oil and gas industry.
Geothermal production wells are normally located within approximately
one to two miles of the power plant as geothermal fluids cannot be transported
economically over longer distances. From the well heads, the heated fluid flows
through pipelines to a series of separators where it is separated into water,
brine and steam. The steam is passed through a turbine which drives a generator
to generate electricity. Once the steam has passed through the turbine, it is
then cooled and condensed back into water which, along with any brine, is
returned to the geothermal reservoir via injection wells. Geothermal plants in
the United States are eligible to be qualifying facilities ("QFs") under the
Public Utility Regulatory Policies Act of 1978 ("PURPA"), which provides for
certain beneficial Federal regulatory treatment. The geothermal reservoir is a
renewable source of energy if natural ground water sources and re-injection of
extracted geothermal fluids are adequate over the long term to replenish the
geothermal reservoir after the withdrawal of geothermal fluids.
The generation of electric power from geothermal resources has certain
advantages when compared to other methods of electric power generation.
Geothermal energy facilities produce significantly less emissions than fossil
fuel power plants. Geothermal energy facilities typically have higher capital
costs but tend to have significantly lower variable costs than fossil fuel
based power plants. The utilization of geothermal power is preferred by certain
governments so as to minimize the import, or maximize the export, of
hydrocarbons. Geothermal power facilities also enjoy certain tax benefits in
the United States.
Geothermal energy is most prevalent where the different sections or
plates of the Earth's crust meet. Productive geothermal resources are found
throughout the Pacific Rim (the so-called "Ring of Fire"), including the
western United States, Latin America, Hawaii, Indonesia, the Philippines,
Malaysia and New Zealand. These areas are experiencing high rates of population
growth and increased demand for new electric generating capacity.
Geothermal exploration, development and operations are subject to
uncertainties similar to those typically associated with oil and gas
exploration and development, including dry holes and uncontrolled releases.
Because of the geological complexities of geothermal reservoirs, the geographic
area and sustainable output of geothermal reservoirs can only be estimated and
cannot be definitively established. There is, accordingly, a risk of an
unexpected decline in the capacity of geothermal wells and a risk of geothermal
reservoirs not being sufficient for sustained generation of the electrical
power capacity desired. In addition, geothermal power resources usually occur
in areas of high seismic activity. Accordingly, there can be no assurance that
earthquake, property damage or business interruption insurance will be adequate
to cover all potential losses sustained in the event of serious seismic
disturbances or that such insurance will be available on commercially
reasonable terms.
The success of a geothermal project depends on the quality of the
geothermal resource and operational factors relating to the extraction of the
geothermal fluids involved in such project. The quality of a geothermal
resource is affected by a number of factors, including the size of the
reservoir, the temperature and pressure of the geothermal fluids in such
reservoir, the depth and capacity of the production and injection wells, the
amount of dissolved solids and noncondensible gases contained in such
geothermal fluids, and the permeability of the subsurface rock formations
containing such geothermal resource, including the presence, extent and
location of fractures in such rocks. The quality of a geothermal resource may
decline as a result of a number of factors, including the intrusion of
lower-temperature fluid into the producing zone. An incorrect estimate by the
Company of the quality of geothermal resource, or a decline in such quality,
could have a material adverse effect on the Company's results of operations.
THE GLOBAL POWER MARKET
The opportunity for independent power generation has expanded from a
United States market consisting of cogeneration and small power production
projects to a global competitive market for power generation. Many foreign
countries have privitization programs patterned after developments in the
independent power generation market in the United States.
In the United States, the independent power industry expanded rapidly
in the 1980s, facilitated by the enactment of PURPA. PURPA was enacted to
encourage the production of electricity by non-utility companies as well as to
lessen reliance on imported fuels. According to the Utility Data Institute,
independent power producers were responsible for the installation of
approximately 30,000 MW of capacity, or 50%, of the U.S. electric generation
capacity which has been placed in service since 1988.
As the size of the United States independent power market has
increased, available domestic power capacity and competition in the industry
have also significantly increased. Over the past decade, obtaining a power
sales contract from a U.S utility has generally become increasingly difficult,
expensive and competitive. Many states now require power sales contracts to be
awarded through competitive bidding, which both increases the cost of obtaining
such contracts and decreases the chances of obtaining such contracts as bids
significantly outnumber awards in most competitive solicitations. The federal
Energy Policy Act of 1992 is expected to further increase domestic competition.
As a result of this increased competition, it may be difficult to obtain a
power sales agreement for a proposed project in the United States, and the
terms and conditions of any such contract may be less favorable than those in
prior agreements.
Large amounts of new electric power generating capacity are required
in developing countries. The movement toward privatization in some developing
countries has created significant new markets outside the United States. In
1990, the World Bank estimated that developing countries will need
approximately 380,000 MW of new power generating capacity through the end of
the decade. The need for such rapid expansion has caused many countries to
select private power development as their only practical alternative and to
restructure their legislative and regulatory systems to facilitate such
development. The Company believes that this significant need for power has
created strong local support for private power projects in many foreign
countries and increased the availability of attractive long-term power
contracts. The Company intends to take advantage of opportunities in these new
markets and to develop, construct and acquire power generation projects outside
the United States.
The international power production market is characterized by numerous
strong and capable competitors, many of which have more extensive and more
diversified developmental or operating experience (including international
experience) and greater financial resources than the Company. Many of these
competitors also participate in the domestic market.
STRATEGY
Domestically, the Company is focusing on market opportunities in which
it believes it has relative competitive advantages due to its geotechnical,
project management and operating expertise. In addition, the Company expects to
continue diversification into other environmentally responsible sources of
energy primarily through selected acquisitions of partially developed or
existing power generating projects and contracts.
The Company presently believes that the international independent
power market holds the majority of new opportunities for financially attractive
private power development in the next several years, in large part because the
demand for new generating capacity is growing more rapidly in emerging nations
than in the United States. In developing its international strategy, the
Company pursues development opportunities in countries which it believes have
an acceptable risk profile and where the Company's geothermal resource
development and operating experience, project development expertise or
strategic relationship with PKS or local partners are expected to provide it
with a competitive advantage. The Company has financed and has under
construction three projects representing an aggregate of 409 MW of net
ownership of electric generating capacity in the Philippines. In addition, the
Company is currently pursuing a number of other electric power project
opportunities in countries including the Philippines and Indonesia. These
countries are ideally suited for the Company to develop, finance and operate
power projects successfully because of their excellent population demographics,
extensive geothermal resources and stated commitments to the development of
private power programs. The Company's development efforts include both
so-called "greenfield" development as well as the acquisition of or
participation in the joint venture development of projects which are under
development or already operating. In greenfield development, the Company
attempts to negotiate power sales contracts for new generation capacity or
engages in competitive bids in response to government agency or utility
requests for proposals for new capacity.
In pursuing its international strategy, the Company intends to own a
significant equity interest in, and to operate, the projects it develops or
acquires. In order to compete more effectively internationally, the Company's
strategy is to attempt to diversify its project portfolio, extend its future
equity funding capacity through joint ventures and utilize fixed-price, turnkey
construction contracts with contractors experienced in the construction of
power plants or other infrastructure facilities. The Company also believes that
it is important in foreign transactions to work with local partners who are
knowledgeable concerning local culture, politics and commercial practices and
who provide a visible local presence and local project representation.
With respect to emerging market projects, the Company's policy is to
attempt to minimize currency risks, including the devaluation of local
currencies versus the U.S. dollar, as well as the risk of availability of hard
currency convertibility. To date, all of the Company's executed power sales
contracts contain provisions which index the Company's returns to U.S. dollars
or provide for the payment of capacity payments in U.S. dollars. To the extent
possible, the Company attempts to secure "political risk" insurance from the
Overseas Private Investment Corporation ("OPIC") or similar multilateral
agencies to limit its risk in emerging market countries. In addition, the
Company endeavors to involve the World Bank, export credit agencies or
multilateral funding sources in its international project financings. The
Company believes multilateral lending agencies and foreign source financing and
political risk insurance are available for certain international private power
projects, particularly those utilizing indigenous fuel sources in renewable or
otherwise environmentally responsible generating facilities. The Company
believes that the involvement of these institutions will enhance an
international project's position in emerging market countries.
The Company has an international joint venture agreement with PKS
which the Company believes enhances the Company's capabilities in foreign power
markets. The joint venture agreement is limited to international activities and
provides that if both the Company and PKS agree to participate in a project,
they will share all development costs equally. Each of the Company and PKS will
provide 50% of the equity required for financing a project developed by the
joint venture, and the Company will operate and manage such project. The
agreement creates a joint development structure under which, on a project by
project basis, the Company will be the development manager, managing partner
and/or project operator, an equal equity participant with PKS and a preferred
participant in the construction consortium and PKS will be an equal equity
participant and the preferred turnkey construction contractor. The joint
venture agreement may be terminated by either party on 15 days written notice,
provided that such termination cannot affect the pre-existing contractual
obligations of either party.
Development can require the Company to expend significant sums for
preliminary engineering, permitting, legal and other expenses in preparation
for competitive bids which the Company may not win or before it can be
determined whether a project is feasible, economically attractive or capable of
being financed. Successful development and construction is contingent upon,
among other things, negotiation on terms satisfactory to the Company of
engineering, construction, fuel supply and power sales contracts with other
project participants, receipt of required governmental permits and consents and
timely implementation of construction. Further, there can be no assurance that
the Company will obtain access to the substantial debt and equity capital
required to continue to develop and construct electric power projects or to
refinance projects. The future growth of the Company is dependent, in large
part, upon the demand for significant amounts of additional electrical
generating capacity and its ability to obtain contracts to supply portions of
this capacity. There can be no assurance that development efforts on any
particular project, or the Company's efforts generally, will be successful.
The financing and development of projects outside the United States
entail significant political and financial risks (including, without
limitation, uncertainties associated with first-time privatization efforts in
the countries involved, currency exchange rate fluctuations, currency
repatriation restrictions, political instability, civil unrest and
expropriation) and other structuring issues that have the potential to cause
substantial delays in respect of or material impairment of the value of the
project being developed, which the Company may not be capable of fully insuring
against. The uncertainty of the legal environment in certain foreign countries
in which the Company is developing and may develop or acquire projects could
make it more difficult for the Company to enforce its rights under agreements
relating to such projects. In addition, the laws and regulations of certain
countries may limit the ability of the Company to hold a majority interest in
some of the projects that it may develop or acquire. The Company's
international projects may, in certain cases, be terminated by the applicable
foreign governments.
THE COMPANY'S PROJECTS
With completion of the acquisition of Magma the Company has net
ownership interests of an aggregate of (i) 354 MW in 13 projects in operation
representing an aggregate net capacity of 571 MW of electric generating
capacity, (ii) 409 MW in three projects under construction representing an
aggregate net capacity of 500 MW of electric generating capacity and (iii) 935
MW in eight projects in development stages with signed power sales agreements
or under award representing an aggregate net capacity of 1,589 MW of electric
generating capacity. The following table sets out the Company's various
projects in operation, under construction and in the latter stages of
development pursuant to signed power sales agreements or awarded mandates in
each case subsequent to the merger.
INTERNATIONAL PROJECTS - DISCUSSION
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. (3) TYPE (3) PURCHASER (4)
CAPACITY (IN MW)(2) (IN MW) DATE
(IN MW)(1)
Upper Mahiao 128 119 119 Leyte, the 1996 CO+10 Build, Own PNOC-EDC
Philippines Transfer (GOP) (5)
Mahanagdong 180 165 74 Leyte, the 1997 CO+10 Build, Own PNOC-EDC
(6) Philippines Transfer (GOP)(5)
Malitbog- 231 216 216 Leyte, the 1996- CO+10 Build, Own PNOC-EDC
Phase I and II Philippines 1997 Transfer (GOP) (5)
--- --- ---
TOTAL UNDER
CONSTRUCTION 539 500 409
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. TYPE PURCHASER(4)
CAPACITY (IN MW)(2)(7) (IN MW)(7) DATE
(IN MW)(7)
Dieng (6) 400 400 188 Central Java, 1997-1999 CO+30 Build, Own PLN (GO1)
Indonesia Transfer
Patuha (6) 400 400 140 Western Java, 1997-1999 CO+30 Build, Own PLN (GO1)
Indonesia Transfer
Casecnan (8) 140 140 98 Luzon, the 1998 CO+20 Build, Own NIA (GOP) (5)
Philippines Transfer
Bali (8)(9) 350 350 210 Bali, 1998-1999 CO+30 Build, Own PLN (GOI)
Indonesia Transfer
Alto Peak 70 70 70 Leyte, the 1997 CO+10 Build, Own PNOC-EDC
Philippines Transfer (GOP)(5)
TOTAL
CONTRACTED/
AWARDED 1,360 1,360 706
TOTAL
INTERNATIONAL
PROJECTS 1,899 1,860 1,115
(1) Actual MW may vary depending on operating and reservoir conditions and
plant design. Facility Gross Capacity (in MW) for projects under construction
prepresents gross electric output of the facility prior to subtraction of the
parasitic load. Parasitic load is electrical output used by the facility and
not made available for sale to utilities or other outside purchasers. Facility
Gross Capacity (in MW) does not necessarily reflect electric output available
for sale to utilities or other purchasers.
(2) Facility Net Capacity (in MW) represents Facility Gross Capacity (in
MW) less parasitic load.
(3) Commercial Operation (CO).
(4) PNOC-Energy Development Corporation (PNOC-EDC); Government of the
Philippines (GOP); P.T. PLN (Persero) (PLN); Government of Indonesia (GOI); and
Philippine National Irrigation Administration (NIA).
(5) Government of the Philippines undertaking supports PNOC-EDC's and
NIA's respective ogligations.
(6) PKS has elected to exercise its ownership option pursuant to its joint
venture agreement with the Company.
(7) Actual MW may vary depending on operating and reservoir conditions and
final plant design. Facility Gross Capacity (in MW) for awarded projects equals
maximum sales amount. Significant contingencies exist in respect of awards,
including without limitation, the need to obtain financing, permits and
licenses, and the completion of construction.
(8) PKS has not indicated whether it intends to exercise its ownership
option pursuant to its joint venture agreement with the Company and such net
ownership interest remains subject to the PKS option. The Casecnan Project is a
combined hydroelectric and irrigation project and will also sell water to NIA.
(9) Geothermal resource development rights have been awarded and the power
sales contract is subject to negotiation.
DOMESTIC PROJECTS
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. TYPE PURCHASER(5)
CAPACITY (IN MW)(2)(3) (IN MW) DATE
(IN MW)(1)
Navy I 96 88 41 China Lake, 8/1987 8/2011 SO4 SCE
CA
BLM 96 88 42 China Lake, 3/1989 3/2019 SO4 SCE
CA
Navy II 96 88 44 China Lake, 1/1990 1/2010 SO4 SCE
CA
Vulcan 41 34 17 Imperial 2/1986 2/2016 SO4 SCE
Valley, CA
Hoch (Del 46 38 19 Imperial 1/1989 12/2018 SO4 SCE
Ranch) Valley, CA
Elmore 46 38 19 Imperial 1/1989 12/2018 SO4 SCE
Valley, CA
Leathers 46 38 19 Imperial 1/1990 12/2019 SO4 SCE
Valley, CA
Salton Sea I 11 8 8 Imperial 7/1987 6/2017 Negot. SCE
Valley, CA
Salton Sea II 20 18 18 Imperial 4/1990 4/2020 SO4 SCE
Valley, CA
Salton Sea III 54 50 50 Imperial 2/1989 2/2019 SO4 SCE
Valley, CA
Yuma Cogen. 55 50 50 Yuma, AZ 5/1994 5/2024 Negot. SDG&E
Roosevelt Hot 25 23 17 Milford, UT 5/1984 1/2021 Gathered UP&L
Springs Steam
Desert Peak 10 10 10 Desert Peak, 12/1985 12/1995 Negot. SPPC
NV
-- -- --
TOTAL IN 642 571 354
OPERATION
PROJECTS WITH SIGNED POWER SALES CONTRACTS OR AWARDED DEVELOPMENT RIGHTS
PROJECT FACILITY FACILITY NET OWNER. LOCATION PROJECT. CONTRACT CONTRACT POWER
GROSS NET CAPACITY INTEREST COMM. OPER. EXP. TYPE PURCHASER(5)
CAPACITY (IN MW)(2)(5) (IN MW) DATE
(IN MW)(5)
BRPU (7) 163 163 163 Imperial TBD TBD FS04 SCE
Valley, CA
Fish Lake(8) 36 36 36 Imperial est. 1996 CO+30 Negot. SCE
Valley, CA
Newberry 30 30 30 Bend, OR est. 1997 CO+50 Negot. BPA/EWEB
-- -- --
TOTAL CONTRACTED/
AWARDED 229 229 229
--- --- ---
TOTAL DOMESTIC
PROJECTS 871 800 583
--- --- ---
TOTAL
PROJECTS 2,770 2,660 1,698
----- ----- -----
(1) In addition to the electricity sales revenue earned from its net
ownership position in such facilities, the Company receives significant fee and
royalty income from operating such plants and managing the production from the
geothermal reservoirs for such facilities.
(2) Actual MW may vary depending on operating and reservoir conditions and
plant design. Facility Gross Capacity (in MW) for projects in operation
represents gross electric output of the facility prior to subtraction of the
parasitic load. Parasitic load is electrical output used by the facility and
not made available for sale to utilities or other outside purchasers. Facility
Gross Capacity (in MW) does not necessarily reflect electric output available
for sale to utilities or other outside purchasers.
(3) Facility Net Capacity (in MW) represents Facility Gross Capacity (in
MW) less parasitic load.
(4) With respect to the Vulcan, Hoch (Del Ranch), Elmore, Leathers, Salton
Sea I, Salton Sea II and Salton Sea III Projects, this represents contract
nameplate.
(5) Southern California Edison Company (SCE); San Diego Gas & Electric
Company (SDG&E); Utah Power & Light Company (UP&L); Sierra Pacific Power
Company (SPPC); Bonneville Power Administration (BPA); and Eugene Water and
Electric Board (EWEB).
(6) Actual MW may vary depending on operating and reservoir conditions and
final plant design. Facility Gross Capacity (in MW) for awarded projects equals
maximum sales amount. Significant contingencies exist in respect of awards,
including without limitation, the need to obtain financing, permits and
licenses, and the completion of construction.
(7) SCE and SDG&E are contesting the BRPU award; accordingly, no power
sales contracts are currently signed.
(8) Combined Fish Lake and Salton Sea Expansion.
INTERNATIONAL PROJECTS DISCUSSION
PROJECTS IN CONSTRUCTION
The Philippines. The Company believes that increasing industrialization,
a rising standard of living and an expanding power distribution network has
significantly increased demand for electrical power in the Philippines.
According to the 1993 Power Development Program of the National Power
Corporation of the Philippines ("NAPOCOR"), demand for electricity exceeds
supply. NAPOCOR has also reported that its ability to sustain desired levels of
electric production from existing facilities has been limited due to frequent
breakdowns in many of its older electric generating plants. As a result, the
Philippines has experienced severe power outages, with Manila suffering
significant daily brownouts during much of 1993 and periodic brownouts during
1994. Although the occurrence of brownouts has been recently reduced, NAPOCOR
has said that it still anticipates significant energy shortages in the future.
In 1993, the Philippine Congress, pursuant to Republic Act 7648,
granted President Ramos emergency powers to remedy the Philippine energy
crisis, including authority to (i) exempt power projects from public bidding
requirements, (ii) increase power rates and (iii) reorganize NAPOCOR. Until
1987, NAPOCOR had a monopoly on power generation and transmission in the
Philippines. In 1987, then President Aquino issued Executive Order No. 215,
which granted private companies the right to develop certain power generation
projects, such as those using indigenous energy sources, on a
"build-operate-transfer" or "build-transfer" basis. In 1990, the Philippine
Congress enacted Republic Act No. 6957, which authorized private development of
priority infrastructure projects on a "build-operate-transfer" and a
"build-transfer" basis. In addition, under that Act, such power projects were
made eligible for certain tax benefits, including exemption from Philippine
national income taxes for at least six years and exemption from, or
reimbursement for, customs duties and value added taxes on capital equipment to
be incorporated into such projects. In 1994, certain amendments to Republic Act
No. 6957 were approved by the Philippine Congress and signed into law (R.A.
7718). Among other things, such amendments provide for the financing of
"unsolicited proposals" on a "build-operate-transfer" basis.
In an effort to remedy the shortfall of electricity, the Philippines,
NAPOCOR and PNOC-Energy Development Corporation ("PNOC-EDC") continue to
jointly solicit bids for private power projects. Among private power projects
selected through this solicitation process were the Upper Mahiao (the "Upper
Mahiao Project"), Mahanagdong (the "Mahanagdong Project"), Malitbog (the
"Malitbog Project") and Alto Peak (the "Alto Peak Project") geothermal power
projects, as described below. Geothermal power has been identified as a
preferred alternative by the Government of the Philippines due to the domestic
availability and the minimal environmental effects of geothermal power in
comparison to other forms of power production. PNOC-EDC, which is responsible
for developing the Philippines' domestic energy sources, has been successful in
the exploration and development of geothermal resources.
The Company has financed and commenced construction of the Upper
Mahiao, Mahanagdong and Malitbog Projects, which have an aggregate net capacity
of 500 MW, of which the Company's aggregate net ownership interest is 409 MW
subsequent to the Merger.
Upper Mahiao. The Company has closed the financing and commenced
construction of the Upper Mahiao Project, a 128 gross MW geothermal project to
be located in the GreaterTongonan area of the island of Leyte in the
Philippines. The Upper Mahiao Project will be built, owned and operated by CE
Cebu Geothermal Power Company, Inc. ("CE Cebu"), a Philippine corporation that
is approximately 100% indirectly owned by the Company. It will sell 100% of its
capacity on a "take-or-pay" basis (described below) to PNOC-EDC, which will in
turn sell the power to NAPOCOR for distribution to the island of Cebu, located
about 40 miles west of Leyte.
The Upper Mahiao Project will have a total project cost of
approximately $218 million, including interest during construction, project
contingency costs and a debt service reserve fund. A consortium of
international banks has committed to provide approximately $162 million in a
construction loan, supported by political risk insurance from the Export-Import
Bank of the United States ("ExIm Bank"). The largest portion of the term loan
for the project will also be provided by ExIm Bank. The Company's equity
contribution to the Upper Mahiao Project is $56 million. Subject to the pledge
of the project company's stock to the lenders, the Company has arranged for
political risk insurance of its equity investment through OPIC. The financing
is collateralized by all the assets of the project.
The Upper Mahiao Project is being constructed by Ormat, Inc. ("Ormat")
and its affiliates pursuant to supply and construction contracts (collectively,
the "Upper Mahiao EPC"), which, taken together, provide for the construction of
the plant on a fixed-price, date-certain, turnkey basis. Ormat is an
international manufacturer and construction contractor that builds binary
geothermal turbines. It has provided its equipment to several geothermal power
projects throughout the United States, the Philippines and elsewhere
internationally. The Upper Mahiao EPC provides liquidated damage protection of
up to 30% of the Upper Mahiao EPC price. Ormat's performance under the Upper
Mahiao EPC is substantially backed by a completion guaranty of Ormat, by
letters of credit, and by a limited guaranty of Ormat Industries, Ltd., an
Israeli corporation and the parent of Ormat, in each case for the benefit of
the project lenders.
Under the terms of an energy conversion agreement, executed on
September 6, 1993 (the "Upper Mahiao ECA"), CE Cebu will build, own and operate
the Upper Mahiao Project during the approximately two-year construction period
and the ten-year cooperation period, after which ownership will be transferred
to PNOC-EDC at no cost.
The Upper Mahiao plant will be located on land provided by PNOC-EDC at
no cost. It will take geothermal steam and fluid, also provided by PNOC-EDC at
no cost, and convert its thermal energy into electrical energy to be sold to
PNOC-EDC on a "take-or-pay" basis. Specifically, PNOC-EDC will be obligated to
pay for the electric capacity that is nominated each year by CE Cebu,
irrespective of whether PNOC-EDC is willing or able to accept delivery of such
capacity. PNOC-EDC will pay to CE Cebu a fee (the "Capacity Fee") based on the
plant capacity nominated to PNOC-EDC in any year (which, at the plant's design
capacity, is approximately 95% of total contract revenues) and a fee (the
"Energy Fee") based on the electricity actually delivered to PNOC-EDC
(approximately 5% of total contract revenues). The Capacity Fee serves to
recover the capital costs of the project, to recover fixed operating costs and
to cover return on investment. The Energy Fee is designed to cover all variable
operating and maintenance costs of the power plant. Payments under the Upper
Mahiao ECA will be denominated in U.S. dollars, or computed in U.S. dollars and
paid in Philippine pesos at the then-current exchange rate, except for the
Energy Fee, which will be used to pay Philippine peso-denominated expenses. The
convertibility of Philippine peso receipts into U.S. dollars is insured by
OPIC. Significant portions of the Capacity Fee and Energy Fee will be indexed
to U.S. and Philippine inflation rates, respectively. PNOC-EDC's payment
requirements, and its other obligations under the Upper Mahiao ECA, are
supported by the Government of the Philippines through a performance
undertaking.
The payment of the Capacity Fee is not excused if PNOC-EDC fails to
deliver or remove the steam or fluids or fails to provide the transmission
facilities, even if its failure was caused by a force majeure event. In
addition, PNOC-EDC must continue to make Capacity Fee payments if there is a
force majeure event (e.g., war, nationalization, etc.) that affects the
operation of the Upper Mahiao Project and that is within the reasonable control
of PNOC-EDC or the Government of the Philippines or any agency or authority
thereof. If CE Cebu fails to meet certain construction milestones or the power
plant fails to achieve 70% of its design capacity by the date that is 120 days
after the scheduled completion date (as that date may be extended for force
majeure and other reasons under the Upper Mahiao ECA), the Upper Mahiao Project
may, under certain circumstances, be deemed "abandoned," in which case the
Upper Mahiao Project must be transferred to PNOC-EDC at no cost, subject to any
liens existing thereon.
PNOC-EDC is obligated to purchase CE Cebu's interest in the facility
under certain circumstances, including (i) extended outages resulting from the
failure of PNOC-EDC to provide the required geothermal fluid, (ii) certain
material changes in policies or laws which adversely affect CE Cebu's interest
in the project, (iii) transmission failure, (iv) failure of PNOC-EDC to make
timely payments of amounts due under the Upper Mahiao ECA, (v) privatization of
PNOC-EDC or NAPOCOR, and (vi) certain other events. Prior to completion of the
Upper Mahiao Project, the buy-out price will be equal to all costs incurred
through the date of the buy-out, including all Upper Mahiao Project debt, plus
an additional rate of return on equity of ten percent per annum. In a
post-completion buy-out, the price will be the net present value (at a discount
rate based on the last published Commercial Interest Reference Rate of the
Organization for Economic Cooperation and Development) of the total remaining
amount of Capacity Fees over the remaining term of the Upper Mahiao ECA.
Mahanagdong. The Company has also closed the financing and commenced
construction of the Mahanagdong Project, a 180 gross MW geothermal project,
which will also be located on the island of Leyte. The Mahanagdong Project will
be built, owned and operated by CE Luzon Geothermal Power Company, Inc. ("CE
Luzon"), a Philippine corporation that during construction is indirectly owned
50% by the Company and 50% by PKS. Up to a 10% financial interest in CE Luzon
may be sold at completion to another industrial company at the option of such
company. The Mahanagdong Project will sell 100% of its capacity on a similar
basis as described above for the Upper Mahiao Project to PNOC-EDC, which will in
turn sell the power to NAPOCOR for distribution to the island of Luzon.
Mahanagdong has a total project cost of approximately $320 million,
including interest during construction, project contingency costs and a debt
service reserve fund. The capital structure consists of a project financing
construction and term loan of approximately $240 million provided by OPIC, ExIm
Bank and a consortium of international banks, and approximately $80 million in
equity contributions. Political risk insurance from ExIm Bank has been obtained
for the commercial lenders. The Company's equity investment for the Mahanagdong
Project will be approximately $40 million. Subject to the pledge of the project
company's stock to the lenders, the Company has arranged for political risk
insurance on its equity investment through OPIC. The financing is
collateralized by all the assets of the project.
The Mahanagdong Project is being constructed by a consortium (the "EPC
Consortium") of Kiewit Construction Group, Inc. ("KCG") and The Ben Holt Co., a
wholly owned subsidiary of the Company ("BHCO"), pursuant to fixed-price,
date-certain, turnkey supply and construction contracts (collectively, the
"Mahanagdong EPC"). The obligations of the EPC Consortium under the Mahanagdong
EPC are supported by a guaranty of KCG at an aggregate amount equal to
approximately 50% of the Mahanagdong EPC price. KCG, a wholly owned subsidiary
of PKS, is the lead member of the EPC Consortium, with an 80% interest. KCG
performs construction services for a wide range of public and private customers
in the U.S. and internationally. The Mahanagdong EPC provides for maximum
liability for liquidated damages of up to $100.5 million and total liability of
up to $201 million. Construction projects undertaken by KCG during 1993
included transportation projects, including highways, bridges, airports and
railroads, power facilities, buildings and sewer and waste disposal systems,
and water supply systems, utility facilities, dams and reservoirs. KCG accounts
for 80% of PKS's revenues, contributing $1.7 billion in revenues in 1993. KCG
has an extensive background in power plant construction.
BHCO will provide design and engineering services for the EPC Consortium,
and holds a 20% interest. The Company has provided a guaranty of BHCO's
obligations under the Mahanagdong EPC Contract.
The terms of an energy conversion agreement (the "Mahanagdong ECA"),
executed on September 18, 1993, are substantially similar to those of the Upper
Mahiao ECA. The Mahanagdong ECA provides for an approximately three-year
construction period and a ten-year cooperation period. At the end of the
cooperation period, the facility will be transferred to PNOC-EDC at no cost.
All of PNOC-EDC's obligations under the Mahanagdong ECA are supported by the
Government of the Philippines through a performance undertaking. The capacity
fees are expected to be approximately 97% of total revenues at the design
capacity levels and the energy fees are expected to be approximately 3% of such
total revenues.
Malitbog. In December 1994, the Company closed the financing and
commenced construction of the Malitbog Project, a 231 gross MW geothermal
project, which will also be located on the island of Leyte. The Malitbog Project
will be built, owned and operated by Visayas Geothermal Power Company ("VGPC"),
a Philippine general partnership that is wholly owned, indirectly, by the
Company. VGPC will sell 100% of its capacity on substantially the same basis as
described above for the Upper Mahiao Project to PNOC-EDC, which will in turn
sell the power to NAPOCOR.
The Malitbog Project has a total project cost of approximately $280
million, including interest during construction and project contingency costs.
A consortium of international banks and OPIC have provided a total of $210
million of construction and term loan facilities, the $135 million
international bank portion of which is supported by political risk insurance
from OPIC. The Company's equity contribution to VGPC was $70 million. The
Company's equity participation is covered by political risk insurance from
OPIC.
The Malitbog Project will be constructed by Sumitomo Corporation
("Sumitomo") pursuant to a fixed-price, date-certain, turnkey supply and
construction contract (the "Malitbog EPC"). The Malitbog EPC provides that
certain liquidated damages will be paid by Sumitomo for failure to meet certain
scheduled performance test dates, including the payment of any liquidated
damages or penalties required to be paid by VGPC to PNOC-EDC under an energy
conversion agreement (the "Malitbog ECA"), subject to limitations on the total
amount of liquidated damages payable by Sumitomo. The Malitbog EPC also
provides for the payment of certain liquidated damages on a per unit basis if
upon completion of the facility, tests do not demonstrate such unit's ability
to operate at a net generating capacity of at least 74.1 MW. The liquidated
damages for each generating unit are capped at 13 1/3 % of the total Malitbog
EPC price. Pursuant to a reimbursement undertaking, Magma has agreed to
reimburse Sumitomo for draws, if any, by PNOC-EDC on the construction bond
provided by Sumitomo on behalf of Magma in excess of the liquidated damage
amounts provided in the Malitbog EPC.
Sumitomo is one of the principal trading and investment companies in
Japan, and has built power plants around the world, often on a turnkey basis.
As of October 20, 1994, Sumitomo had a credit rating of "Aa3" from Moody's
Investors Service, Inc. ("Moody's"). The Malitbog EPC requires Sumitomo to
provide engineering, procurement, construction, start-up and testing services
with respect to the facility.
Construction of the facility has begun, with commercial operation of unit
1 scheduled to commence in July 1996, and commercial operation of unit 2 and
unit 3 scheduled to commence in July 1997.
The terms of the Malitbog ECA, executed on September 10, 1993, are
substantially similar to those of the Upper Mahiao ECA. The Malitbog ECA
provides for a two-phase construction period, of three identical 77 gross MW
units. The cooperation period is ten years from the completion of unit 3. At
the end of the cooperation period, the facility will be transferred to PNOC-EDC
at no cost. All of PNOC-EDC's obligations under the Malitbog ECA are supported
by the Government of the Philippines through a performance undertaking. The
capacity fees are 100% of total revenues and there is no energy fee.
PROJECTS IN DEVELOPMENT
Casecnan. In November 1994, the Company signed a "Project Agreement"
with the Philippine National Irrigation Administration ("NIA") to develop an
estimated $320 million combined irrigation and hydroelectric power generation
project (the "Casecnan Multipurpose Project"). Such project will deliver excess
water from the Casecnan and Denip (Cagayan) watershed in Northern Luzon to the
Pampanga watershed and the Pantabangan Reservoir for irrigation use in the
Central Luzon Valley. The Casecnan Multipurpose Project, which has satisfied the
requirements for an unsolicited proposal under the amended BOT law, will also
provide 140 MW of net electric generation capacity to the Luzon grid.
The project agreement is structured as a build, operate and transfer
agreement under which NIA will supply the water for the project and provides
for a 20-year cooperation period with significant "take-or-pay" obligations for
water and electricity. At the end of the 20-year cooperation period, the
Casecnan Multipurpose Project will be transferred to NIA at no cost. The
Company anticipates commencing construction in 1995.
Completion of such project remains subject to a number of significant
uncertainties, including arranging financing, obtaining certain required
permits and licenses and completing construction, none of which can be assured.
Alto Peak. The Alto Peak Project is a smaller geothermal project in the
same general area of Leyte as the Upper Mahiao, Mahanagdong and Malitbog
Projects. A subsidiary of the Company and PNOC-EDC have executed a 70 net MW
Energy Conversion Agreement, dated May 7, 1994. The general terms and conditions
are similar to the Malitbog ECA. However, the plant design has not been
initiated because PNOC-EDC has not finalized the steam conditions (pressure,
composition and pH). PNOC-EDC is still drilling and testing the geothermal wells
that will supply steam to such project. Consequently, the Company has not
commenced financing arrangements for the Alto Peak Project.
Indonesia. Indonesia, which has the world's fourth largest population,
has experienced rapid growth in electricity demand. The Company believes that
load growth has exceeded 13% since 1980. Furthermore, the Company believes that
rapid expansion in industrial growth has created a backlog of unconnected
industrial users in excess of 4,000 MW. In its sixth five-year plan, the
Indonesian government has called for the addition of 12,000 MW of additional
generating capacity by 1999. The long range plan calls for an additional 15,000
MW to be added by the year 2004. The plans call for approximately 75% of this
capacity to be added by independent power producers. Although Indonesia is a
member of OPEC and is also the world's largest exporter of liquified natural
gas, the government has announced that it wishes to maintain sufficient amounts
of oil for export, which will require a shift to coal fired generation and the
use of other energy sources, such as geothermal.
It is estimated that Indonesia has sufficient geothermal steam
potential to generate 16,000 MW, centered in the Java and Sumatra areas (the
two most populous of the 13,000 islands in Indonesia). To date, less than 150
MW of geothermal facilities have been commissioned, as the Government of
Indonesia was not encouraging the development of geothermal energy.
The Indonesian state-owned utility has recently been converted to a
limited liability company, P.T. PLN (Persero) ("PLN"), as a first step toward
the privatization of its two largest generating subsidiaries. The main
objective of Indonesia's electric energy policy has been to secure a continuity
of supply at reasonable rates for households (more than 50% of which have been
reported to have no power) and to minimize the utilization of hydrocarbons.
Rural electrification will remain an important component of the energy policy
as PLN is targeting the addition of 2 million customers a year.
Indonesia is rated "Baa3" by Moody's and "BBB " by Standard & Poor's
Ratings Group ("S&P"). The Company believes that Indonesia represents an
attractive development opportunity, as it combines growing power needs with
ample geothermal resources and creditworthy contract parties.
The following is a summary description of certain information concerning
the Company's projects in Indonesia. Since these projects are still in
development, however, there can be no assurance that this information will not
change materially over time. In addition, there can be no assurance that
development efforts on any particular project, or the Compnay's efforts
generally, will be successful.
Dieng. On December 2, 1994, a subsidiary of the Company executed a joint
operation contract (the "Dieng JOC") for the development of the geothermal steam
field and geothermal power facilities at the Dieng geothermal field, located in
Central Java (the "Dieng Project") with Perusahaan Pertambangan Minyak Dan Gas
Bumi Negara ("Pertamina"), the Indonesian national oil company, and executed a
"take-or-pay" energy sales contract (the "Dieng ESC") with both Pertamina and
PLN, the Indonesian national electric utility.
A subsidiary of the Company has entered into a joint development
agreement with P.T. Himpurna Enersindo Abadi ("P.T. HEA"), its Indonesian
partner, which is a subsidiary of Himpurna, an association of Indonesian
military veterans, whereby the Company and P.T. HEA have agreed to work
together on an exclusive basis to develop the Dieng Project (the "Dieng Joint
Venture"). The Dieng Joint Venture is structured with subsidiaries of the
Company having a minimum 47% interest, subsidiaries of PKS having the option to
take a 47% interest and P.T. HEA having a 6% interest in the Dieng Project.
Pursuant to the Dieng JOC and ESC, Pertamina will grant to the Dieng
Joint Venture the geothermal field and the wells and other facilities presently
located thereon and the Dieng Joint Venture will build, own and operate power
production units with an aggregate capacity of up to 400 MW. The Dieng Joint
Venture will accept the field operation responsibility for developing and
supplying the geothermal steam and fluids required to operate the plants. The
Dieng JOC is structured as a build own transfer agreement and will expire
(subject to extension by mutual agreement) on the date which is the later of
(i) 42 years following effectiveness of the Dieng JOC and (ii) 30 years
following the date of commencement of commercial generation of the final unit
completed. Upon the expiration of the proposed Dieng JOC, all facilities will
be transferred to Pertamina at no cost. The Dieng Joint Venture is required to
pay Pertamina a production allowance equal to three percent of the Dieng Joint
Venture's net operating income from the Dieng Project, plus a further amount
based upon the negotiated value of existing Pertamina geothermal production
facilities that the Company expects will be made available by Pertamina.
Pursuant to the Dieng ESC, PLN agreed to purchase and pay for all of
the Project's capacity and energy output on a "take or pay" basis regardless of
PLN's ability to accept such energy made available from the Dieng Project for a
term equal to that of the Dieng JOC. The price paid for electricity includes a
base energy price per kWh multiplied by the number of kWhs the plants deliver
or are "capable of delivering," whichever is greater. Energy price payments are
also subject to adjustment for inflation. PLN will also pay a capacity payment
based on plant capacity. All such payments are payable in U.S. dollars.
The Company presently intends to begin well testing by the second
quarter of 1995 and to commence construction of an initial 55 MW unit in the
4th quarter of 1995, and then to proceed on a modular basis with construction
of three additional units to follow shortly thereafter, resulting in an
aggregate first phase net capacity at this site of 220 MW. The Company
estimates that the total project cost of these units will be approximately $450
million. The next phase is expected to expand the total capacity to 400 MW. The
cost of the full Dieng Project is estimated to approximate $1 billion. The
Company anticipates a consortium consisting of KCG and BHCO will submit a
proposal for the design and construction of the Dieng Project, and that the
Company, through a subsidiary, will be responsible for operating and managing
the Dieng Project.
The Dieng field has been explored domestically for over 20 years and
BHCO has been active in the area for more than five years. Pertamina has
drilled a total of 27 wells to date. The Company has a significant amount of
data, which it believes to be reliable as to the production capacity of the
field. However, a number of significant steps, both financial and operational,
must be completed before the Dieng Project can proceed further. These steps,
none of which can be assured, include obtaining required regulatory permits and
approvals, completing the well testing, entering into a construction agreement
and other project contracts, and arranging financing.
Patuha. The Company is also developing a geothermal power plant with
respect to the Patuha geothermal field in Java, Indonesia (the "Patuha
Project"). The Company has entered into a joint venture (the "Patuha Joint
Venture") for Patuha with P.T. Enerindo Supra Abadi ("P.T. ESA"), an Indonesian
company. P.T. ESA is an affiliate of the Bukaka Group, which has extensive
experience in general construction, fabrication and electrical transmission
construction in Indonesia. In exchange for project development services, P.T.
ESA will receive a 10% equity interest in the Patuha Project with an option to
acquire an additional 20% interest for cash upon the satisfaction of certain
conditions. Subject to the exercise of that option, subsidiaries of the Company
will have a 45% interest and subsidiaries of PKS will have the option to take a
45% interest in the Patuha Project.
On December 2, 1994, the Patuha Joint Venture executed both a joint
operation contract and an energy sales contract, each of which currently
contains terms substantially similar to those described above for the Dieng
Project. The Patuha Joint Venture intends to proceed on a modular basis similar
to the Dieng Project, with an aggregate capacity of up to 400 MW. The Company
estimates that the total cost will be approximately $1 billion. The Company
presently intends to begin well testing and further exploration in the fourth
quarter of 1995 with construction of the first unit expected to begin by 1996.
The Patuha Project remains subject to a number of significant
uncertainties, as described above in connection with the Dieng Project, and
there can be no assurance that the Patuha Project will proceed or reach
commercial operation.
Bali. The Company and PT Panutan Group, an Indonesian consortium of
energy, oil, gas and mining companies, have formed a joint venture to pursue the
development of geothermal resources in Bali (the "Bali Project") and to obtain a
power sales contract from PLN.
The Company presently intends to develop the Bali Project and other
possible projects in Indonesia using a structure similar to that contemplated
for the Dieng Project.
The Bali Project remains subject to a number of significant
uncertainties, as described above for the Dieng Project, and there can be no
assurance that the Company will pursue the Bali Project or that it will proceed
or reach commercial operation.
DOMESTIC PROJECTS
PROJECTS IN OPERATION
The Coso Project. In 1979, the Company entered into a 30-year contract
(the "Navy Contract") with the United States Department of the Navy (the "Navy")
to develop geothermal power facilities located on approximately 5,000 acres of
the Naval Air Weapons Station at China Lake, California (150 miles northeast of
Los Angeles). In 1985, the Company entered into a 30-year lease (the "BLM
Lease") with the United States Bureau of Land Management ("BLM") for
approximately 19,000 acres of land adjacent to the land covered by the Navy
Contract. The Navy Contract and the BLM Lease provide for certain royalty
payments as a percentage of gross revenue and certain other formulas. The
Company formed three joint ventures (the "Coso Joint Ventures") with one primary
joint venture partner to develop and construct the three facilities which
comprise the Navy I project (the "Navy I Project"), the BLM project (the "BLM
Project") and the Navy II project (the "Navy II Project") (collectively the
"Coso Project").
The Coso Joint Ventures are as follows: (i) Coso Finance Partners,
which owns the Navy I Project (the "Navy I Partnership"), (ii) Coso Energy
Developers, which owns the BLM Project (the "BLM Partnership") and (iii) Coso
Power Developers, which owns the Navy II Project (the "Navy II Partnership"
and, together with the Navy I Partnership and the BLM Partnership, the "Coso
Partnerships"). The Company holds ownership interests of approximately 46% in
the Navy I Partnership; approximately 48% in the BLM Partnership, after payout
to the Company and its joint venture partner; and 50% in the Navy II
Partnership. The Company consolidates its respective share of the operating
results of the Coso Partnerships into its financial statements. The Company is
the managing partner of each of the Coso Partnerships and operates the Coso
Project, for which it receives fees from the Coso Partnerships.
The Coso Project sells all electricity generated by the respective
plants pursuant to three long-term standard offer No. 4 power purchase
contracts ("SO4 Agreements") between the Navy I Partnership, the BLM
Partnership, and the Navy II Partnership, respectively, and Southern California
Edison Company ("SCE"). These SO4 Agreements provide for capacity payments,
capacity bonus payments and energy payments. SCE makes fixed annual capacity
payments to the Coso Partnerships and, to the extent that capacity factors
exceed certain benchmarks, is required to make capacity bonus payments. The
price for capacity and capacity bonus payments is fixed for the life of the SO4
Agreements. Energy is sold at increasing fixed rates for the first ten years of
each contract and thereafter at SCE's Avoided Cost of Energy. The fixed price
periods of the SO4 Agreements extend until August 1997, March 1999 and January
2000 for each of the Navy I, BLM and Navy II Partnerships, respectively, at
rates ranging from 11.0 cents per kWh in 1994 to 14.6 cents per kWh in 2000.
The Company's share of the revenues received by the Coso Partnerships for 1993
and 1994 was $124.7 million and $137.0 million, respectively.
The physical facilities used for geothermal energy production are
substantially the same at the Navy I, BLM and Navy II Projects.
The Navy I Project. The geothermal resource for the Navy I Project
currently is produced from approximately 32 wells. The Navy I Project consists
of three turbine generators, each with approximately 32 MW of electrical
generating capacity. The Navy I Project has an aggregate gross electrical
generating capacity of approximately 96 MW. Based on an assumed net capacity of
80 MW, the Navy I Project operated at an average operating capacity factor of
99.8% in 1992, 111.2% in 1993 and 114.0% in 1994.
The BLM Project. The BLM Project.'s geothermal resource currently is
produced from approximately 20 wells. The BLM Project consists of three turbine
generators. Two of these turbine generators are located at the BLM East site in
a dual flash system, and one is located at the BLM West site in a single flash
system, each with an electrical generating capacity of 32 MW. The BLM Project
has an aggregate gross electrical generating capacity of approximately 96 MW.
Based on an assumed net capacity of 80 MW, the BLM Project operated at an
average operating capacity factor of 87.2% in 1992, 98.1% in 1993, and 99.5% in
1994.
The Navy II Project. The geothermal resource for the Navy II Project
currently is produced from approximately 25 wells. The Navy II Project consists
of three individual turbine generators, each with approximately 32 MW of
electrical generating capacity. The Navy II Project has an aggregate gross
electrical capacity of approximately 96 MW. Based on an assumed net capacity of
80 MW, the Navy II Project operated at an average operating capacity factor of
98.1% in 1992, 102.6% in 1993, and 105.9% in 1994.
In December 1992, the Coso Joint Ventures refinanced the existing bank
debt on the Coso Project with the proceeds of the sale of approximately $560
million in non-recourse senior secured notes (the "Notes") in a private
placement pursuant to Rule 144A under the Securities Act. The Notes were issued
by Coso Funding Corp. ("Coso Funding"), a corporation owned by the Coso Joint
Ventures and formed exclusively for the purpose of issuing the Notes. Coso
Funding lent the Coso Joint Ventures substantially all of the net proceeds of
the sale of the Notes. At the time of their issuance, the Notes were rated
"Baa3" by Moody's, "BBB-" by S&P and "BBB" by Duff & Phelps Credit Rating Co.,
all investment grade ratings. The outstanding balance of the Notes on December
31, 1994 was $483.5 million with a remaining average life of 3.4 years, and the
average interest rate on the Notes for the twelve months ending on the same
date was 8.13%. The obligations of each Coso Partnership under the loans from
Coso Funding are non-recourse to the Company. Coso Funding may look solely to
each Coso Partnership's pledged assets for satisfaction of such Coso
Partnership's loan. In addition, the loans are cross-collateralized by certain
support loans only to the extent of the other Coso Joint Ventures' available
cash flow and, under certain circumstances, the debt service reserve funds, and
not as to other assets.
Salton Sea Known Geothermal Resource Area Projects. Magma acquired three
geothermal power plants which comprise the Salton Sea 1
project (the "Salton Sea 1 Project"), the Salton Sea 2 project (the "Salton Sea
2 Project") and the Salton Sea 3 project (the "Salton Sea 3 Project")
(collectively, the "Salton Sea Projects") and all related wellfield, land and
other related assets in March 1993 from Union Oil Company of California. Each
of the Vulcan, Hoch (Del Ranch), Elmore and Leathers projects (the "Vulcan
Project," the "Hoch (Del Ranch) Project," the "Elmore Project" and the
"Leathers Project," respectively, and collectively, the "Partnership Projects")
is owned by an equal partnership (the "Vulcan Partnership," the "Del Ranch
Partnership," the "Elmore Partnership" and the "Leathers Partnership,"
respectively, and collectively, the "Partnerships") between Magma and a
subsidiary of Mission Energy, a wholly owned subsidiary of SCE. In the case of
the Vulcan Project, the Vulcan Partnership owns certain geothermal resources
supplying the Vulcan Project plant. In the case of the other three Partnership
Project plants, Magma owns the geothermal resources and receives royalty
payments from the Del Ranch, Elmore and Leathers Partnerships. In 1994, such
royalties together with the senior royalty from the East Mesa Plant and
royalties from the Mammoth Plants (as defined below) totaled $21.1 million.
Magma's share of the aggregate electricity revenues received by the Salton Sea
Projects and the Partnerships for 1994 was $158.4 million. In each case, a
subsidiary of Magma is the managing general partner, and Magma consolidates
one-half of the operating results of each Partnership Project plant into its
financial statements. A subsidiary of Magma operates each of the Salton Sea
Project plants and the Partnership Project plants.
The Salton Sea Projects operated at a combined contract nameplate
factor of 94.1% in the nine months ended December 31, 1993 and 88.5% in 1994.
The Partnership Projects operated at a combined contract nameplate factor of
100.7% in 1993 and 103.8% in 1994.
Vulcan. The Vulcan Project sells electricity to SCE under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a contract
capacity and contract nameplate of 29.5 MW and 34 MW, respectively. Under the
SO4 Agreement, SCE is obligated to pay the Vulcan Project a capacity payment, a
capacity bonus payment and an energy payment.
The price for contract capacity payments is fixed for the life of such
SO4 Agreement. The as-available capacity price is based on a payment schedule
as approved by the CPUC from time to time. The contract energy payment
increases each year for the first ten years, which period expires on February
9, 1996. Thereafter, the energy payments will be based on SCE's Avoided Cost of
Energy. The energy payment per kWh is 10.9 cents for 1994, 11.8 cents for 1995
and 12.6 cents for 1996. Thereafter, the energy payments will be based on SCE's
Avoided Cost of Energy. The Vulcan Project is unleveraged.
Hoch (Del Ranch). The Hoch (Del Ranch) Project sells electricity to SCE
under a 30-year SO4 Agreement that commenced on January 1, 1989. The contract
capacity and contract nameplate are 34 MW and 38 MW, respectively. The
provisions of such SO4 Agreement are substantially the same as the SO4 Agreement
with respect to the Vulcan Project.
The price for contract capacity payments is fixed for the life of the
SO4 Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1998, are fixed at rates ranging from 10.9 cents for
1994 to 14.6 cents for 1998. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
The Del Ranch Partnership entered into a $66 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2001. The secured credit agreement was amended to
allow for the issuance of commercial paper and medium-term notes supported by a
letter of credit as an alternative to borrowing directly from the banks.
Elmore. The Elmore Project sells electricity to SCE under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract capacity and contract
nameplate are 34 MW and 38 MW, respectively. The provisions of such SO4
Agreement are substantially the same as the SO4 Agreement with respect to the
Vulcan Project.
The price for contract capacity payments is fixed for the life of the
SO4 Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1998, are fixed at rates ranging from 10.9 cents in
1994 to 14.6 cents in 1998. Thereafter, the energy payments will be based on
SCE's Avoided Cost of Energy.
The Elmore Partnership entered into a $66 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2001. The secured credit agreement was amended and
restated on April 18, 1990 to allow for the issuance of commercial paper and
medium-term notes supported by a letter of credit as an alternative to
borrowing directly from the banks.
Leathers. The Leathers Project sells electricity to SCE pursuant to a
30-year SO4 Agreement that commenced on January 1, 1990. The contract capacity
and contract nameplate are 34 MW and 38 MW, respectively. The provisions of such
SO4 Agreement are substantially the same as the SO4 Agreement with respect to
the Vulcan Project.
The price for contract capacity payments is fixed for the life of the
SO4 Agreement. The energy payments per kWh for the first ten-year period, which
expires on December 31, 1999, are fixed at rates ranging from 10.9 cents in
1994 to 15.6 cents in 1999. Thereafter, the energy payments are based on SCE's
Avoided Cost of Energy.
The Leathers Partnership entered into an $82 million secured credit
facility with commercial banks in March 1988. The final maturity date of the
term loans is September 15, 2002. The secured credit agreement was amended to
allow for the issuance of commercial paper and medium-term notes supported by a
letter of credit as an alternative to borrowing directly from the banks.
Salton Sea 1 Project. The Salton Sea 1 Project sells electricity to SCE
pursuant to a 30-year negotiated power purchase agreement, as amended (the
"Salton Sea 1 PPA"), which provides for capacity and energy payments. The
initial contract capacity and contract nameplate are each 10 MW. The Salton Sea
1 Project may add subsequent increments of contract capacity (subject to
notification requirements), the sum of which may not exceed 20 MW. See "--
Projects in Development--Fish Lake/Salton Sea 1 Expansion."
The capacity payment is based on the firm capacity price which is
currently $123.61/kW-year. The contract capacity payment adjusts quarterly
based on a basket of energy indices for the term of the Salton Sea 1 PPA. The
energy payment is calculated using a Base Price (defined as the initial value
of the energy payment (4.701 cents per kWh for the second quarter of 1992)),
which is subject to quarterly adjustments based on a basket of indices. The
time period weighted average energy payment for Unit 1 was 4.8 cents per kWh
during 1994. As the Salton Sea 1 PPA is not an SO4 Agreement, the energy
payments do not revert to SCE's Avoided Cost of Energy.
Salton Sea 2 Project. The Salton Sea 2 Project sells electricity to SCE
pursuant to a 30-year modified SO4 Agreement that commenced on April 15, 1990.
The contract capacity and contract nameplate are 15 MW and 20 MW, respectively.
The contract requires SCE 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 Agreement. The energy
payments for the first ten-year period, which period expires on April 4, 2000,
are levelized at a time period weighted average of 10.6 cents per kWh.
Thereafter, the monthly energy payments will be SCE's Avoided Cost of Energy.
For the period April 1, 1994 through March 31, 2004, SCE is entitled to receive,
at no cost, 5% of all energy delivered in excess of 80% of contract capacity.
Salton Sea 3 Project. The Salton Sea 3 Project sells electricity to SCE
pursuant to a 30-year modified SO4 Agreement. The contract capacity is 47.5 MW
and the contract nameplate is 49.8 MW. The SO4 Agreement requires SCE to make
capacity payments, capacity bonus payments and energy payments for the life of
the SO4 Agreement. The price for contract capacity payments is fixed. The energy
payments for the first ten-year period, which period expires on February 13,
1999, are levelized at a time period weighted average of 9.8 cents per kWh.
Thereafter, the monthly energy payments will be SCE's Avoided Cost of Energy.
The partnerships that own the Salton Sea Projects (the "Salton Sea
Partnerships") are parties to a secured credit facility with commercial banks.
The agreement provides for a $130 million term loan consisting of two tranches,
(i) tranche A (covers Units 1 and 2) in the original principal amount of $37
million with a final maturity date of March 15, 2000 and (ii) tranche B (covers
Unit 3) in the original principal amount of $93 million with a final maturity
date of January 31, 1999. In addition, the agreement provides for a renewable
working capital loan in the aggregate principal amount of $5 million with an
initial maturity date of February 27, 1995.
The Company currently relies on long-term power purchase contracts
(each, an SO4 Agreement) with a single customer, SCE, to generate substantially
all of its operating revenues from the Coso Projects and the Salton Sea
Projects. Any material failure by SCE to fulfill its contractual obligations
under any of such contracts is likely to have a material adverse effect on the
Company's results of operations.
Each of the Company's SO4 Agreements provides for both capacity
payments and energy payments for a term of between 20 and 30 years. During the
first ten years of the term of each SO4 Agreement, energy payments are based on
a pre-set schedule. Thereafter, while the basis for the capacity payment
remains the same, the required energy payment is SCE's then-current published
avoided cost of energy ("Avoided Cost of Energy"), as determined by the
California Public Utility Commission ("CPUC"). The initial ten-year period
expires in August 1997 for the Company's Navy I Project, March 1999 for its BLM
Project and January 2000 for its Navy II Project. Such ten-year period expires
in 1996 with respect to the Vulcan Project, in 1999 for Hoch, Elmore and Salton
Sea III Projects and in 2000 for the Leathers and Salton Sea II Projects.
Estimates of SCE's future Avoided Cost of Energy vary substantially in
any given year. The Company cannot predict the likely level of Avoided Cost of
Energy prices under its SO4 Agreements with SCE at the expiration of the
fixed-price periods. SCE's Avoided Cost of Energy as determined by the CPUC is
currently substantially below the current energy prices under the Company's
respective SO4 Agreements and is expected to remain so. For example, for
September 1994, the time period-weighted average of SCE's Avoided Cost of
Energy was 2.2(cent) per kWh, compared to the time period-weighted average
September 1994 selling prices for energy in the range of 10.9(cent) and
10.6(cent) per kWh, for the Company. Thus, the revenues generated by each of
the Company's facilities operating under SO4 Agreements are likely to decline
significantly after the expiration of the fixed-price period.
Yuma. During 1992, the Company acquired a development stage 50 MW
natural gas-fired cogeneration project in Yuma, Arizona (the "Yuma Project").
The Yuma Project is designed to be a QF under PURPA and to provide 50 MW of
electricity to San Diego Gas & Electric Company ("SDG&E") under an existing 30-
year power purchase contract. The electricity is sold at SDG&E's Avoided Cost of
Energy. The power is wheeled to SDG&E over transmission lines constructed and
owned by Arizona Public Service Company ("APS"). An agreement for
interconnection and a firm transmission service agreement have been executed
between APS and the Yuma Project entity and have been accepted for filing by the
Federal Energy Regulatory Commission ("FERC").
The Yuma Project commenced commercial operation in May 1994. The
project entity has executed steam sales contracts with an adjacent industrial
entity to act as its thermal host in order to maintain its status as a QF,
which is a requirement of its SDG&E contract. Since the industrial entity has
the right under its contract to terminate the agreement upon one year's notice
if a change in its technology eliminates its need for steam, and in any case to
terminate the agreement at any time upon three years notice, there can be no
assurance that the Yuma Project will maintain its status as a QF. However, if
the industrial entity terminates the agreement, the Company anticipates that it
will be able to locate an alternative thermal host in order to maintain its
status as a QF or build a greenhouse at the site for which the Company believes
it would obtain QF status. A natural gas supply and transportation agreement
has been executed with Southwest Gas Corporation, terminable under certain
circumstances by the Company and Southwest Gas Corporation. The Yuma Project is
unleveraged other than intercompany debt.
Roosevelt Hot Springs. The Company operates and owns an approximately
70% interest in a 25 MW geothermal steam field which supplies geothermal steam
to a power plant owned by Utah Power & Light Company ("UP&L") located on the
Roosevelt Hot Springs property under a 30-year steam sales contract. The Company
obtained approximately $20.3 million of cash under a pre-sale agreement with
UP&L whereby UP&L paid in advance for the steam produced by the steam field. The
Company must make certain penalty payments to UP&L if the steam produced does
not meet certain quantity and quality requirements.
Desert Peak. The Company is the owner and operator of a 10 MW geothermal
plant at Desert Peak, Nevada that is currently selling electricity to Sierra
Pacific Power Company under a power sales contract that expires December 31,
1995 and that may be extended on a year-to-year basis as agreed by the parties.
The price for electricity under this contract is 6.3 cents per kWh, comprising
an energy payment of 1.8 cents per kWh (which is adjustable pursuant to an
inflation-based index) and a capacity payment of 4.5 cents per kWh. The Company
is currently negotiating the terms of an extension to this contract.
Mammoth Plants. Magma receives royalty revenues from a 10 MW and a 12 MW
contract nameplate geothermal power plant (the "First Mammoth Plant" and the
"Second Mammoth Plant", respectively, and referred to herein, collectively, as
the "Mammoth Plants") at Mammoth Lakes, California. Electricity from the Mammoth
Plants is sold to SCE under two long-term power purchase agreements. The First
Mammoth Plant and the Second Mammoth Plant began commercial operation in 1985
and 1991, respectively. Magma leases both property and geothermal resources to
support the Mammoth Plants in return for certain base royalty and bonus royalty
payments. For the First Mammoth Plant and the Second Mammoth Plant, the base
royalty is 12.5% and 12%, respectively, of gross electricity sales revenues.
The bonus royalty for the Mammoth Plants is 50% of the excess of annual gross
electricity sales revenues over an annual revenue standard based on the Mammoth
Plants operating at 85% of contract capacity.
The East Mesa Plant. Magma also receives royalty revenues from a 37 MW
contract nameplate geothermal power plant (with two units) at East Mesa in
Imperial Valley, California (the "East Mesa Plant"). Electricity from the plant
is sold to SCE pursuant to two SO4 Agreements formerly held by Magma, and Magma
is entitled to receive a senior payment of 4% of gross electricity sales
revenues and a junior payment of 10% of gross electricity sales revenues. To
date, such junior payment has not been received.
PROJECTS IN DEVELOPMENT
The BRPU Process. Magma is seeking new long-term final standard offer
no. 4 power purchase agreements in the Salton Sea area through the bidding
process adopted by the CPUC under its 1992 Biennial Resource Plan Update
("BRPU"). In its 1992 BRPU, the CPUC cited the need for an additional 9,600 MW
of power production through 1999 among California's three investor-owned
utilities, SCE, SDG&E and Pacific Gas and Electric Company. Of this amount, 275
MW was set aside for bidding by independent power producers (such as Magma)
utilizing renewable resources. Pursuant to an order of the CPUC dated June 22,
1994 (confirmed on December 21, 1994), Magma was awarded 163 MW for sale to SCE
and SDG&E, with in-service dates in 1997 and 1998. On February 23, 1995 the
Federal Energy Regulatory Commission ("FERC") issued an order finding that the
CPUC's BRPU program violated PURPA and FERC's implementing regulations. The CPUC
is evaluating the impact of this order on the BRPU program and the CPUC has
issued an interim stay on the BRPU proceedings. The utilities are expected to
continue to challenge the BRPU and, in the light of the regulatory uncertainty,
there can be no assurance that power sales contracts will be executed or that
any such projects will be completed. A Magma subsidiary executed an agreement
with SCE on March 16, 1995 providing that in certain circumstances it would
withdraw its SCE BRPU bid in consideration for the payment of certain sums. Such
agreement does not effect Magma's award from SDG&E.
Fish Lake/Salton Sea 1 Expansion. The Salton Sea 1 Project has an option
to supply an additional 20 MW of power to SCE under the Salton Sea 1 PPA. Magma,
through its wholly-owned subsidiary, Fish Lake Power Company ("FLPC"), acquired
in 1992 a modified SO4 power purchase agreement (the "Fish Lake SO4") to supply
electric power to SCE from a 16 MW geothermal power plant proposed to be built
at Fish Lake in Esmeralda County, Nevada (the "Fish Lake Project").
The Fish Lake SO4 is a 30-year contract providing for a contract
capacity of 14 MW and a contract nameplate of 16 MW. The contract capacity
payment under the Fish Lake SO4 is levelized in the contract for the full
30-year term of the contract at $180 per kW-year. The capacity portion (plus
bonus capacity) of such revenues is levelized at approximately 2.5 cents per
kWh for 30 years (assuming a 90% nameplate capacity factor). The energy payment
thereunder is fixed for the first ten years starting at 10.2 cents per kWh in
1996 and escalates at an average annual rate of 3.9%. For years 11 through 15,
such energy payment is set at SCE's Avoided Cost of Energy, plus an additional
specified amount which decreases each year. For the last 15 years of the Fish
Lake SO4, the energy payment will be based on SCE's Avoided Cost of Energy.
On November 29, 1994, SCE filed an application with the CPUC seeking
approval for the proposed restructuring of (i) the Salton Sea 1 PPA and (ii)
the Fish Lake SO4, whereby the Fish Lake Project would not be developed at its
present site in Nevada's Fish Lake Valley and instead would be developed under
an amended and restated 30-year power purchase agreement (the "Amended PPA") in
conjunction with the Salton Sea 1 PPA. If approved, the Amended PPA will
consolidate the Salton Sea 1 Project Expansion with the Fish Lake Project. The
Amended PPA also would reduce the price for contract capacity payments to
$158/kW-year and would alter the energy payment schedule to commence in 1996 at
8.8 cents per kWh.
Newberry. Under a Bonneville Power Administration ("BPA") geothermal
pilot program, the Company is developing a 30 MW net geothermal project within
the Newberry Known Geothermal Resource Area of Deschutes County, Oregon (the
"Newberry Project"). Pursuant to two power sales contracts executed in September
1994, after the final environmental impact statement for the Newberry Project
was issued, the Company has agreed to sell 20 MW to BPA and 10 MW to Eugene
Water and Electric Board ("EWEB") from the Newberry Project. In addition, BPA
and EWEB together have an option to purchase up to an additional 100 MW of
production from the Newberry Project under certain circumstances. In a public-
private development effort, the Company is responsible for development,
permitting, financing, construction and operation of the project (which will be
100% owned by the Company), while EWEB will cooperate in the development efforts
by providing assistance with government and community affairs and sharing in
certain development costs (up to 30%). The Newberry Project is currently
expected to commence commercial operation in 1997. The power sales contracts
provide that under certain circumstances the contracts may be utilized at an
alternative location. Completion of the Newberry Project is subject to a number
of significant uncertainties and cannot be assured.
REGULATORY AND ENVIRONMENTAL MATTERS
Environmental Regulation. The Company is subject to a number of
environmental laws and regulations affecting many aspects of its present and
future operations, including the disposal of various forms of waste, the
construction or permitting of new facilities and the drilling and operation of
new wells. Such laws and regulations generally require the Company to obtain and
comply with a wide variety of licenses, permits and other approvals. The Company
also remains subject to a varied and complex body of regulations that both
public officials and private individuals may seek to enforce. There can be no
assurance that existing regulations will not be revised or that new regulations
will not be adopted or become applicable to the Company which could have an
adverse impact on its operations. The implementation of regulatory changes
imposing more comprehensive or stringent requirements of the Company, which
would result in increased compliance costs, could have a material adverse effect
on the Company's results of operations. In addition, regulatory compliance for
the construction of new facilities is a costly and time-consuming process, and
intricate and rapidly changing environmental regulations may require major
expenditures for permitting and create the risk of expensive delays or material
impairment of project value if projects cannot function as planned due to
changing regulatory requirements or local opposition.
Federal Energy Regulations. The principal federal regulatory legislation
relating to the Company's activities is PURPA. PURPA and associated state
legislation have conferred certain benefits on the independent power production
industry. In particular, PURPA exempts certain electricity producers
("Qualifying Facilities") from federal and state regulation as a public utility.
PURPA also requires utilities, such as SCE, to purchase electricity from
qualifying facilities at the particular utility's avoided cost.
Each of the Company's domestic projects meets the requirements
promulgated under PURPA to be Qualifying Facilities. Qualifying Facility status
under PURPA provides two primary benefits. First, regulations under PURPA
exempt qualifying facilities from the Public Utility Holding Company Act of
1935 ("PUHCA"), most provisions of the Federal Power Act (the "FPA") and state
laws concerning rates of electric utilities, and financial and organizational
regulations of electric utilities. Second, FERC's regulations promulgated under
PURPA require that (1) electric utilities purchase electricity generated by
Qualifying Facilities, the construction of which commenced on or after November
9, 1978, at a price based on the purchasing utility's full avoided cost; (2)
the electric utility sell back-up, interruptable, maintenance and supplemental
power to the Qualifying Facility on a non-discriminatory basis; and (3) the
electric utility interconnect with the Qualifying Facility in its service
territory.
EMPLOYEES
As of December 31, 1994, the Company employed approximately 278
people, of which approximately 149 people were employed at the Navy I, Navy II
and BLM Projects, collectively. The Coso Joint Ventures do not hire or retain
any employees. All employees necessary to the operation of the Coso Project are
provided by the Company under certain plant and field operations and
maintenance agreements.
ITEM 2. PROPERTIES
The Company's most significant physical properties are its twelve
operating power facilities described above and related real property interests.
The Company also maintains an inventory of more than 500,000 acres of
geothermal property leases. The Company owns a one-story office building in
Omaha, Nebraska, which currently houses its principal executive offices. The
Company recently signed an 8 year lease for new executive offices; the Company
expects to relocate its principal executive offices into the new facility in
May of 1995 and to sell or lease the building in which it is currently located.
Certain of the producing acreage owned by Magma is leased to Mammoth-Pacific as
owner and operator of the Mammoth Plants, and Magma, as lessor, receives
royalties from the revenues earned by such power plants. The Company, as
lessee, pays certain royalties and other fees to the property owners from the
revenue generated by the SSKGRA Plants.
Lessors are generally paid a monthly or annual rental payment during
the term of the lease unless and until the acreage goes into production, in
which case the rental typically stops and the (generally higher) royalty
payments begin. Leases of federal property are transacted with the Department
of Interior, Bureau of Land Management, pursuant to standard geothermal leases
under the Geothermal Steam Act and the regulations promulgated thereunder (the
"Regulations"), and are for a primary term of 10 years, extendible for an
additional five years if drilling is commenced within the primary term and is
diligently pursued for two successive five-year periods upon certain conditions
set forth in the Regulations. A secondary term of up to 40 years is available
so long as geothermal resources from the property are being produced or used in
commercial quantities. Leases of state lands may vary in form. Leases of
private lands vary considerably, since their terms and provisions are the
product of negotiations with the landowners.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER'S MATTERS
The Company. The Common Stock is listed on the NYSE under the symbol
"CE". The Common Stock is also listed on the Pacific Stock Exchange (the "PSE")
and the London Stock Exchange (the "LSE"). The following table sets forth the
quarterly high and low last reported sales price per share for the Common Stock,
as reported on the NYSE Composite Tape, based on published financial sources,
for the fiscal quarters indicated.
QUARTER HIGH LOW
1994:
Fourth 17.13 15.25
Third 17.75 16.00
Second 18.13 16.00
First 19.25 17.13
1993:
Fourth 20.13 18.13
Third 18.38 16.00
Second 20.13 17.25
First 21.50 16.50
As of March 13, 1995, there were approximately 1277 holders of record
of Common Stock. The Company's present policy is to retain earnings to provide
sufficient funds for the operation and expansion of its business. Accordingly,
the Company has not paid, and does not have any present plan to pay, cash
dividends on the Common Stock.
The agreements relating to Senior Discount Notes issued by the Company
prohibit the payment of dividends unless certain circumstances are present such
as the aggregate amount of all restricted payments by the Company, after giving
effect to the payment of such dividends, are less than 50% of the Company's
adjusted consolidated net income accumulated after March 30, 1994, plus the
proceeds of any stock issuance. Reference is made to the indenture relating to
the Senior Discount Notes for a detailed description of these restrictions.
The Certificate of Designation with respect to the Series C Preferred
Stock prohibits cash dividend payments with respect to the Common Stock unless
all accumulated dividends on the Series C Preferred Stock have been paid. The
Company elected to exchange its Subordinated Debentures for the Series C
Preferred Stock effective March 15, 1995.
The Company's ability to pay dividends is dependent upon receipt of
dividends or other distributions from the Company's subsidiaries and the
partnerships and joint ventures in which the Company has interests. The
availability of distributions from one of the Company's joint ventures is
subject to the satisfaction of various covenants and conditions contained in
the venture's financing documents and the Company anticipates that future
project level financings will contain certain conditions and similar
restrictions on the distribution of cash flow to the Company.
ITEM 6. SELECTED FINANCIAL DATA
There is hereby incorporated by reference the information which
appears under the caption "Selected Financial Data" in the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
There is hereby incorporated by reference the information which
appears under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operation" in the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
There is hereby incorporated by reference the information which
appears in the Consolidated Financial Statements and notes thereto in the
Annual Report. In 1995 the Company completed the acquisition of Magma Power
Company and concurrently received debt proceeds of $500 million and completed a
public offering of Common Stock, including an overallotment, and a direct sale
providing net proceeds of approximately $300 million. See the Consolidated
Financial Statements at footnote 17, "Subsequent Event."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is hereby incorporated by reference the information which
appears under the caption "Information Regarding Nominees for Election as
Directors, Directors Continuing in Office and Directors Retiring at the Annual
Meeting" in the Proxy Statement.
Set forth below are the current executive officers of the Company and
their positions with the Company:
Executive Officer Position
David L. Sokol Chairman of the Board and Chief Executive Officer
Thomas R. Mason President and Chief Operating Officer
Gregory E. Abel Vice President, Controller and Chief Accounting Officer
Edward F. Bazemore Vice President, Human Resources
David P. Maystrick Vice President, Construction
Vincent R. Fesmire Vice President, Domestic Development and Implementation
David W. Cox Vice President, Legislative and Regulatory Affairs
Steven A. McArthur Senior Vice President, General Counsel and Secretary
Donald M. O'Shei, Jr. Vice President, Indonesia
Donald M. O'Shei, Sr. Senior Vice President, Asia Division and President, California Energy
International Ltd.
John G. Sylvia Senior Vice President, Chief Financial Officer and Treasurer
Dale R. Schuster Vice President, Administration
Russ L. Tenney Vice President, International Operations
Set forth below is certain information with respect to each executive
officer of the Company other than Mr. Sokol (for whom information is
incorporated by reference from the Proxy Statement):
GREGORY E. ABEL, 32, Vice President, Controller and Chief Accounting
Officer. Mr. Abel joined the Company in 1992. Mr. Abel is a Chartered
Accountant and from 1984 to 1992 he was employed by Price Waterhouse. As a
Manager in the San Francisco office of Price Waterhouse, he was responsible for
clients in the energy industry.
EDWARD F. BAZEMORE, 58, Vice President, Human Resources. Mr. Bazemore
joined the Company in July 1991. From 1989 to 1991, he was Vice President,
Human Resources, at Ogden Projects, Inc. in New Jersey. Prior to that, Mr.
Bazemore was Director of Human Resources for Ricoh Corporation, also in New
Jersey. Previously, he was Director of Industrial Relations for Scripto, Inc.
in Atlanta, Georgia.
DAVID W. COX, 39, Vice President, Legislative and Regulatory Affairs. Mr.
Cox joined the Company in 1990. From 1987 to 1990, Mr. Cox was a Vice President
with Bank of America N.T. & S.A. in the Consumer Technology and Finance Group.
From, 1984 to 1987, Mr. Cox held a variety of management positions at First
Interstate Bank.
VINCENT R. FESMIRE, 54, Vice President, Domestic Development and
Implementation. Mr. Fesmire joined the Company in October 1993. In January 1995
Mr. Fesmire's responsibilities were realigned to provide a concentrated focus
on the critical domestic development projects that were in part obtained with
the Magma Power Company Acquisition. Prior to joining the Company, Mr. Fesmire
was employed for 19 years with Stone & Webster, a engineering firm, serving in
various management level capacities with an expertise in geothermal design
engineering.
THOMAS R. MASON, 51, President and Chief Operating Officer of the Company.
Mr. Mason joined the Company in March 1991. From October 1989 to March 1991,
Mr. Mason was Vice President and General Manager of Kiewit Energy Company.
Prior to that Mr. Mason was Director of Marketing for Energy Factors, Inc. (now
Sithe Energies U.S.A., Inc.), a non-utility developer of power facilities.
Prior to that Mr. Mason was a worldwide Market Manager of power generation for
Solar Gas Turbines, a gas turbine manufacturer.
DAVID P. MAYSTRICK, 43, Vice President, Construction. Mr. Maystrick joined
the Company in April 1994. From 1978 to 1994 Mr. Maystrick was employed as
Senior Project Manager with HDR Engineering, Inc. and was responsible for
implementing and monitoring several full service contracts to design, construct
and operate electric and steam generating facilities. From 1974 to 1977 Mr.
Maystrick was a design engineer of fossil fuel and nuclear power plants at
Gibbs & Hill, Inc.
STEVEN A. MCARTHUR, 37, Senior Vice President, General Counsel and
Secretary. Mr. McArthur joined the Company in February 1991. From 1988 to 1991
he was an attorney in the Corporate Finance Group at Shearman & Sterling in San
Francisco. From 1984 to 1988 he was an attorney in the Corporate Finance Group
at Winthrop, Stimson, Putnam & Roberts in New York.
DONALD M. O'SHEI, JR., 35, Vice President, Indonesia. Mr. O'Shei joined
the Company in August 1992. Prior to Mr. O'Shei's appointment to Vice
President, Indonesia he served as a Financial Analyst, Project Development
Manager and Vice President of CE International Investments, Ltd. for the
Company. From 1991 to 1992 he was employed by Proven Alternatives Capital
Corporation as a Financial Analyst. Prior to 1991, Mr. O'Shei served in the
U.S. Army in the Special Forces, Airborne and Pathfinder Units.
DONALD M. O'SHEI, SR., 61, Senior Vice President; Asia Division and
President, California Energy International Ltd. General O'Shei was in charge of
engineering and operations for the Company from October 1988 until October
1991. He rejoined the Company as a Vice President in August, 1992. Previously
he was President and Chief Executive Officer of AWD Technologies, Inc., a
hazardous waste remediation firm, and President and General Manager of its
predecessor company, Atkinson-Woodward Clyde. He was a brigadier general in the
U.S. Army prior to joining the Guy F. Atkinson Co. in 1982 as Director of
Corporate Planning and Development.
JOHN G. SYLVIA, 36, Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Sylvia joined the Company in 1988. From 1985 to 1988, Mr. Sylvia
was a Vice President in the San Francisco office of the Royal Bank of Canada,
with responsibility for corporate and capital markets banking. From 1986 to
1990, Mr. Sylvia served as an Adjunct Professor of Applied Economics at the
University of San Francisco. From 1982 to 1985, Mr. Sylvia was a Vice President
with Bank of America.
DALE R. SCHUSTER, 42, Vice President, Administration. Mr. Schuster joined
the Company in July 1994. From 1991 until joining the Company he was Senior
Vice President and General Manager of AutoInfo, Inc., a software development
and information systems company, and prior to that, Vice President and General
Manager of ValCom, Inc.
RUSS L. TENNEY, 41, Vice President, International Operations. Mr. Tenney
joined the Company in January 1995. Prior to that he was employed by Magma
Power Company and its affiliates in various capacities from 1981 to 1995. He
was Vice President, Asian Operations from February 1994 to January 1995; Vice
President, Project Development and Project Management from 1992 to 1994; Vice
President, Technology and Capital Projects from 1989 to 1992; President and
General Manager of Red Hill Geothermal, Inc., a subsidiary of Magma Power
Company from 1986 to 1989; and Manager of Operations from 1983 to 1986.
David L. Sokol filed a Form 5 with respect to one transaction
involving the purchase of 10,000 shares of the Company's Common Stock on
December 6, 1995. Dale R. Schuster filed a late Form 4 on January 26, 1995 with
respect to one transaction involving the December 5, 1994 grant of options to
acquire 5,000 shares of the Company's Common Stock. The late filing resulted
from clerical errors in the Company's legal department.
ITEM 11. EXECUTIVE COMPENSATION
There is hereby incorporated by reference the information which
appears under the caption "Executive Officer and Director Compensation" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is hereby incorporated by reference the information which
appears under the caption "Security Ownership of Significant Stockholders and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is hereby incorporated by reference the information which
appears under the caption "Certain Transactions and Relationships" in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedule
(i) Financial Statements
Filed herewith are the consolidated balance sheets
of California Energy Company, Inc. and subsidiaries as of December 31, 1994,
and December 31, 1993, and the consolidated statements of operations, cash
flows and stockholder's equity for the years ended December 31, 1994, 1993 and
1992, and the related report of independent auditors.
(ii) Financial Statement Schedule
Independent Auditor's Report on Schedule I,
Financial Statements of the Company (Parent Company only)
The other financial statement schedules are either not
required for the Company or are included at the notes to the financial
statements.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on October 6,
1994 reporting the commencement of a tender offer for 12,400,000 shares of
common stock of Magma.
The Company filed a Current Report on Form 8-K on October 21,
1994 reporting the increase in the offering price per share for Magma common
stock pursuant to the tender offer from $35.00 to $38.50.
The Company filed a Current Report on Form 8-K on November
15, 1994 reporting the execution of the Philippine Casecnan Project Agreement
with the Philippine National Irrigation Administration for a combined
hydroelectric and irrigation project and the award of a project at the Dieng
Geothermal Field in Central Java, Indonesia.
The Company filed a Current Report on Form 8-K on December 2,
1994 reporting the execution of a Joint Operating Contract and Energy Sales
Contract with Pertamina and PLN for a facility at the Patuha Geothermal Field
in West Java and at the previously announced Dieng Geothermal Field in Central
Java.
The Company filed a Current Report on Form 8-K on December 9,
1994 reporting the execution of an Agreement and Plan of Merger between the
Company, CE Acquisition Company, Inc. and Magma.
(c) Exhibits
The exhibits listed on the accompanying Exhibit Index (except
in the case of Exhibit 13.0, in which case only the portion of the Annual
Report which constitutes the Company's Consolidated Financial Statements and
notes thereto) are filed as part of this Annual Report.
For the purposes of complying with the amendments to the
rules governing Form S-8 effective July 13, 1990 under the Securities Act of
1933, the undersigned Registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the Company's currently
effective Registration Statements on Form S-8:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer of controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha,
State of Nebraska, on this 15th day of March, 1995.
CALIFORNIA ENERGY COMPANY, INC.
/s/ DAVID L. SOKOL*
By David L. Sokol
President and Chief Executive Officer
By: /s/ Steven A. McArthur
Steven A. McArthur
Attorney-in-Fact
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Date
/s/ David L. Sokol* March 15, 1995
David L. Sokol
Chairman of the Board,
Chief Executive Officer, and
Director
/s/ John G. Sylvia March 15, 1995
John G. Sylvia,
Senior Vice President,
Chief Financial Officer, and
Treasurer
*By:/s/ Steven A. McArthur March 15, 1995
Steven A. McArthur
Attorney-in-Fact
/s/ Edgar D. Aronson* March 15, 1995
Edgar D. Aronson
Director
/s/ Judith E. Ayres* March 15, 1995
Judith E. Ayres
Director
/s/ James Q. Crowe* March 15, 1995
James Q. Crowe
Director
/s/ Richard K. Davidson* March 15, 1995
Richard K. Davidson
Director
/s/ Richard R. Jaros* March 15, 1995
Director
/s/ Ben Holt* March 15, 1995
Ben Holt
Director
/s/ Everett B. Laybourne* March 15, 1995
Everett B. Laybourne
Director
/s/ Herbert L. Oakes, Jr.* March 15, 1995
Herbert L. Oakes, Jr.
Director
/s/ Walter Scott, Jr.* March 15, 1995
Walter Scott, Jr.
Director
/s/ Barton W. Shackelford* March 15, 1995
Barton W. Shackelford
Director
/s/ David E. Wit* March 15, 1995
David E. Wit
Director
*By:/s/ Steven A. McArthur March 15, 1995
Steven A. McArthur
Attorney-in-Fact
EXHIBIT INDEX
3.1 The Company's Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 of the Company's Form 10-K for the year ended December
31, 1992, File No. 1-9874 (the "1992 Form 10-K")).
3.2 Certificate of Amendment of the Company's Restated Certificate of
Incorporation, dated June 23, 1993 (incorporated by reference to the Company's
Form 8-A, dated July 28, 1993, File No. 1-9874 ("Form 8-A")).
3.3 Certificate of Amendment of the Company's Restated Certificate of
Incorporation dated, February 23, 1995.
3.4 The Company's Certificate of Designation with respect to the Company's
Series C Redeemable Convertible Exchangeable Preferred Stock, dated November
20, 1991, including a form of the 9.5% Convertible Subordinated Debentures due
2003 (incorporated by reference to Exhibit 3.1 of the Company's 1992 Form
10-K).
3.5 The Company's By-Laws as amended through February 24, 1995.
4.1 Specimen copy of form of Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Form 10-K for the year ended December
31, 1993, File No. 1-9874 (the "1993 Form 10-K")).
4.2 Shareholders Rights Agreement between the Company and Manufacturers
Hanover Trust Company of California dated December 1, 1988 (incorporated by
reference to Exhibit 1 to Company's Form 8-K dated December 5, 1988, File No.
1-9874).
4.3 Amendment Number 1 to Shareholder Rights Agreement, dated February 15,
1991 (incorporated by reference to Exhibit 4.2 to the Company's 1992 Form
10-K).
4.4 Note Purchase Agreement between the Company and Principal Mutual Life
Insurance Company dated March 15, 1988 (incorporated by reference to Exhibit 1
to Company's Form 8-K dated April 11, 1988).
4.5 Defeasance Agreement between Principal Mutual Life Insurance Company
and the Company dated March 24, 1994 (incorporated by reference to Exhibit 4.5
to the Company's 1993 Form 10-K).
4.6 Consent and Agreement between Principal Mutual Life Insurance Company
and the Company dated March 24, 1994 (incorporated by reference to Exhibit 4.6
to the Company's 1993 Form 10-K).
4.7 Escrow Deposit Agreement between Bank of American National Trust and
Savings Association and the Company dated March 3, 1994 (incorporated by
reference to Exhibit 4.7 to the Company's 1993 Form 10-K).
10.1 Joint Venture Agreement for China Lake Joint Venture between the
Company and Caithness Geothermal 1980 Ltd., restated as of January 1, 1984
(incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, 33-7770).
10.2 Amended Joint Venture Agreement for Coso Land Company between the
Company and Caithness Geothermal 1980 Ltd., dated as of June 1, 1983
(incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1, 33-7770).
10.3 Amended General Partnership Agreement for Coso Finance Partners
between China Lake Operating Company and ESCA I L.P. dated July 13, 1988
(incorporated by reference to Exhibit 10.3 to the Company's 1992 Form 10-K).
10.4 First Supplemental Amendment to the Amended and Restated General
Partnership Agreement for Coso Finance Partners between China Lake Operating
Company and ESCA L.P. (Undated) (incorporated by reference to Exhibit 10.4 to
the Company's 1992 Form 10-K).
10.5 Second Supplemental Amendment to the Amended and Restated General
Partnership Agreement for Coso Finance Partners between China Lake Operating
Company and ESCA L.P. dated as of July 13, 1988 (incorporated by reference to
Exhibit 10.5 to the Company's 1992 Form 10-K).
10.6 Third Supplemental Amendment to the Amended and Restated General
Partnership Agreement for Coso Finance Partners between China Lake Operating
Company and ESCA L.P. dated as of December 16, 1992 (incorporated by reference
to Exhibit 10.6 to the Company's 1992 Form 10-K).
10.7 General Partnership Agreement for Coso Finance Partners II between
China Lake Geothermal Management Company and ESCA II L.P. dated July 7, 1987
(incorporated by reference to Exhibit 10.7 to the Company's 1992 Form 10-K).
10.8 Restated General Partnership Agreement for Coso Energy Developers
between Coso Hotsprings Intermountain Power Inc. and Caithness Coso Holdings
L.P. dated as of March 31, 1988 (incorporated by reference to Exhibit 10.8 to
the Company's 1992 Form 10-K).
10.9 First Amendment to the Restated General Partnership Agreement for
Coso Energy Developers between Coso Hotsprings Intermountain Power, Inc. and
Caithness Coso Holdings, L.P. dated as of March 31, 1988 (incorporated by
reference to Exhibit 10.9 to the Company's 1992 Form 10-K).
10.10 Second Amendment to the Restated General Partnership Agreement for
Coso Energy Developers between Coso Hotsprings Intermountain Power, Inc. and
Caithness Coso Holdings L.P. dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.10 to the Company's 1992 Form 10-K).
10.11 Amended and Restated General Partnership Agreement for Coso Power
Developers between Coso Technology Corporation and Caithness Navy II Group L.P.
dated July 31, 1989 (incorporated by reference to Exhibit 10.11 to the
Company's 1992 Form 10-K).
10.12 First Amendment to the Amended and Restated General Partnership for
Coso Power Developers between Coso Technology Corporation and Caithness Navy II
Group L.P. dated as of March 19, 1991 (incorporated by reference to Exhibit
10.12 to the Company's 1992 Form 10-K).
10.13 Second Amendment to the Amended and Restated General Partnership
Agreement for Coso Power Developers between Coso Technology Corporation and
Caithness Navy II Group L.P. dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.13 to the Company's 1992 Form 10-K).
10.14 Form of Amended and Restated Field Operation and Maintenance
Agreement between Coso Joint Ventures and the Company dated as of December 16,
1992 (incorporated by reference to Exhibit 10.14 of the Company's 1992 Form
10-K).
10.15 Form of Amended and Restated Project Operation and Maintenance
Agreement between Coso Joint Venture and the Company dated as of December 16,
1992 (incorporated by reference to Exhibit 10.15 to the Company's 1992 Form
10-K).
10.16 Trust Indenture between Coso Funding Corp. and Bank of America
National Trust and Savings Association dated as of December 16 1992
(incorporated by reference to Exhibit 10.16 to the Company's 1992 Form 10-K).
10.17 Form of Amended and Restated Credit Agreement between Coso Funding
Corp. and Coso Joint Ventures dated as of December 16, 1992 (incorporated by
reference to Exhibit 10.17 to the Company's 1992 Form 10-K).
10.18 Form of Support Loan Agreement among Coso Joint Ventures dated
December 16, 1992 (incorporated by reference to Exhibit 10.18 to the Company's
1992 Form 10-K).
10.19 Form of Project Loan Pledge Agreement between Coso Joint Ventures
and Bank of America National Trust and Savings dated as of December 16, 1992
(incorporated by reference to Exhibit 10.19 to the Company's 1992 Form 10-K).
10.20 Power Purchase Contracts between Southern California Edison Company
and:
(a) China Lake Joint Venture, executed June 4, 1984 with a term of 24
years;
(b) China Lake Joint Venture, executed February 1, 1985 with a term of 23
years; and
(c) Coso Geothermal Company, executed February 1, 1985 with a term of 30
years (incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1, 33-7770).
10.21 Contract No. N62474-79-C-5382 between the United States of America
and China Lake Joint Venture, restated October 19, 1983 as "Modification
P00004," including modifications through "Modification P00026", dated December
16, 1992 (the "Navy Contract")(incorporated by reference to Exhibit 10.21 to
the Company's 1992 Form 10-K).
10.22 Modification to Contract No. P00028, dated June 28, 1993,
Modification to Contract No. P00029, dated October 4, 1994 and Modification to
Contract No. P00031, dated December 19, 1994 all amending the Navy Contract.*
10.23 Lease between the BLM and Coso Land Company, effective November 1,
1985 (with Designation of Geothermal Operator) (incorporated by reference to
Exhibit 10.8 to the Company's Registration Statement on Form S-1, 33-7770).
10.24 Stock Purchase Agreement between the Company and Kiewit Energy
Company dated as of February 18, 1991, as amended as of June 19, 1991
(incorporated by reference to Exhibit 1 to the Company's Form 8-K dated
February 26, 1991).
10.25 Amendment No. 2 to Stock Purchase Agreement between Kiewit Energy
Company and the Company dated as of January 8, 1992 (incorporated by reference
to Exhibit 10.24 to the Company's 1992 Form 10-K).
10.26 Amendment No. 3 to Stock Purchase Agreement between Kiewit Energy
Company and the Company dated as of April 2, 1993 (incorporated by reference to
Exhibit 10.25 to the Company's 1993 Form 10-K).
10.27 Shareholders Agreement between the Company and Kiewit Energy Company
dated as of February 18, 1991, as amended as of June 19, 1991 and as of
November 20, 1991 (incorporated by reference to Exhibit 1 to the Company's Form
8-K dated February 26, 1991, Exhibit 1 to the Company's Form 8-K dated July 18,
1992, and Exhibit 3 to the Company's Form 8-K dated November 23, 1991).
10.28 Amendment No. 3 to Shareholder's Agreement between the Company and
Kiewit Energy Company dated as of April 2, 1993 (incorporated by reference to
Exhibit 14 to the Company's Form 8-A).
10.29 Amendment No. 4 to Shareholder's Agreement between the Company and
Kiewit Energy Company dated as of July 20, 1993 (incorporated by reference to
Exhibit 10.28 to the Company's 1993 Form 10-K).
10.30 Registration Rights Agreement between the Company and Kiewit Energy
Company dated as of February 18, 1991, as amended as of June 19, 1991
(incorporated by reference to Exhibit 1 to the Company's Form 8-K dated
February 26, 1991, and Exhibit 1 to the Company's Form 8-K dated July 18,
1992).
10.31 Registration Rights Agreement between the Company and Kiewit Energy
Company dated June 19, 1991, as amended November 20, 1991 (incorporated by
reference to Exhibit 1 of the Company's Form 8-K dated June 19, 1991 and
Exhibit 4 to the Company's Form 8-K dated November 21, 1991).
10.32 Stock Option Agreement between the Company and Kiewit Energy Company
dated as of February 18, 1991, as amended as of June 19, 1991 (incorporated by
reference to Exhibit 1 to the Company's Form 8-K dated February 26, 1991, and
Exhibit 1 to the Company's Form 8-K dated July 18, 1992).
10.33 Amendment No. 2 to Stock Option Agreement between the Company and
Kiewit Energy Company dated as of May 12, 1994.*
10.34 Stock Option Agreement between the Company and Kiewit Energy Company
dated as of June 19, 1991 (incorporated by reference to Exhibit 1 to the
Company's Form 8-K dated July 18, 1991).
10.35 Securities Purchase Agreement between the Company and Kiewit Energy
Company dated as of November 20, 1991 (incorporated by reference to Exhibit 2
to the Company's Form 8-K dated November 21, 1991).
10.36 Sublease between the Company and Kiewit Energy Company dated March
15, 1991 (incorporated by reference to Exhibit 10.32 to the Company's 1992 Form
10-K).
10.37 Amended and Restated 1986 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.33 to the Company's 1992 Form 10-K).
10.38 1994 Employee Stock Purchase Plan (incorporated by reference
to Exhibit A to the Company's 1994 Proxy Statement).
10.39 Indenture between the Company and The Chemical Trust Company of
California dated as of June 24, 1993 (incorporated by reference to the
Company's Form 8-K dated June 24, 1993, File No. 1-9874).
10.40 Registration Rights Agreement among the Company, Lehman Brothers,
Inc. and Alex Brown & Sons Incorporated dated June 24, 1993 (incorporated by
reference to the Company's Form 8-K dated June 24, 1993, File No. 1-9874).
10.41 Indenture dated March 24, 1994 between the Company and IBJ Schroder
Bank and Trust Company (incorporated by reference to Exhibit 3 to the Company's
Form 8-K dated March 28, 1994).
10.42 Employment Agreement between the Company and David L. Sokol dated as
of April 2, 1993 (incorporated by reference to Exhibit 10.40 to the Company's
1993 Form 10-K).
10.43 Amendment No. 1 to the Employment Agreement between the Company and
David L. Sokol dated as of January 21, 1995.*
10.44 Termination Agreement between the Company and Richard R. Jaros dated
as of December 9, 1993 (incorporated by reference to Exhibit 10.41 to the
Company's 1993 Form 10-K).
10.45 Employment Agreement between the Company and Thomas R. Mason dated
as of January 21, 1995.*
10.46 Standard Offer Number 2, Standard Offer for Power Purchase with a
Firm Capacity Qualifying Facility effective June 15, 1990 ("SO2") between San
Diego Gas & Electric Company and Bonneville Pacific Corporation (incorporated
by reference to Exhibit 10.42 to the Company's 1993 Form 10-K).
10.47 Amendment Number One to the SO2 dated September 25, 1990
(incorporated by reference to Exhibit 10.43 to the Company's 1993 Form 10-K).
10.48 Joint Venture Agreement among the Company, Kiewit Diversified Group
Inc. and Kiewit Construction Group Inc. dated December 14, 1993 (incorporated
by reference to Exhibit 10.44 to the Company's 1993 Form 10-K).
10.49 Agreement and Plan of Merger between the Company, CE Acquisition
Company, Inc. and Magma dated December 5, 1994 (incorporated by reference to
(c)(3) to Exhibit 99.1 to the Company's Current Report on Form 8-K dated
December 9, 1994).
10.50 Non-Recourse Credit Agreement dated February 24, 1995 by and among
the Company, the Banks and other Financial Institutions Parties thereto, and
Credit Suisse, as Agent.*
10.51 Standard Offer No. 4 Power Purchase Agreement (Elmore), dated June
15, 1984, between Southern California Edison Company and Magma Electric Company
including Amendments No. 1 and No. 2 (incorporated by reference to Exhibit
10.14 to Magma Power Company's Amendment No. 1 to Registration Statement Form
S-4 dated February 2, 1988, ("Magma 1988 Form S-4")).
10.52 Standard Offer No. 4 Power Purchase Agreement (Del Ranch) dated
February 22, 1984, between Southern California Edison Company and Imperial
Energy Corporation, including Amendments No. 1 and No. 2 (incorporated by
reference to Exhibit 10.15 to the Magma 1988 Form S-4).
10.53 Standard Offer No. 4 Power Purchase Agreement (Vulcan), dated June
15, 1984, between Southern California Edison Company and Magma Electric Company
including Amendment No. 1 (incorporated by reference to Exhibit 10.16 to the
Magma 1988 Form S-4).
10.54 Standard Offer No. 4 Power Purchase Agreement (River Ranch), dated
April 16, 1985, between Southern California Edison Company and Imperial Energy
Corporation, including Amendment No. 1 (incorporated by reference to Exhibit
10.20 to the Magma 1988 Form S-4).
10.55 Partnership Agreement dated August 30, 1985 between Vulcan Power
Company and BN Geothermal, Inc. (incorporated by reference to Exhibit 10.88 to
the Magma Power Company's Form 8 Amendment (dated December 18, 1990) to Magma
Power Company's Form 10-K for the year ended December 31, 1989 ("Magma Form
8")).
10.56 Amended and Restated Limited Partnership Agreement of Del Ranch,
Ltd., a California Limited Partnership, dated March 14, 1988 by and among Red
Hill Geothermal, Inc. and Conejo Energy Company, as General Partners, and Magma
Power Company and Conejo Energy Company, as Original Limited Partners
(incorporated by reference to Exhibit 10.53 to the Magma Power Company Annual
Report on Form 10-K for the year ended December 31, 1987, File No. 0-10533
("1987 Magma Form 10-K")).
10.57 Limited Partnership Agreement of Leathers, L.P., dated August 15,
1988 by and among Red Hill Geothermal, Inc. and San Felipe Energy Company, as
General Partners, and Magma Power Company and San Felipe Energy Company, as
Limited Partners (incorporated by reference to Exhibit 10.79 to the Magma Power
Company Annual Report on Form 10-K for the year ended December 31, 1988, File
No. 0-10533 ("1988 Magma Form 10-K")).
10.58 Amended and Restated Limited Partnership Agreement of Elmore, Ltd.,
a California Limited Partnership, dated March 14, 1988 by and among Red Hill
Geothermal, Inc. and Niguel Energy Company, as General Partners, and Magma
Power Company and Niguel Energy Company, as Original Limited Partners
(incorporated by reference to Exhibit 10.55 to the 1987 Magma Form 10-K).
10.59 Operating and Maintenance Agreement dated March 14, 1988 by and
between Red Hill Geothermal, Inc. and Del Ranch, Ltd., a California Limited
Partnership (incorporated by reference to Exhibit 10.56 to the 1987 Magma Form
10-K).
10.60 First Amendment to Operating and Maintenance Agreement dated as of
April 14, 1989 between Red Hill Geothermal, Inc. and Del Ranch L.P. and the
Second Amendment to the Operating and Maintenance Agreement dated April 18,
1990.*
10.61 Operating and Maintenance Agreement dated August 15, 1988 by and
between Red Hill Geothermal, Inc. and Leathers, L.P. (incorporated by reference
to Exhibit 10.84 to the 1988 Magma Form 10-K).
10.62 First Amendment to Operating and Maintenance Agreement dated as of
April 14, 1989 between Red Hill Geothermal, Inc. and Leathers, L.P. and the
Second Amendment to the Operating and Maintenance Agreement dated April 18,
1990.*
10.63 Operating and Maintenance Agreement dated March 14, 1988 by and
between Red Hill Geothermal, Inc. and Elmore, Ltd., a California Limited
Partnership (incorporated by reference to Exhibit 10.57 to the 1987 Magma Form
10-K).
10.64 First Amendment to the Operating and Maintenance Agreement dated as
of April 14, 1988 between Red Hill Geothermal, Inc. and Elmore, Ltd., a
California Limited Partnership and the Second Amendment to the Operating and
Maintenance Agreement dated April 18, 1990.*
10.65 Brine Sales Agreement dated August 30, 1985 between Vulcan Power
Company and Vulcan/BN Geothermal Power Company (incorporated by reference to
Exhibit 10.90 to the Magma Power Company Form 8 Amendment (dated December 18,
1990) to the Magma Power Company Form 10-K for the year ended December 31,
1989).
10.66 Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated March 14, 1988 by and between Magma Power Company and Del
Ranch, Ltd., a California Limited Partnership (incorporated by reference to
Exhibit 10.58 to the 1987 Magma Form 10-K).
10.67 Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated August 15, 1988 by and between Magma Power Company and
Leathers, L.P. (incorporated by reference to the 1988 Magma Form 10-K).
10.68 Easement Grant Deed and Agreement Regarding Rights for Geothermal
Development dated March 14, 1988 by and between Magma Power Company and Elmore,
Ltd., a California Limited Partnership (incorporated by reference to Exhibit
10.59 to the 1987 Magma Form 10-K).
10.69 Administrative Services Agreement dated March 14, 1988 by and
between Red Hill Geothermal, Inc. and Del Ranch, Ltd., a California Limited
Partnership (incorporated by reference to the 1987 Magma Form 10-K).
10.70 Administrative Services Agreement dated August 15, 1988 by and
between Red Hill Geothermal, Inc. and Leathers, L.P. (incorporated by reference
to Exhibit 10.82 to the 1988 Magma Form 10-K).
10.71 Administrative Services Agreement dated March 14, 1988 by and
between Red Hill Geothermal Inc. and Elmore, Ltd., a California Limited
Partnership (incorporated by reference to Exhibit 10.63 to the 1987 Magma Form
10-K).
10.72 Amended and Restated Credit Agreement dated as of April 18, 1990
among Del Ranch, Ltd. a California Limited Partnership, the Banks Listed
therein, and Morgan Guaranty Trust Company of New York, as Agent.*
10.73 LOC Debt Facility Agreement dated as of April 18, 1990 among Del
Ranch, Ltd., a California Limited Partnership, the Banks listed therein, Morgan
Guaranty Trust Company of New York as the Agent and Fuji Bank, Limited, Los
Angeles Agency, as Fronting Bank.*
10.74 Security Agreement dated March 14, 1988 among Del Ranch, Ltd., a
California Limited Partnership, Morgan Guaranty Trust Company of New York, as
Agent for and on behalf of the Banks, Morgan Guaranty Trust Company of New
York, and Morgan Guaranty Trust Company of New York, as Security Agent
(incorporated by reference to the 1987 Magma Form 10-K).
10.75 Amendment Number One to Security Agreement dated as of April 14, 1989,
and Amendment Number Two to the Security Agreement dated April 18,
1990 among Del Ranch, Ltd., a California Limited Partnership, Morgan
Guaranty Trust Company of New York, as Agent for and on behalf of the
Banks, Morgan Guaranty Trust Company of New York and Morgan Guaranty
Trust Company of New York as Security Agent.*
10.76 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing Construction Deed of Trust dated as of March 14, 1988 among Del
Ranch, Ltd., a California Limited Partnership, Ticor Title Insurance
Company of California, and Morgan Guaranty Trust Company of New York
as Security Agent (incorporated by reference to the 1987 Magma Form
10-K).
10.77 First Amendment to the Deed of Trust, dated April 18, 1990 between
Del Ranch, Ltd. and Morgan Guaranty Trust Company of New York.*
10.78 Amended and Restated Credit Agreement dated as of April 18, 1990
among Elmore, Ltd., a California Limited Partnership, the Banks Listed
therein,
and Morgan Guaranty Trust Company of New York, as Agent.*
10.79 LOC Debt Facility Agreement dated as of April 18, 1990 among Elmore,
Ltd., a California Limited Partnership, the Banks listed therein,
Morgan Guaranty Trust Company of New York as Agent and Fuji Bank,
Limited, Los Angeles Agency, as Fronting Bank.*
10.80 Security Agreement dated March 14, 1988 among Elmore, Ltd., a
California Limited Partnership, Morgan Guaranty Trust Company of New
York, as Agent for and on behalf of the Banks, Morgan Guaranty Trust
Company of New York, and Morgan Guaranty Trust Company of New York, as
Security Agent (incorporated by reference to Exhibit 10.71 to the 1987
Magma Form 10-K).
10.81 Amendment Number One to Security Agreement dated as of April 14, 1989
among Elmore Ltd and Morgan Guaranty Trust Company of New York and
Amendment Number Two to Security Agreement dated April 18, 1990 among
Elmore, L.P., Morgan Guaranty Trust Company of New York, as Agent, on
behalf of the Banks.*
10.82 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing Construction Deed of Trust dated as of March 14, 1988 among
Elmore, Ltd., a California Limited Partnership, Ticor Title Insurance
Company of California, and Morgan Guaranty Trust Company of New York
as Security Agent (incorporated by reference to Exhibit 10.73 to the
1987 Magma Form 10-K).
10.83 First Amendment to Deed of Trust dated April 18, 1990 between
Elmore, Ltd. and Morgan Guaranty Trust Company of New York, as
Security Agent.*
10.84 Amended and Restated Credit Agreement dated April 18, 1990 among
Leathers L.P. and the Banks listed therein and Morgan Guaranty Trust
Company of New York as Agent.*
10.85 Security Agreement dated March 14, 1988 among Leathers L.P., a
California Limited Partnership, Morgan Guaranty Trust Company of New
York, as Agent for and on behalf of the Banks, Morgan Guaranty Trust
Company of New York, and Morgan Guaranty Trust Company of New York, as
Security Agent, Amendment Number One to Security Agreement dated as of
April 14, 1989 and Amendment Number Two to Security Agreement dated as
of April 18, 1990.*
10.86 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing Construction Deed of Trust dated as of March 14, 1988 among
Leathers, L.P., a California Limited Partnership, Ticor Title
Insurance Company of California, and Morgan Guaranty Trust Company of
New York as Security Agent and First Amendment to Deed of Trust dated
April 18, 1990.*
10.87 LOC Debt Facility Agreement dated as of April 18, 1990 among Leathers,
L.P., a California Limited Partnership, the Banks listed therein,
Morgan Guaranty Trust Company of New York as Agent and Fuji Bank,
Limited, Los Angeles Agency, as Fronting Bank.*
10.88 Loan Agreement dated as of October 1, 1990 between California
Pollution Control Financing Authority and Desert Valley Company,
relating to the California Pollution Control Financing Authority
Pollution Control Revenue Bonds Small Business Series 1990-A (the
"$4,000,000 Monofill Bond Financing") (incorporated by reference to
Exhibit 10.92 to the Magma Power Company Form 10-K for the year ended
December 31, 1990, File No. 0-10533 (the "1990 Magma Form 10-K")).
10.89 Master Reimbursement Agreement dated as of October 1, 1990, by and
among the California Pollution Control Financing Authority, Desert
Valley Company and the Sanwa Bank, Limited, Los Angeles Branch,
relating to the $4,000,000 Monofill Bond Financing (incorporated by
reference to Exhibit 10.93 to the 1990 Magma Form 10-K).
10.90 Sale and Purchase Agreement between Union Oil Company of California
and Magma Power Company effective as of December 31, 1992
(incorporated by reference to Exhibit 10.97 to the Magma Power
Company Form 8 dated June 2, 1993).
10.91 Contract for the Purchase and Sale of Electric Power (Unit 1) from the
Salton Sea Geothermal Generating Facility between Southern California
Edison Company and Earth Energy, Inc., dated May 8, 1987, including
Amendment No. 1 to such contract, dated March 30, 1993 (incorporated
by reference to Exhibit 10.101 to the Magma Power Company Form 10-K
for the year ended December 31, 1993, File No. 0-10533, (the "1993
Magma Form 10-K")).
10.92 Power Purchase Contract (Unit 2) by and between Southern California
Edison Company and Westmoreland Geothermal Associates, dated April
16, 1985, including Amendment No. 1 to such contract, dated
December 18, 1987 (incorporated by reference to Exhibit 10.102 to
the 1993 Magma Form 10-K).
10.93 Power Purchase Contract (Unit 3) between Southern California Edison
Company and Union Oil Company Salton Sea III, dated April 16, 1985
(incorporated by reference to the 1993 Magma Form 10-K).
10.94 Reserved
10.95 125 MW Power Plant - Upper Mahiao Agreement (the "Upper Mahiao ECA")
dated September 6, 1993 between PNOC-Energy Development Corporation
("PNOC-EDC") and Ormat, Inc. as amended by the First Amendment to 125
MW Power Plant Upper Mahiao Agreement dated as of January 28, 1994,
the Letter Agreement dated February 10, 1994, the Letter Agreement
dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant
- Upper Mahiao Agreement dated as of March 7, 1994.*
10.96 Credit Agreement dated April 8, 1994 among CE Cebu Geothermal Power
Company, Inc., the Banks thereto, Credit Suisse as Agent.*
10.97 Credit Agreement dated as of April 8, 1994 between CE Cebu
Geothermal Power Company, Inc., Export-Import Bank of the United
States.*
10.98 Pledge Agreement among CE Philippines Ltd, Ormat-Cebu Ltd., Credit
Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc.
dated as of April 8, 1994.*
10.99 Overseas Private Investment Corporation Contract of Insurance dated
April 8, 1994 between the Overseas Private Investment Corporation
("OPIC") and the Company through its subsidiaries CE International
Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd.*
10.100 180 MW Power Plant - Mahanagdong Agreement ("Mahanagdong ECA") dated
September 18, 1993 between PNOC-EDC and CE Philippines Ltd. and the
Company, as amended by the First Amendment to Mahanagdong ECA dated
June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter
Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong
ECA dated March 3, 1995.*
10.101 Credit Agreement dated as of June 30, 1994 among CE Luzon Geothermal
Power Company, Inc., American Pacific Finance Company, the Lenders
party thereto, and Bank of America National Trust and Savings
Association as Administrative Agent.*
10.102 Credit Agreement dated as of June 30, 1994 between CE Luzon
Geothermal Power Company, Inc. and Export-Import Bank of the United States.*
10.103 Finance Agreement dated as of June 30, 1994 between CE Luzon
Geothermal Power Company, Inc. and Overseas Private Investment Corporation.*
10.104 Pledge Agreement dated as of June 30, 1994 among CE Mahanagdong
Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National
Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power
Company, Inc.*
10.105 Overseas Private Investment Corporation Contract of Insurance dated
July 29, 1994 between OPIC and the Company, CE International Ltd., CE
Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1 dated
August 3, 1994.*
10.106 231 MW Power Plant - Malitbog Agreement ("Malitbog ECA") dated
September 10, 1993 between PNOC-EDC and Magma Power Company and the First and
Second Amendments thereto dated December 8, 1993 and March 10, 1994,
respectively.*
10.107 Credit Agreement dated as of November 10, 1994 among Visayas Power
Capital Corporation, the Banks parties thereto and Credit Suisse as Bank
Agent.*
10.108 Finance Agreement dated as of November 10, 1994 between Visayas
Geothermal Power Company and Overseas Private Investment Corporation.*
10.109 Pledge and Security Agreement dated as of November 10, 1994 among
Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands
B.V. and Credit Suisse as Bank Agent.*
10.110 Overseas Private Investment Corporation Contract of Insurance dated
December 21, 1994 between OPIC and Magma Netherlands, B.V.*
10.111 Agreement as to Certain Common Representations, Warranties, Covenants
and Other Terms, dated November 10, 1994 between Visayas Geothermal
Power Company, Visayas Power Capital Corporation, Credit Suisse, as
Bank Agent, OPIC and the Banks named therein.*
10.112 Credit and Reimbursement Agreement (Term Loan Facility and Working
Capital Facility) dated as of February 28, 1994 among Salton Sea Power
Generation, L.P., Salton Sea Brine Processing, L.P., the Lenders
listed therein, and Credit Suisse as the Lead Agent.*
10.113 Assignment and Security Agreement dated as of February 28, 1994 among
Salton Sea Power Generation, L.P., a California limited partnership,
Salton Sea Brine Processing, L.P., a California limited partnership,
and Credit Suisse as Lead Agent.*
10.114 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing dated as of February 28, 1994 among Salton Sea Power
Generation, L.P., a California limited partnership, Salton Sea Brine
Processing, L.P., a California limited partnership, Chicago Title
Company as Trustee and Credit Suisse as Lead Agent for the Secured
Parties.*
11.0 Calculation of Earnings Per Share in accordance with Interpretive
Release No. 34-9083.
13.0 The Company's 1994 Annual Report (only the portions thereof
specifically incorporated herein by reference are deemed filed
herewith).
21.0 Subsidiaries of Registrant.
23.0 Consent of Independent Auditors.
24.0 Power of Attorney.
27.0 Financial Data Schedule.
* Denotes documents to be filed with an Amendment to Form 10-K on Form 8.
California Energy Company, Inc. Schedule I
Parent Company Only
Balance Sheets
as of December 31, 1994 and 1993
(dollars and shares in thousands, except per share amounts)
ASSETS 1994 1993
-------- ------
Cash and investments $252,185 $126,824
Restricted cash 90,905 13,535
Short-term investment 50,000 ---
Development projects in progress 74,324 44,272
Investment in and advances to subsidiaries
and joint ventures 296,376 215,660
Equipment, net of accumulated depreciation 2,517 2,587
Notes receivable - joint ventures 24,337 21,558
Deferred charges and other assets 20,519 16,458
-------- -------
Total assets $811,163 $440,894
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 194 $ 86
Other accrued liabilities 6,659 10,550
Income taxes payable --- 4,000
Senior notes --- 35,730
Senior Discount Notes 431,946 ---
Convertible subordinated debenture 100,000 100,000
Deferred income taxes 26,568 18,310
-------- -------
Total liabilities 565,367 168,676
-------- -------
Deferred income relating to joint ventures 2,205 1,915
-------- -------
Redeemable preferred stock 63,600 58,800
-------- -------
Stockholders' equity:
Preferred stock - authorized 2,000
shares no par value --- ---
Common stock - authorized 60,000
shares par value $0.0675 per share;
issued and outstanding 31,849 and
35,446 shares 2,407 2,404
Additional paid-in capital 100,421 100,965
Retained earnings 142,937 111,031
Treasury stock, 3,800 and 157 common shares
at cost (65,774) (2,897)
-------- --------
Total stockholders' equity 179,991 211,503
-------- -------
Total liabilities and stockholders' equity $811,163 $440,894
======== =======
The accompanying notes are an integral part of these financial statements.
California Energy Company, Inc. Schedule I
Parent Company Only (continued)
Statements of Operations
for the three years ended December 31, 1994
(dollars in thousands)
Revenues: 1994 1993 1992
------- ------- -----
Equity in earnings of subsidiary
companies and joint ventures before
extraordinary items $75,448 $61,412 $53,685
Interest and other income 20,598 8,756 4,557
------- ------- ------
Total revenues 96,046 70,168 58,242
------- ------- ------
Expenses:
General and administration 7,926 6,564 6,796
Interest, net of capitalized interest 32,284 2,346 714
------- ------- ------
Total expenses 40,210 8,910 7,510
------- ------- ------
Income before provision for income taxes 55,836 61,258 50,732
Provision for income taxes 17,002 18,184 11,922
------- ------- ------
Income before change in accounting
principle and extraordinary item 38,834 43,074 38,810
------- ------- ------
Cumulative effect of change in
account principle --- 4,100 ---
Extraordinary item in 1994 and equity in extraordinary item of joint ventures
in 1992 (Less applicable income taxes of $945 in
1994, $1,533 in 1992) (2,007) --- (4,991)
------- ------- -------
Net income 36,827 47,174 33,819
Preferred dividends 5,010 4,630 4,275
------- ------- ------
Net income available to
common stockholders $31,817 $42,544 $29,544
======= ======= ======
The accompanying notes are an integral part of these financial statements.
California Energy Company, Inc. Schedule I
Parent Company Only (continued)
Condensed Statements of Cash Flows
for the three years ended December 31, 1994
(dollars in thousands)
1994 1993 1992
-------- -------- ------
Cash flows from operating activities $ 15,139 $ 45,671 $ 22,597
Cash flows from investing activities:
Increase in development projects in progress (30,052) (22,844) (4,218)
Decrease (Increase) in advances to and investments
in subsidiaries and joint ventures (24,959) (36,812) 12,155
Restricted cash (77,370) (12,901) (535)
Short-term investment (50,000) --- ---
Other 767 2,956 (15,176)
--------- -------- --------
Cash flows from investing activities (181,614) (69,601) (7,774)
--------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common, treasury and
preferred stocks, and exercise of warrants
and stock options 1,580 2,912 8,065
Proceed from issue of Senior Discount Notes 400,000 --- ---
Purchase of treasury stock (65,119) (2,897) (4,887)
Defeasance of Senior Notes (35,730) --- ---
Proceeds from issue of convertible
subordinated debentures --- 100,000 ---
Purchase of warrants --- --- (11,716)
Deferred charges relating to debt
financing (8,895) (2,582) ---
-------- -------- -------
Cash flows from financing activities 291,836 97,433 (8,538)
-------- -------- --------
Net increase in cash and investments 125,361 73,503 6,285
Cash and investments at beginning of period 126,824 53,321 47,036
-------- -------- -------
Cash and investments at end of period $252,185 $126,824 $ 53,321
======== ======== =======
Interest paid (net of amount capitalized) $ 1,477 $ (897) $ 464
======== ======== =======
Income taxes paid $ 4,926 $ 6,819 $ 4,129
======== ======== =======
The accompanying notes are an integral part of these financial statements.
California Energy Company, Inc. Schedule I
Parent Company Only (continued)
Supplemental Notes to Financial Statements
For the three years ended December 31, 1994
(dollars in thousands)
RELATED PARTY TRANSACTIONS
The Company bills the Coso Project partnerships and joint ventures for
management, professional and operational services. Billings for the years ended
December 31, 1994, 1993 and 1992 were $18,054, $18,285 and $19,629,
respectively. Dividends received from subsidiaries for the years ended December
31, 1994, 1993 and 1992 were $19,691, $49,053 and $33,524 respectively.
RECLASSIFICATION
Certain amounts in the fiscal 1993 and 1992 financial statements have been
reclassified to conform to the fiscal 1994 presentation. Such reclassifications
do not impact previously reported net income or retained earnings.