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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
pursuant to section 12(b) OR (g) of the Securities Exchange Act of 1934
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
a California limited partnership
(Exact name of Registrant as specified in its charter)
California 77-0081345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1221 Lamar Street, Suite 1600, Houston, Texas 77010
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (713) 853-0530
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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NONE NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
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Explanatory Note
In connection with the liquidation of assets in the bankruptcy of Enron Corp.
and certain of its subsidiaries, management of Zond Windsystems Management V LLC
(the "General Partner"), the general partner of Zond Windsystem Partners, Ltd.
Series 85-C (the "Partnership"), became aware that the Partnership's historical
exemption from registration under Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") had lapsed, and apparently a new
extension had not been granted. Based on management's review of the
Partnership's records, the following is a summary of the Partnership's actions
related to exemption from registration under Section 12(g) of the Exchange Act.
Offers and sales of the Partnership's limited partnership units ("Partnership
Interests") were made in a private placement in 1985 pursuant to the exemption
from the registration and prospectus delivery requirements of Regulation D of
the Securities Act of 1933, as amended. As of December 31, 1985, the Partnership
had a total of 550 holders of Partnership Interests, owned assets with a book
value of approximately $35.4 million and had liabilities of approximately $15.8
million. Accordingly, the Partnership was required, under Section 12(g) of the
Exchange Act, to file a registration statement on Form 10 with the Securities
and Exchange Commission (the "Commission"), unless an exemption was available.
Pursuant to Section 12(h) of the Exchange Act, the Partnership filed an
application by letter dated March 5, 1986 (the "1986 Application") for an
exemption from the registration requirements under Section 12(g) of the Exchange
Act. The Commission, pursuant to an order dated August 17, 1987 (the "1987
Order"), granted the Partnership a temporary exemption from the registration
requirements of Section 12(g). Such exemption appeared to expire by its terms on
February 28, 1989.
Following the apparent expiration of the 1987 Order, the Partnership may have
been required, under Section 12(g), to file a registration statement on Form 10
with the Commission, unless an exemption was again granted to the Partnership.
The Partnership's records indicate that, pursuant to Section 12(h), the
Partnership filed an application by letter dated March 13, 1990 (the "1990
Application") again requesting an exemption from the requirements of Section
12(g). The Partnership's records further indicate that there were discussions
with the Commission following the filing of the 1990 Application. However, the
Partnership is not aware of, and there is no public record of, any order by the
Commission ruling on the 1990 Application. Prior to this filing, the Partnership
has not registered Partnership Interests under Section 12(g) of the Exchange
Act. Given the apparent absence of an order relating to the 1990 Application,
the 1990 Application may still be considered pending with the Commission.
Based on the foregoing, the General Partner believes it is advisable for the
Partnership to file with the Commission this registration statement on Form 10
and to henceforth comply with the reporting requirements of the Exchange Act.
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C
A CALIFORNIA LIMITED PARTNERSHIP
FOR THE FISCAL YEARS ENDED DECEMBER 31, 2001, 2002, 2003 AND 2004
AND FOR THE SIX MONTHS ENDED JUNE 30, 2005
TABLE OF CONTENTS
Item
Number Page
1. Business.............................................................1
2. Financial Information................................................7
3. Properties..........................................................13
4. Security Ownership of Certain Beneficial Owners and Management......13
5. Directors and Executive Officers....................................13
6. Executive Compensation..............................................15
7. Certain Relationships and Related Transactions......................16
8. Legal Proceedings...................................................18
9. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters.....................................20
10. Recent Sales of Unregistered Securities.............................20
11. Description of Registrant's Securities to be Registered.............20
12. Indemnification of the General Partner and its Affiliates...........25
13. Financial Statements and Supplementary Data.........................28
14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................28
15. Financial Statements and Exhibits...................................29
ii
Item 1. Business
Introduction
Zond Windsystem Partners, Ltd. Series 85-C, a California limited partnership
(the "Partnership"), was formed on October 25, 1985 to purchase, own and operate
a system of 200 Vestas V-17 wind turbine electric generators (the "Turbines").
The electricity generated by the Turbines is sold by the Partnership to its sole
customer, Pacific Gas and Electric Company ("PG&E").
Each Turbine has a rated capacity of 90 kilowatts, and the Turbines have an
aggregate rated capacity of 18.0 megawatts. The Turbines, together with a
substation and power transfer facilities also owned by the Partnership, form an
integrated electric power generating facility (the "Windsystem"). The Windsystem
is located in Alameda County, California (the "Operating Site").
The Turbines are interconnected by a system of transformers and power transfer
lines to a substation owned by the Partnership. The individual power lines from
each of the Turbines are fed into step-up transformers, which increase the
voltage of the Windsystem's power from 480 volts to 12.5 kilovolts ("kVs").
Additional 12.5 kV power transfer lines carry electricity to the Partnership's
substation which steps up the power to 66 kVs. The power generated by the
Windsystem is delivered at this voltage to PG&E at the interconnection point
located adjacent to the Partnership's substation.
The Windsystem, which became operational in December 1985, was constructed by
Zond Construction Corporation IV ("ZCC"), an affiliate of Zond Systems, Inc.
("ZSI"). The Partnership financed its purchase of the Windsystem with cash
raised through a private placement of limited partnership units ("Partnership
Interests" or "Units") and equipment financing in the form of promissory notes
payable to ZCC (the "Purchase Notes"). ZCC's rights under the Purchase Notes
were assigned to ZSI, which was later renamed Enron Wind Systems, Inc. ("EWSI"),
which was later merged into a California limited liability company and renamed
Enron Wind Systems, LLC ("EWS"). See "Item 1. Business - Bankruptcy and
Mergers." The Purchase Notes matured in December 2001; however, the Purchase
Notes remain unpaid. At December 31, 2001, there was outstanding $4.1 million of
principal and $ 2.5 million of interest in arrears with respect to the Purchase
Notes. As of June 30, 2005, there was outstanding $1.5 million of principal and
$ 2.5 million of interest in arrears with respect to the Purchase Notes. For
further information regarding the Purchase Notes and the amount of interest
owing thereunder, see "Item 7. Certain Relationships and Related Transactions -
Purchase Note Financing" and Note 4 to the Financial Statements.
The business of the Partnership and the respective rights of its partners,
including the Partnership's limited partners (the "Limited Partners"), are
governed by the First Amended and Restated Agreement of Limited Partnership of
Zond Windsystem Partners, Ltd. Series 85-C, a California Limited Partnership,
entered into on December 23, 1985,
1
(the "Partnership Agreement"). The term of the Partnership ends on December 31,
2005, unless terminated earlier in accordance with the terms of the Partnership
Agreement. The Partnership will dissolve effective on the day on which the term
of the Partnership ends. Upon the dissolution of the Partnership, Zond
Windsystems Management V LLC (the "General Partner" or "ZWM"), a California
limited liability company, which is wholly-owned by EWS, will liquidate the
assets of the Partnership, apply and distribute the proceeds thereof as
contemplated by the Partnership Agreement, and cause the cancellation of the
Partnership's Certificate of Limited Partnership with the Secretary of State of
the State of California. The Partnership will then terminate and the General
Partner will file with the Securities and Exchange Commission (the "Commission")
a Form 15 to terminate registration of the Units under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Partnership Agreement is
attached as Exhibit 3.2 to this registration statement.
Bankruptcy and Mergers
On January 3, 1997, ZSI's parent company, Zond Corporation, became a
wholly-owned subsidiary of Enron Renewable Energy Corp. ("EREC"), which is
wholly-owned by Enron Corp. ("Enron"). Commencing on December 2, 2001, and
periodically thereafter, Enron and certain of its subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code"). On February 20, 2002, EWSI filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code. Additionally, a California
limited liability company formed on February 19, 2002 for the purpose of merging
with EWSI in anticipation of the sale of Enron's wind turbine manufacturing
business also filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code. EWSI merged with and into the other limited liability company
on April 19, 2002, and the surviving limited liability company changed its name
to Enron Wind Systems, LLC.
On April 12, 2002, Zond Windsystems Management Corporation V, the general
partner of the Partnership at such time, merged with and into a second
California limited liability company, formed on March 12, 2002, and the
surviving limited liability company changed its name to Zond Windsystems
Management V LLC. ZWM has not filed for bankruptcy.
On November 17, 2004, the Chapter 11 Plan (the "Plan") relating to the Enron
bankruptcy became effective. The Plan provides for Enron and its affiliated
debtor companies (including EWS) to sell most of their assets and distribute to
their creditors the proceeds of such sales. In connection with the Plan, EWS
assumed the Management Agreement (as defined in "Operation and Maintenance
Services" below) and that agreement remains in effect.
Sale to General Electric
On April 10, 2002, Enron, Enron Wind Corp. and certain of its subsidiaries,
including EWSI, entered into an Amended and Restated Purchase and Sale Agreement
in which
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such entities agreed to sell, in an asset sale (the "GE Sale"), their wind
turbine manufacturing, operation and maintenance and construction businesses to
General Electric Company, acting through its GE Power Systems business ("GEPS").
The GE Sale was consummated on May 10, 2002. EWS and its affiliated companies
retained their existing wind power projects, including the indirect ownership of
the general partnership interest in the Partnership. However, effective as of
the sale, substantially all of the employees who had been involved in the
management of the Partnership transferred to GEPS.
Following the GE Sale, certain Enron personnel who were not formerly involved
with the management or operations of the Partnership were appointed to manage
and operate the Partnership, and ZWM's principal executive offices were moved to
1400 Smith Street, Houston Texas 77002. In March 2004, the principal executive
offices were moved to 1221 Lamar Street, Suite 1600, Houston, Texas 77010. Eric
D. Gadd was appointed President and Chief Executive Officer of ZWM on September
26, 2002. Johnna D. Kokenge was appointed Chief Financial Officer of ZWM on
March 22, 2005. The directors of EREC may be deemed directors of the Partnership
under the Exchange Act.
Partnership Exemption From Exchange Act Registration
In connection with the liquidation of assets in the Enron bankruptcy, management
of the General Partner became aware that the Partnership's historical exemption
from registration under Section 12(g) of the Exchange Act had lapsed, and
apparently a new extension had not been granted. Based on management's review of
the Partnership's records, the following is a summary of the Partnership's
actions related to exemption from registration under Section 12(g) of the
Exchange Act.
Offers and sales of Partnership Interests were made in a private placement in
1985 pursuant to the exemption from the registration and prospectus delivery
requirements of Regulation D of the Securities Act of 1933, as amended. As of
December 31, 1985, the Partnership had a total of 550 holders of Partnership
Interests, owned assets with a book value of approximately $35.4 million and had
liabilities of approximately $15.8 million. Accordingly, the Partnership was
required, under Section 12(g) of the Exchange Act, to file a registration
statement on Form 10 with the Commission, unless an exemption was available.
Pursuant to Section 12(h) of the Exchange Act, the Partnership filed an
application by letter dated March 5, 1986 (the "1986 Application") for an
exemption from the registration requirements under Section 12(g) of the Exchange
Act. The Commission, pursuant to an order dated August 17, 1987 (the "1987
Order"), granted the Partnership a temporary exemption from the registration
requirements of Section 12(g). Such exemption appeared to expire by its terms on
February 28, 1989.
Following the apparent expiration of the 1987 Order, the Partnership may have
been required, under Section 12(g), to file a registration statement on Form 10
with the Commission, unless an exemption was again granted to the Partnership.
The Partnership's records indicate that, pursuant to Section 12(h), the
Partnership filed an application by letter dated March 13, 1990 (the "1990
Application") again requesting an
3
exemption from the requirements of Section 12(g). The Partnership's records
further indicate that there were discussions with the Commission following the
filing of the 1990 Application. However, the Partnership is not aware of, and
there is no public record of, any order by the Commission ruling on the 1990
Application. Prior to the filing of this registration statement, the Partnership
had not registered Partnership Interests under Section 12(g) of the Exchange
Act. The Partnership, however, provided to the holders of its Partnership
Interests semiannual income tax basis reports on the Partnership's financial and
operating performance from April 30, 1986 through June 30, 2000. The Partnership
also provided income tax basis reports on the Partnership's financial and
operating performance covering the 2002, 2003 and 2004 calendar years to the
holders of its Partnership Interests in 2004 and 2005.
Given the apparent absence of an order relating to the 1990 Application, the
1990 Application may still be considered pending with the Commission. As of the
date hereof, Section 12(g), as modified by Rule 12g-1 of the Exchange Act,
requires an issuer with total assets exceeding $10,000,000 and with 500 or more
record holders of a class of equity securities to register such securities with
the Commission. It appears that since inception the Partnership has had 500 or
more holders of Partnership Interests. However, since 2000, the Partnership has
had less than $10,000,000 of total assets. As a result, if the Partnership were
formed at any time after 2000, it would not be subject to the registration
requirements of Section 12(g). Rule 12g-4 of the Exchange Act, however, does not
permit an issuer with more than 500 members to terminate its registration.
Accordingly, if the Partnership had previously registered its Partnership
Interests, the Partnership would not have been eligible to terminate its
registration pursuant to Rule 12g-4 of the Exchange Act.
Based on the foregoing, the General Partner believes it is advisable for the
Partnership to file with the Commission this registration statement on Form 10
and to henceforth comply with the reporting requirements of the Exchange Act.
Operation and Maintenance Services
EWS manages the Windsystem pursuant to a Windsystem Management Agreement entered
into with the Partnership on November 4, 1985 (the "Management Agreement"). EWS
has assumed the Management Agreement in connection with the Plan. The Management
Agreement terminates by its terms on December 31, 2005. Prior to May 10, 2002,
Enron Wind Maintenance LLC, an affiliate of EWS, provided operation and
maintenance services for the Windsystem. On May 10, 2002, in connection with the
GE Sale, EWS contracted with GE Wind Energy, LLC to perform certain operation
and maintenance services relating to the Windsystem for a period of one year
ending on May 10, 2003.
In April 2003, EWS entered into an agreement (the "O&M Agreement") with SeaWest
Asset Management Services, LLC ("SeaWest") to provide certain operation and
maintenance services relating to the Windsystem beginning in May 2003 and ending
in May 2008. If EWS terminates the O&M Agreement prior to the end of its stated
term,
4
EWS may be required to pay certain agreed demobilization fees to SeaWest. If EWS
is required to pay such fees, EWS may seek recovery from the Partnership of
some, or all, of the amount of such fees pursuant to the terms of the Management
Agreement. Management currently estimates that the amount of the demobilization
fee, if any, for which EWS could seek recovery from the Partnership would not be
in excess of approximately $31,000.
Sale of Electric Power
The Partnership sells the electric power generated by the Turbines to PG&E under
a Power Purchase Agreement (the "Power Agreement"). The Power Agreement was
originally entered into between PG&E and Wind Developers, Inc. on January 17,
1985 and covered an aggregate of 20 megawatts of generating capacity. In
December 1985, Wind Developers, Inc. assigned its rights and obligations under
the Power Agreement to ZSI, and ZSI assigned its rights and obligations under
the Power Agreement to the Partnership. The term of the Power Agreement ends on
the twentieth anniversary of the date of the initial energy deliveries by the
Partnership to PG&E, which termination date is on or about December 31, 2005.
Under the Power Agreement, PG&E is required to purchase all of the electric
output from the Turbines. Under the Power Agreement, energy generated is sold
for a total price equal to the sum of (i) capacity rates based on forecasts of
annual as-available capacity and (ii) energy rates. Through July 15, 2001, the
energy rates were based on forecasts of the short run avoided cost of energy for
PG&E. In connection with that certain agreement dated as of July 13, 2001
between the Partnership and PG&E (the "PG&E Payment Agreement"), PG&E and the
Partnership entered into the Third Amendment to the Power Purchase Agreement,
which amended the energy component of the prices to be paid under the Power
Agreement to provide that, during the period of July 16, 2001 through the end of
the term of the Power Agreement, the energy component is equal to an average
price of $0.0537 per kilowatt hour ("kWh") rather than based on the variable
short run avoided cost of energy for PG&E. See "Item 8. Legal Proceedings - PG&E
Bankruptcy".
Windsystem Performance
The amount of electricity produced by the Turbines depends upon wind speed,
which is subject to significant seasonal variations in the Altamont area. Wind
speed is generally highest during the summer months and lowest during the winter
months. These seasonal variations result in significant variations from month to
month in the net power production realized by the Turbines, and therefore result
in monthly variations in the amount of electricity sold to PG&E. During 2001,
2002, 2003 and 2004 PG&E purchased an aggregate of 36.0 million, 32.0 million,
29.9 million and 35.6 million kWh of electricity, respectively, from the
Partnership for an aggregate purchase price of $3.0 million, $2.2 million, $2.1
million and $2.5 million, respectively. During the six months ended June 30,
2005 PG&E purchased an aggregate of 10.4 million kWh of electricity from the
Partnership for an aggregate purchase price of $0.7 million.
5
Going Concern
The following matters raise substantial doubt about the Partnership's ability to
continue as a going concern:
1. As discussed in "Item 2. Financial Information - Liquidity and
Capital Resources" and in Note 2 to the Financial Statements, the
Partnership has not had, and does not anticipate that it will have,
sufficient cash flows from operations to make payment in full of the
outstanding principal and accrued but unpaid interest on the outstanding
Purchase Notes. The Partnership continues to be in default of the
Purchase Notes. Upon notice of default, EWS has a right to foreclose
against its security interests in the assets of the Partnership. As of
the date of filing of this registration statement, the Partnership had
not received a foreclosure notice from EWS with respect to the Purchase
Notes. Any such foreclosure by EWS on its security interests in the
assets of the Partnership would have a material adverse effect on the
Partnership.
2. As discussed in "Item 1. Business - Introduction" and Note 1 to the
Financial Statements, the term of the Partnership ends on December 31,
2005, unless terminated earlier in accordance with the terms of the
Partnership Agreement. The Partnership will dissolve effective on the
day on which the term of the Partnership ends. Upon the dissolution of
the Partnership, the General Partner will liquidate the assets of the
Partnership, apply and distribute the proceeds thereof as contemplated
by the Partnership Agreement, and cause the cancellation of the
Partnership's Certificate of Limited Partnership with the Secretary of
State of the State of California. The Partnership will then terminate
and the General Partner will file with the Commission a Form 15 to
terminate registration of the Units under the Exchange Act.
Government Regulation
The sale of electricity at wholesale to public utilities in California is
subject to regulation by the Federal Energy Regulatory Commission ("FERC") and
by the California Public Utilities Commission ("CPUC"). However, the
Partnership's Windsystem is a "qualifying small power production facility" as
defined in the Public Utility Regulatory Policies Act of 1978 ("PURPA") and the
FERC's regulations thereunder. As a result, the Windsystem is exempt from most
FERC regulation and CPUC regulation relating to public utilities. Moreover,
since the Windsystem is a qualifying small power production facility that meets
certain additional size and source of fuel limitations, it is exempt from rate
regulation under the Federal Power Act, from the provisions of the Public
Utility Holding Company Act of 1935 relating to electric utilities, and from
state laws and regulations relating to electric utility rates and financial or
organizational regulation.
While PURPA exempts qualifying small power production facilities from certain
federal and state laws regulating electric utilities, these facilities are not
exempt from federal and
6
state environmental and other laws, and the facilities, such as the Windsystem,
must comply with all applicable federal, state and local environmental and other
laws.
Employees
The Partnership has no employees. EWS manages, operates and maintains the
Windsystem pursuant to the Management Agreement. The General Partner, utilizing
employees of Enron, attends to the remaining day-to-day activities of the
Partnership.
Item 2. Financial Information
Selected Financial Data
From and after 1987, the Partnership's accounting records have been maintained
on a federal tax accrual basis, consistent with appropriate provisions of the
Internal Revenue Code. Such records have been adjusted for purposes of filings
with the Commission to reflect accounting principles generally accepted in the
United States. The selected financial data should be read in conjunction with
the financial statements and related footnotes included in Item 15.
As of and
for the six As of and for the years ended December 31,
months ended ----------------------------------------------------
June 30, 2005 2004 2003 2002 2001 2000
(Unaudited)
------------- ----------------------------------------------------
Total revenue $ 732 $ 2,474 $ 2,082 $ 2,255 $ 3,020 $ 2,102
Net loss $ (525) $ (318) $ (730) $ (561) $ (96) $ (1,045)
Per unit:
Net loss (692) (419) (962) (739) (126) (1,377)
Partners' deficit (3,476) (2,784) (2,365) (1,403) (664) (538)
Total assets $ 1,732 $ 2,605 $ 5,307 $ 6,834 $ 7,364 $ 8,649
Current portion of notes
payable to related party $ 1,512 $ 1,702 $ 3,452 $ 4,052 $ 4,052 $ 5,147
Accrued interest to related
party $ 2,532 $ 2,532 $ 2,532 $ 2,532 $ 2,532 $ 2,377
Partners' deficit $ (2,638) $ (2,113) $ (1,795) $ (1,065) $ (504) $ (408)
(Dollars in thousands, except per Unit values which are in whole dollars)
All per Unit values were calculated based on 759 Units.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Going Concern
See "Item 1. Business - Going Concern" and Note 2 to the Financial Statements
for a discussion of the matters that raise substantial doubt about the
Partnership's ability to continue as a going concern.
7
Liquidity and Capital Resources
The Partnership experienced a lack of liquidity throughout 2001, 2002, 2003 and
2004, and for the first six months of 2005, primarily due to an ongoing
shortfall in revenues from operations in comparison to the costs and expenses of
operations. Cash flows from the Partnership's operations continue to be
sufficient to fund the Partnership's operating expenses; however, the
Partnership has been unable to meet its obligations under the Purchase Notes. At
June 30, 2005, principal payments on the Purchase Notes in the aggregate amount
of $1.5 million and interest payments in the aggregate amount of $2.5 million
were in arrears. The Purchase Notes matured in December 2001 and the Partnership
does not anticipate that the Purchase Notes will be fully repaid prior to the
end of the term of the Partnership. The Partnership's failure to make timely
payments on the Purchase Notes gave EWS the right to foreclose against the
collateral for its loans as set forth in the security agreements relating to the
Purchase Notes. As of the date of this registration statement, the Partnership
had not received a foreclosure notice from EWS with respect to the Purchase
Notes. See "Item 2. Financial Information - Results of Operations for the Six
Months Ended June 30, 2005 Compared to June 30, 2004."
The Partnership's primary source of revenues and liquidity to fund operations of
the Windsystem, repay debt, administer the Partnership, and make distributions
to its partners is the production and sale of electricity from the Windsystem.
The Partnership's sole customer is PG&E. The price paid by PG&E for the
electricity is contractually defined under the Power Agreement. See "Item 1.
Business - Sale of Electric Power" for additional information.
As of June 30, 2005, the Partnership had no current or planned commitments for
capital expenditures.
Results of Operations for the Six Months Ended June 30, 2005 Compared to
June 30, 2004
During the six month period ended June 30, 2005, the Partnership's electricity
revenue was $0.7 million, and the Windsystem produced 10.4 million kWh of
electricity sold to PG&E. This was a decrease of $0.6 million or 44% in revenue
and a decrease of 7.8 million kWh or 43% of electricity produced as compared to
the six month period ended June 30, 2004.
Costs and expenses during the six month period ended June 30, 2005 were $1.3
million, a decrease of $0.2 million or 13% as compared to the six month period
ended June 30, 2004. Depreciation decreased $0.08 million in the six month
period ended June 30, 2005 as compared to the six month period ended June 30,
2004 due to the Turbines being fully depreciated during 2004. Property taxes
remained comparable in the six month period ended June 30, 2005 as compared to
the six month period ended June 30, 2004. Management fees decreased $0.01
million during the six month period ended June 30, 2005 as compared to the six
month period ended June 30, 2004. The decrease in management fees is directly
related to the decrease in Gross Operating Proceeds received during the six
month period ended June 30, 2005. "Gross Operating Proceeds" is defined
8
as all gross receipts from the sale of electricity generated by the Turbines and
all amounts paid in lieu of receipts from the sale of electricity (including,
without limitation, any proceeds of systems performance or wind resource
insurance, casualty loss and business interruption insurance paid in
reimbursement of lost revenues and warranty payments in reimbursement of lost
revenues), calculated without offset or other deductions of any nature (except
for such amounts as may be required to be refunded by the Partnership to PG&E).
Easement fees and maintenance expenses remained comparable during the six month
period ended June 30, 2005 as compared to the six month period ended June 30,
2004. Insurance costs decreased by $0.03 million in the six month period ended
June 30, 2005 as compared to the six month period ended June 30, 2004 due to
decreased premiums. Other operating costs decreased $0.06 million in the six
month period ended June 30, 2005 as compared to the six month period ended June
30, 2004 due to decreased backfeed electricity charges resulting from decreased
production in the six month period ended June 30, 2005.
Overall, the Partnership reported a net loss of $0.5 million for the six month
period ended June 30, 2005, a change of $0.4 million from the net loss of $0.1
million in the six month period ended June 30, 2004. During the six month period
ended June 30, 2005, the total partners' deficit increased by $0.5 million to
$2.6 million. The net loss per Unit was $692 for the six month period ended June
30, 2005 compared with a net loss per Unit of $188 for the six month period
ended June 30, 2004.
Cash flows from operations decreased by $0.3 million in the six month period
ended June 30, 2005 as compared to the six month period ended June 30, 2004.
This decrease was primarily due to decreased revenues during the six month
period ended June 30, 2005. Cash flows used in financing activities decreased by
$0.6 million during the six month period ended June 30, 2005 as compared to the
six month period ended June 30, 2004 due to decreased principal payments on the
Purchase Notes. Excess cash flows from operations are used primarily to fund
payments of the principal and interest in arrears on the Purchase Notes.
Results of Operations for the Year Ended December 31, 2004 Compared to
December 31, 2003
During 2004, the Partnership's electricity revenue was $2.5 million, and the
Windsystem produced 35.6 million kWh of electricity sold to PG&E. This was an
increase of $0.4 million or 19% in revenue and an increase of 5.7 million kWh or
19% of electricity produced as compared to 2003.
Costs and expenses were $2.8 million during each of 2004 and 2003. Depreciation
was $1.6 million in both 2004 and 2003. During 2003, the Partnership recaptured
$0.3 million of bad debt expense originally recognized in 2001. The bad debt
expense related to receivables from PG&E for electricity delivered by the
Partnership in 2000 and 2001, which had been deemed uncollectible. Once past due
amounts were received in 2003, the bad debt expense was recaptured. There was no
bad debt expense recaptured during 2004. Property taxes, easement fees and
management fees remained comparable in 2004
9
as compared to 2003. Maintenance expenses decreased by $0.3 million due to a
decrease in unscheduled maintenance in 2004 as compared to 2003. Insurance costs
decreased by $0.05 million in 2004 as compared to 2003 due to decreased
premiums. Other operating costs increased $0.04 million in 2004 as compared to
2003 due to increased backfeed electricity charges resulting from increased
production in 2004.
Overall, the Partnership reported a net loss of $0.3 million for 2004, a change
of $0.4 million from the net loss of $0.7 million in 2003. During 2004, the
total partners' deficit increased by $0.3 million to $2.1 million. The net loss
per Unit was $419 for 2004 compared with a net loss per Unit of $962 for 2003.
Cash flows from operations decreased by $0.4 million in 2004 as compared to
2003. This decrease was primarily due to unfavorable changes in working capital
during 2004 as compared to 2003. Cash flows used in financing activities
increased by $1.2 million during 2004 as compared to 2003 due to increased
principal payments on the Purchase Notes. Excess cash flows from operations are
used primarily to fund payments of the principal and interest in arrears on the
Purchase Notes.
Results of Operations for the Year Ended December 31, 2003 Compared to
December 31, 2002
During 2003, the Partnership's electricity revenue was $2.1 million, and the
Windsystem produced 29.9 million kWh of electricity sold to PG&E. This was a
decrease of $0.1 million or 6% in revenue and a decrease of 2.1 million kWh or
7% of electricity produced as compared to 2002.
Costs and expenses were $2.8 million during each of 2003 and 2002. Depreciation
was $1.6 million in both 2003 and 2002. During 2003, the Partnership recaptured
$0.3 million of bad debt expense originally recognized in 2001. The bad debt
expense related to receivables from PG&E for electricity delivered by the
Partnership in 2000 and 2001, which had been deemed uncollectible. Once past due
amounts were received in 2003, the bad debt expense was recaptured. There was no
bad debt expense recaptured during 2002. Property taxes, easement fees and
management fees remained comparable in 2003 as compared to 2002. Maintenance
expenses increased $0.2 million in 2003 as compared to 2002 due to an increase
in unscheduled maintenance and subcontracting fees. Insurance expense increased
by $0.05 million in 2003 as compared to 2002 due to increased policy premiums.
Other operating costs remained comparable in 2003 as compared to 2002.
Overall, the Partnership reported a net loss of $0.7 million for 2003, a change
of $0.1 million from the net loss of $0.6 million in 2002. During 2003, the
total partners' deficit increased by $0.7 million to $1.8 million. The net loss
per Unit was $962 for 2003 compared with a net loss per Unit of $739 for 2002.
Cash flows from operations decreased by $0.5 million in 2003 as compared to
2002. This decrease was primarily due to unfavorable changes in working capital
during 2003
10
as compared to 2002. Cash flows used in financing activities increased by $0.6
million in 2003 as compared to 2002 due to principal payments made on the
Purchase Notes in 2003. No principal payments were made on the Purchase Notes in
2002. Excess cash flows from operations are used primarily to fund payments of
the principal and interest in arrears on the Purchase Notes.
Results of Operations for the Year Ended December 31, 2002 Compared to
December 31, 2001
During 2002, the Partnership's electricity revenue was $2.2 million, and the
Windsystem produced 32.0 million kWh of electricity sold to PG&E. This was a
decrease of $0.8 million or 27% in revenue and a decrease of 4.0 million kWh or
12.5% of electricity produced as compared to the same period in 2001.
Costs and expenses during 2002 were $2.8 million, a decrease of $0.3 million or
10%, as compared to 2001. Depreciation was $1.6 million in both 2002 and 2001.
During 2001, the Partnership recognized bad debt expense of $0.3 million related
to receivables from PG&E for electricity delivered by the Partnership in 2000
and 2001, which had been deemed uncollectible. There was no bad debt expense
recognized during 2002. Pursuant to an agreement between the holder of the
Purchase Notes and the Partnership, as acknowledged and memorialized in that
certain Interest Expense Acknowledgement dated as of August 30, 2005 between EWS
and the Partnership (the "Interest Expense Acknowledgement"), the Partnership
was not required to pay any interest on the outstanding principal amount under
the Purchase Notes other than the interest set forth in the amortization
schedules attached to the Purchase Notes. Since these amortization schedules
ended in 2001, the Partnership was not required to recognize any additional
interest expense in 2002 (although the Partnership is required to recognize
unpaid interest set forth on the amortization schedule). As a result, interest
expense decreased by $0.2 million in 2002 as compared to 2001. Property taxes,
easement fees and management fees remained constant in 2002 as compared to 2001.
Maintenance expenses increased $0.06 million in 2002 as compared to 2001 due to
an increase in unscheduled maintenance. Insurance expense increased $0.09
million in 2002 as compared to 2001. This increase is directly related to market
conditions within the property and casualty insurance industry coupled with
adverse claim experience in prior years. Other operating costs remained
comparable in 2002 as compared to 2001.
Overall, the Partnership reported a net loss of $0.6 million for 2002, a change
of $0.5 million from the net loss of $0.1 million in 2001. During 2002, the
total partners' deficit increased by $0.6 million resulting in total partners'
deficit of $1.1 million. The net loss per Unit was $739 for 2002 compared with a
net loss per Unit of $126 for 2001.
Cash flows from operations increased by $0.5 million in 2002 as compared to
2001. This increase was primarily due to the favorable changes in working
capital during 2002 as compared to 2001. Cash flows used in financing activities
decreased by $1.1 million during 2002 due to principal payments on the Purchase
Notes made in 2001. No principal payments were made on the Purchase Notes in
2002. Excess cash flows from operations
11
are used primarily to fund payments of the principal and interest in arrears on
the Purchase Notes.
Contractual Obligations
The Partnership's contractual obligations as of June 30, 2005 are as follows (in
millions):
2005 Thereafter
--------- ----------
Debt
Purchase Notes Payable $ 1.512 *
Interest Payments $ 2.532 *
Purchase Obligations:
Maintenance fees $ 0.136 *
* The term of the Partnership ends on December 31, 2005, unless terminated
earlier in accordance with the terms of the Partnership Agreement.
Quantitative and Qualitative Disclosures About Market Risk
The Partnership's management, with the participation of the General Partner's
Chief Executive Officer and Chief Financial Officer, has evaluated the
disclosure requirements of Item 305 of Regulation S-K "Quantitative and
Qualitative Disclosures about Market Risk," and has concluded that the
Partnership has no market risk sensitive instruments for which this disclosure
is required.
Safe Harbor Statement Regarding Outlook and Other Forward Looking Data
Portions of this registration statement, including but not limited to Items 1
and 2, contain forward-looking statements and involve risks and uncertainties
that could significantly affect expected results of operations, liquidity, cash
flows and business prospects. Factors that could cause results to differ
materially include, but are not limited to: competitive pricing pressures;
fluctuations in fossil fuel prices; higher than expected costs; regulatory
changes; potential liability resulting from pending or future litigation or
administrative action; domestic and international political conditions;
political events or insurgent activity; and capital expenditure, acquisition or
disposition. Forward-looking statements are generally accompanied by words such
as "estimate," "project," "predict," "will," "anticipate," "plan," "intend,"
"believe," "expect" or similar expressions that convey the uncertainty of future
events or outcomes. The Partnership expressly disclaims any obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed might not occur.
12
Item 3. Properties
The Partnership owns the Turbines, including the supporting towers and related
concrete support pads and controllers, a power collector system and power
substation. The Partnership uses the Operating Site pursuant to an easement
granted by ZSI under the terms of the Amended and Restated Wind Park Easement
Agreement dated as of July 1, 1986 (the "Wind Park Easement Agreement"). The
Wind Park Easement Agreement, unless earlier terminated, terminates on March 6,
2006; provided, however, that the Partnership's rights under the Wind Park
Easement Agreement are subject and subordinate to all of the terms and
conditions of the Amended Ground Lease for Wind Park Development on the Rooney
Ranch, Alameda County dated October 29, 1985 (the "Ground Lease") by and between
the City of Santa Clara (the "City") and ZSI. Pursuant to the terms of the
Ground Lease, the Ground Lease terminates twenty (20) years from the date the
last wind turbine generator was "placed-in service". The Partnership believes
that the last wind turbine generator was "placed-in-service" in December 1985
and that the term of the Ground Lease and, as a result, the term of the Wind
Park Easement Agreement, end in December 2005. Under the terms of the Ground
Lease and the Wind Park Easement Agreement, the City has the option to purchase
the Windsystem on December 31, 2005 at a price set forth in the Ground Lease by
notifying EWS at least 180 days prior to the end of the year of its intent to
make such purchase. In a letter dated June 2, 2005 the City informed Enron Wind
LLC, a parent company of EWS, that the City did not wish to exercise the
purchase option under the Ground Lease. In addition, the City's available period
for notifying EWS of its intent to exercise such purchase option lapsed on July
4, 2005, and no further notice of intent to exercise the purchase option has
been provided by the City.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The Partnership knows of no person (including a "group" as that term is used in
Section 13(d)(3) of the Exchange Act) who is the beneficial owner of more than
five percent of the Partnership Interests.
ZWM owns the sole general partner interest in the Partnership. No person who is
deemed to be an executive officer or director of the Partnership as the date of
this filing owns any interest in the Partnership, ZWM, EREC or any of its
subsidiaries.
Item 5. Directors and Executive Officers
The Partnership does not have any employees or directors. The General Partner of
the Partnership is ZWM, a California limited liability company, wholly-owned by
EWS. Under the terms of the Partnership Agreement, the General Partner holds the
exclusive right to manage the business and affairs of the Partnership. The
Limited Partners as defined in the Partnership Agreement are not entitled to
exercise any rights or powers to manage the business and affairs of the
Partnership. The Limited Partners have voting rights only with respect to
certain fundamental changes in the nature and operation of the Partnership, as
set forth in the Partnership Agreement.
13
Executive Officers
Set forth below is certain information regarding officers of ZWM that may be
deemed executive officers of the Partnership for Commission reporting purposes.
Eric D. Gadd, age 50, has served as President and Chief Executive Officer of ZWM
since September 26, 2002, and served as President and Chief Executive Officer of
EWS from May 11, 2002 through August 7, 2005. Mr. Gadd is responsible for
managing and restructuring the global wind business operations of EWS and its
affiliates. Prior to his current assignment, Mr. Gadd served as vice president
of business development for one of Enron's natural gas pipeline affiliates. From
1995 to 2001, he was involved in business development and commercial management
in Enron's London office. In addition, Mr. Gadd was a director of EREC from
September 26, 2002 through November 16, 2004.
Johnna D. Kokenge, age 35, has served as Chief Financial Officer of ZWM since
March 22, 2005. Prior to her current assignment, Ms. Kokenge served in various
accounting capacities for Enron and certain Enron affiliates from 1999 to 2005.
Mr. Gadd was an executive officer of various subsidiaries of Enron that filed
voluntary petitions for Chapter 11 reorganization with the U.S. Bankruptcy Court
for the Southern District of New York filed in connection with the Enron
bankruptcy. See "Item 1. Business - Bankruptcy and Mergers" for additional
information.
Directors
ZWM has no directors. EREC, which indirectly holds the sole membership interest
in ZWM, has a board of directors. Because neither the Partnership nor ZWM has an
audit committee or a board of directors, the board of directors of EREC serves
the role of the audit committee for the Partnership and these directors may be
deemed to be directors of the Partnership under the Exchange Act. As a director
of EREC, each individual listed below may also be deemed to be a director of
Zond Windsystem Partners, Ltd. Series 85-A, Zond Windsystem Partners, Ltd.
Series 85-B, and Zond-PanAero Windsystem Partners I, a California Limited
Partnership. Set forth below is certain information regarding the directors of
EREC.
K. Wade Cline, age 42, has been a director of EREC since November 17, 2004. Mr.
Cline was elected as Managing Director and Assistant General Counsel of Enron in
February 2002. Mr. Cline has served multiple Enron companies in various legal
and management roles since 1992.
Robert Semple, age 59, has been a director of EREC since December 12, 2002 and
has served as a financial insolvency consultant with Kroll Zolfo Cooper LLC
("Kroll") since 2000. In connection with the Enron bankruptcy, the debtors
retained the services of
14
Stephen Forbes Cooper, LLC ("SFC"), an affiliate of Kroll, as an independent
contractor to provide management services for the debtors. SFC has a
shared-employee arrangement with Kroll and Mr. Semple provides management
services to Enron and its subsidiaries in connection with his relationship with
Kroll. Mr. Semple served as an independent management consultant for various
companies prior to his association with Kroll. The board of directors of EREC
has determined that Mr. Semple is an "audit committee financial expert" as such
term is defined by the rules of the Commission.
Mr. Semple is not "independent" as such term is defined under the listing
standards of the New York Stock Exchange.
Messrs. Cline and Semple were executive officers of various subsidiaries of
Enron that filed voluntary petitions for Chapter 11 reorganization with the U.S.
Bankruptcy Court for the Southern District of New York filed in connection with
the Enron bankruptcy. See "Item 1. Business - Bankruptcy and Mergers" for
additional information. In addition, Mr. Cline was an executive officer of
Dabhol Power Company, a foreign Enron affiliated entity, for which a receiver
was appointed.
Delegation of Management
The Partnership has delegated certain aspects of the operation, management,
maintenance and repair of the Windsystem to EWS pursuant to the Management
Agreement. See "Item 1. Business - Operation and Maintenance Services".
Item 6. Executive Compensation
As the Partnership has no employees, it does not pay executive compensation to
any individual. The General Partner participates in the profits and losses of
the Partnership by virtue of its partnership interests, and EWS receives payment
under the Management Agreement for services rendered thereunder. The Partnership
makes distributions in accordance with the terms of the Partnership Agreement.
The Partnership did not distribute any amounts to the General Partner during
2001, 2002, 2003, 2004 or for the first six months of 2005. During 2002, 2003,
2004, and for the first six months of 2005, Mr. Gadd was compensated by Enron or
subsidiaries of Enron for all of his services rendered to Enron or its
affiliates, including services to the Partnership, and was not compensated
directly by the Partnership. During the first six months of 2005, Ms. Kokenge
was compensated by Enron or subsidiaries of Enron for all of her services
rendered to Enron and its affiliates, including services to the Partnership, and
was not compensated directly by the Partnership. Mr. Semple was compensated for
all of his services rendered to Enron and its affiliates, including services to
the Partnership, by Kroll, an affiliate of SFC, which was retained by the
debtors in the Enron bankruptcy to provide management services for the debtors.
Mr. Cline was compensated for all of his services rendered to Enron or its
affiliates, including services to the Partnership, by Enron. Messrs. Cline and
Semple have not been compensated directly by the Partnership for their services
as directors of EREC. See also "Item 7. Certain Relationships and Related
Transactions" for a discussion of payments made by the Partnership to EWS.
15
Item 7. Certain Relationships and Related Transactions
Purchase Note Financing
EWS earned interest from the Partnership under the Purchase Notes. The interest
rate under the Purchase Notes was 10.75% per annum. Prior to maturity on
December 31, 2001, the Purchase Notes were payable in equal semi-annual
installments of principal and interest, commencing in 1986. During 2001, 2003
and 2004, and during the first six months of 2005, the Partnership made
principal payments to EWS on the Purchase Notes of $1.1 million, $0.6 million,
$1.8 million and $0.2 million, respectively. The Partnership did not make any
principal payments on the Purchase Notes during 2002. At December 31, 2001,
approximately $4.1 million of outstanding principal, and $2.5 million of accrued
interest, was due to EWS under the Purchase Notes. At December 31, 2002,
approximately $4.1 million of outstanding principal, and $2.5 million of accrued
interest in arrears, continued to be due to EWS under the Purchase Notes. At
December 31, 2003, approximately $3.5 million of outstanding principal, and $2.5
million of accrued interest in arrears, was due to EWS under the Purchase Notes.
At December 31, 2004, approximately $1.7 million of outstanding principal, and
$2.5 million of accrued interest in arrears, was due to EWS under the Purchase
Notes. At June 30, 2005, approximately $1.5 million of outstanding principal,
and $2.5 million of accrued interest in arrears, was due to EWS under the
Purchase Notes.
During the period of 1996 through 2001, the Partnership did not pay all of the
annually scheduled principal payments due under the Purchase Notes and,
notwithstanding the maturity of the Purchase Notes in December 2001, the
Partnership has not paid all of the remaining outstanding principal owing under
the Purchase Notes. Notwithstanding the terms of the Purchase Notes, the payee
under the Purchase Notes required that the Partnership pay only the
originally-scheduled interest on the Purchase Notes as established under the
amortization schedules that are attached to the Purchase Notes. The payee under
the Purchase Notes did not require the Partnership to pay any additional
interest with respect to (i) the portion of the annual principal payments that
was due and unpaid at the end of any calendar year during such period and (ii)
any principal balance of the Purchase Notes outstanding at any time after the
maturity date of the Purchase Notes. As a result of this arrangement, the
Partnership paid or has been obligated to pay approximately $ 2.2 million less
in interest through June 30, 2005 than it otherwise would have paid or been
obligated to pay in the absence of such arrangement. This arrangement is
acknowledged and memorialized in the Interest Expense Acknowledgement.
The Partnership is in default under the Purchase Notes. Upon notice of default,
EWS has a right to foreclose against its security interest in the assets of the
Partnership, including the Windsystem. As of the date of filing of this
registration statement, EWS had not notified the Partnership of EWS' intent to
foreclose on its security interest. Any such foreclosure by EWS on its security
interest in the assets of the Partnership would have a material adverse effect
on the Partnership. See "Item 2. Financial Information - Liquidity and Capital
Resources" for additional information.
16
Management of the Windsystem
Under the Management Agreement, EWS, as an independent contractor, is the
manager with respect to the operation, management, maintenance and repair of the
Windsystem. EWS is obligated to exercise due diligence in performing its duties
and obligations. EWS' duties and obligations under the Management Agreement
include, but are not limited to: (1) representing the Partnership in its
dealings with PG&E, (2) hiring and supervising operating and maintenance
personnel, (3) causing the Turbines to be maintained in good condition and
repair, (4) complying with any orders or obligations imposed by any governmental
agency with jurisdiction, unless the Partnership instructs to the contrary, (5)
investigating all accidents or damage relating to the ownership, operation or
maintenance of the Turbines or infrastructural facilities, (6) enforcing
warranty and insurance claims associated with the Turbines, the infrastructural
facilities and components thereof, (7) maximizing production of electric power
and performing other services that it may deem necessary in its reasonable
judgment, (8) using best efforts to ensure costs and expenses are reasonable and
competitive with those of unaffiliated third parties, and (9) providing such
reports and information as may reasonably be requested by the lenders to, or
other persons with an interest in, the Partnership. See "Item 1. Business -
Operation and Maintenance Services."
As compensation for its services under the Management Agreement, EWS receives a
management fee of 1% of the Partnership's Gross Operating Proceeds. Under the
Management Agreement, EWS is also reimbursed for 115% of the maintenance costs
incurred in connection with the Windsystem, including labor and material costs
that it incurs in the performance of maintenance services, including maintenance
services by third parties relating to the Windsystem.
During 2001, the Partnership made payments under the Management Agreement to or
on behalf of EWS in an aggregate amount of approximately $0.6 million. During
2002, the Partnership made payments under the Management Agreement to or on
behalf of EWS in an aggregate amount of approximately $0.6 million. During 2003,
the Partnership made payments under the Management Agreement to or on behalf of
EWS in an aggregate amount of approximately $0.9 million. During 2004, the
Partnership made payments under the Management Agreement to or on behalf of EWS
in an aggregate amount of approximately $0.6 million. During the first six
months of 2005, the Partnership made payments under the Management Agreement to
or on behalf of EWS in an aggregate amount of approximately $0.3 million. Eric
D. Gadd was Chief Executive Officer and President of EWS from May 11, 2002
through August 7, 2005. Robert Semple was a Managing Director of EWS from March
17, 2003 through November 16, 2004, and was an Associate Restructuring Director
of EWS from November 17, 2004 through August 7, 2005. K. Wade Cline was a
Vice-President of EWS from November 17, 2004 through August 7, 2005.
17
Wind Park Easement Agreement
The Partnership uses the Operating Site pursuant to the Wind Park Easement
Agreement. Under the Wind Park Easement Agreement, the Partnership is required
to pay EWS (i) annual easement fees, (ii) the Partnership's pro rata share of
real property taxes and assessments, and (iii) the Partnership's pro rata share
of the repair and maintenance costs of the infrastructure roads relating to the
Operating Site. The Wind Park Easement Agreement requires that the Partnership
pay annual easement fees in an amount equal to the greater of: (i) the
Partnership's pro rata share of each annual payment due from EWS to the City
under the Ground Lease, or (ii) a percentage of Gross Operating Proceeds that
increases throughout the term of the Wind Park Easement Agreement (5% from
calendar year 1986 through 1995; 10% from calendar year 1996 through 2000; and
13% thereafter). The Partnership has recognized the easement expense on a
straight-line basis over the life of the Wind Park Easement Agreement. For each
of 2001, 2002, 2003 and 2004, the Partnership's easement fees were $0.3 million.
For the first six months of 2005, the Partnership's easement fees were $0.1
million.
At the termination of the Wind Park Easement Agreement the Partnership may: (1)
elect to abandon the Turbines, related equipment and substation; (2) within 90
days, at its own expense, remove the Turbines, related equipment and that
portion of the power substation affixed to the pad upon which it is situated; or
(3) elect to sell the Turbines. If the Partnership elects to sell the Turbines
at any time, the Partnership must first offer the Turbines to EWS on the same
terms and conditions. If the Turbines, related equipment, and substation are
abandoned, neither EWS nor any affiliate shall have the right to operate the
Turbines, related equipment, and substation unless EWS (or its affiliate) pays
to the Partnership the appraised fair market value (as defined) of the Turbines,
related equipment, and substation.
Item 8. Legal Proceedings
PG&E BANKRUPTCY
On April 6, 2001 PG&E filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of California, San Francisco Division (the "PG&E Bankruptcy
Proceeding"). At the time of this bankruptcy filing, PG&E owed the Partnership
$666,626 (the "PG&E Prepetition Payable") in connection with the prior delivery
of energy by the Partnership to PG&E under the Power Agreement. In July 2001,
the Partnership and PG&E entered into the PG&E Payment Agreement, pursuant to
which PG&E agreed to: (i) amend the energy component of the prices to be paid
under the Power Agreement for the lesser of the term of the Power Agreement or
five years; (ii) pay to the Partnership the PG&E Prepetition Payable, together
with interest; and (iii) use its best efforts to assume the Power Agreement in
the PG&E Bankruptcy Proceeding. Pursuant to the Third Amendment to the Power
Purchase Agreement between PG&E and the Partnership dated November 13, 2001, the
Power Agreement was amended so that the energy component of the price to be paid
under the Power Agreement is equal to an average price of $0.0537 per kWh rather
18
than based on the variable short run avoided cost of energy for PG&E. PG&E
assumed the Power Agreement in the PG&E Bankruptcy Proceeding and by April 2003
PG&E paid to the Partnership the amount of the PG&E Prepetition Payable,
together with interest in the aggregate amount of $50,747.
FERC Investigation
In May 2003, the FERC, pursuant to FERC Docket No. EL03-47-000, began
investigating whether the Windsystem and certain other power projects owned by
Enron or its affiliates failed to meet the ownership criteria for qualifying
small power production facility ("QF") status under PURPA following Enron's
acquisition of Portland General Electric Company in 1997. Under PURPA, and the
applicable FERC regulations, a power project is not a QF if more than 50% of the
equity interest in the project is owned by an electric utility or electric
utility holding company. The Partnership and FERC Trial Staff have settled the
issues under investigation and entered into a Consent Agreement dated March 10,
2004 (the "Consent Agreement"). The Consent Agreement is available on the FERC
website. Pursuant to the Consent Agreement, the Partnership and FERC Trial Staff
agree that the Windsystem is a QF notwithstanding Enron's indirect equity
interest in the Windsystem and the other contractual relationships between the
Partnership and various affiliates of Enron. FERC approved the Consent Agreement
effective June 2, 2004.
Avian Fatalities
The Operating Site is located in the Altamont Pass area, which is in Alameda
County, California. There are approximately 5,400 operating wind turbines in the
Altamont Pass area, including the 200 Turbines owned and operated by the
Partnership. The operation of wind turbines in the Altamont Pass area has
resulted in a significant number of avian fatalities, including the deaths of
certain hawks, eagles and owls, among other birds. Certain of these fatalities
may be a violation of law, including The Migratory Bird Treaty Act and the Bald
and Golden Eagle Protection Act. The Partnership and other turbine operators in
the Altamont Pass area have been working together to formulate and implement
various measures to reduce the number of avian fatalities. The Partnership
intends to take a number of measures to address this issue and, depending on the
measures taken, the cost (either direct cost or reduction in revenue) of such
measures, and the cost of any actions that may be brought against the
Partnership in connection with this issue, may be material to the ongoing
operations of the Partnership. In connection with formulating measures to
address this avian fatality issue, the Partnership, along with the other
Altamont Pass area wind turbine operators, have had ongoing discussions with
representatives of the California Department of Fish and Game ("CDFG"), the U.S.
Fish and Wildlife Service ("FWS") and the U.S. Department of Justice ("DOJ"),
among others. At this point in time, the Partnership is unable to determine
whether the measures it expects to take to address the avian fatality concerns
applicable to the Operating Site will be satisfactory and whether CDFG, FWS or
DOJ will require further action by the Partnership, or will bring any actions
against the Partnership.
19
Item 9. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters
There is no established public trading market for the Partnership Interests. As
of June 30, 2005, there were 560 holders of the 759 Partnership Interests. The
Partnership makes distributions to the holders of Partnership Interests in
accordance with the terms of the Partnership Agreement. However, under the
Purchase Notes, the Partnership cannot make cash distributions to its partners
unless certain cash reserve balances are maintained and no events of default
exist. The Partnership has not made distributions to its holders in any fiscal
year, including during the fiscal years ended December 31, 2001, December 31,
2002, December 31, 2003 and December 31, 2004, or during the six months ended
June 30, 2005.
Item 10. Recent Sales of Unregistered Securities
The Partnership has not sold any securities within the past three years.
Item 11. Description of Registrant's Securities to be Registered
The Partnership's securities consist of the Partnership Interests. Such Units
are governed by the Uniform Limited Partnership Act of the State of California
as set forth in the California Corporations Code, and by the terms of the
Partnership Agreement.
Under the Partnership Agreement, no General Partner may assign, transfer,
mortgage or sell any portion of its interest in the Partnership (other than to
an affiliate) without the consent of Unit holders holding a majority of the
Units. No Limited Partner may sell, transfer or assign his interest in the
Partnership, in whole or in part, unless the General Partner consents to such
sale, transfer or assignment, which consent may be withheld in his sole
discretion.
An assignee of an interest in the Partnership may only be admitted as a Limited
Partner if, among other things, the General Partner consents and the assignee
accepts and agrees to be bound by the terms and provisions of the Partnership
Agreement. In connection with any proposed assignment of Units consented to by
the General Partner, the assigning Unit holder must assign not less than one
Unit. An assignee has no right to require any information or account of the
Partnership's transactions or to inspect the Partnership books or to vote, but
is entitled to receive a share of the profits or the return of the capital
contributions to which the assignor would otherwise be entitled under the
Partnership Agreement. An assignee, however, has the right to assign those
interests which he has to a successor assignee and to join with such successor
assignee in making application to substitute such successor assignee as a
Limited Partner, so long as such assignment does not contravene the terms of the
Partnership Agreement.
20
Summary of the Limited Partnership Agreement
The following is an explanation of certain material terms and provisions of the
Partnership Agreement, a copy of which is attached as Exhibit 3.2 hereto and is
incorporated herein by this reference. The following description is a summary
only, is not intended to be complete, and is qualified in its entirety by the
Partnership Agreement itself.
Liability of Partners
No Unit holder is liable for any of the debts, liabilities, contracts or any
other obligations of the Partnership in excess of the sum of the amount required
to be contributed or otherwise contributed to the capital of the Partnership by
such Unit holder pursuant to the Partnership Agreement and his share of the
undistributed profits. In the event that a General Partner withdraws from the
Partnership or sells, transfers, or assigns its entire interest, is removed or
otherwise ceases to be a General Partner, the General Partner remains liable for
all obligations and liabilities incurred by the Partnership prior to the
effective date of such occurrence and is free of any obligation or liability on
account of the activities of the Partnership from and after such time.
Special Limited Partner
A Special Limited Partner means a person who purchases a special Unit in the
Partnership representing capital contributions totaling $25,000 and is admitted
to the Partnership as a Limited Partner. A Special Limited Partner is entitled
to the distributions and allocations provided for with respect to Special
Limited Partners under the Partnership Agreement.
Management of Partnership Affairs
Subject to the consent of the Limited Partners where required by the Partnership
Agreement, the General Partners have the exclusive right to manage the business
of the Partnership and are authorized to take any action they deem necessary in
accordance with the provisions of the Partnership Agreement. No Limited Partner
may take any part in or interfere in any manner with the conduct or control of
the business of the Partnership. No Limited Partner has any right or authority
to act for or bind the Partnership.
The General Partner controls, conducts and manages the day-to-day operations of
the Partnership business and is to devote such time to the Partnership as
necessary for the proper performance of the General Partner's duties. The
General Partner may exercise on behalf of the Partnership all powers and rights
necessary, proper, convenient or advisable to effectuate and carry out the
business and objectives of the Partnership. Other responsibilities of the
General Partner include, but are not limited to, the following: acquiring
property for the Partnership; spending the capital and income of the
Partnership; purchasing insurance; borrowing money; entering into contracts;
retaining
21
independent public accountants; employing attorneys; and admitting Limited
Partners into the Partnership.
Without the consent of all of the Limited Partners, the General Partner has no
authority to: act in contravention of the Partnership Agreement; perform any act
which would make it impossible to carry on the ordinary business of the
Partnership; confess a judgment against the Partnership; possess property or
assign rights in specific property for other than a Partnership purpose; admit a
person as an additional or substitute General Partner except as otherwise
provided in the Partnership Agreement; commingle funds of the Partnership with
funds of any other person or entity; amend the Partnership Agreement, except as
provided in Article 14 of the Partnership Agreement; or do any act which would
jeopardize the Windsystem's status as a "qualifying small power production
facility" as defined in PURPA.
Sharing of Profits and Losses; Partnership Accounting
Each partner has a capital account. To each capital account there is credited
the Partner's aggregate capital contribution and the partner's distributive
share of profits and gains allocated pursuant to the Partnership Agreement. From
each capital account there is debited (i) the cash and the net fair market value
of property distributed to the partner, (ii) the cash distributed to the
partner, and (iii) the partner's distributive share of losses. In the event all
or any portion of an interest in the Partnership is transferred in accordance
with the terms of the Partnership Agreement, the transferee will succeed to the
capital account of the transferor to the extent it relates to the transferred
interest.
Profits and losses for any taxable year or other period are allocated as
follows: for any taxable year or other period beginning before the later of the
distribution date or January 1, 1996, 98% to the regular Limited Partners in
proportion to their regular Units, 1% to the Special Limited Partners in
proportion to their special Units and 1% to the General Partner; and for any
taxable year or other period beginning on or after the later of the distribution
date or January 1, 1996, 75% to the regular Limited Partners in proportion to
their regular Units, 5% to the Special Limited Partners in proportion to their
special Units and 20% to the General Partner.
Additional Partners
The General Partner has the authority to admit Limited Partners into the
Partnership. This occurs upon the acceptance of the subscription agreement by
the General Partner.
Dissolution of the Partnership
The Partnership will dissolve only upon the happening of any of the following
events: (i) the withdrawal, removal, death, insanity, dissolution, bankruptcy or
legal incapacity of a General Partner; (ii) the sale or other disposition of all
or substantially all of the property of the Partnership; (iii) the affirmative
vote of partners holding a majority of the interests in the Partnership to
dissolve and wind up the affairs of the Partnership; (iv) the delivery
22
of written notice by the City or its successor pursuant to the Ground Lease of
its intent to exercise the option contained in the Ground Lease to purchase the
assets of the Partnership; or (v) the expiration of the term of the Partnership.
Dissolution of the Partnership will be effective on the day on which the event
occurs giving rise to the dissolution, but the Partnership does not terminate
until the Partnership's Certificate of Limited Partnership is canceled and the
assets of the Partnership are distributed. Notwithstanding the dissolution of
the Partnership, prior to the termination of the Partnership, as aforesaid, the
business of the Partnership and the affairs of the partners will continue to be
governed by the Partnership Agreement.
Upon dissolution of the Partnership, the General Partner will liquidate the
assets of the Partnership, apply and distribute the proceeds thereof as
contemplated by the Partnership Agreement and cause the cancellation of the
Partnership's Certificate of Limited Partnership.
Removal or Admission of General Partner
The General Partner may be removed and successor General Partners may be
admitted upon the vote of the holders of a majority of the outstanding regular
Units.
Amendments; Meetings
No amendment to the Partnership Agreement may: (i) enlarge the obligations of
any Limited Partner or modify the limited liability of any Limited Partner
without the consent of such Limited Partner; (ii) modify the order or method for
the allocation of profits and losses without the consent of each partner
adversely affected by such modification; (iii) modify certain amendment
provisions of the Partnership Agreement; or (iv) expand the duties or reduce the
rights of the General Partner without the approval of the affected General
Partner.
Meetings of the partners are called by the General Partner or, upon written
request to the General Partner, by regular Limited Partners holding more than
ten percent of regular Units, provided the purpose of the meeting relates to
matters upon which the Partnership Agreement permits the regular Limited
Partners to vote. Written notice of a meeting called by the General Partner is
given to all partners (either in person or by registered mail) not less than 10
nor more than 60 days before the date of the meeting. The notice states the
place, date, and hour of the meeting and the general nature of the business to
be transacted. Each partner entitled to vote under the Partnership Agreement may
authorize another person or persons to act for it in all matters regarding his
Units including the waiver of notice, voting and participation in meetings.
Regular Limited Partners holding a majority of Units represented in person or by
proxy will constitute a quorum for the transaction of business at any meeting of
the partners.
The General Partner or the regular Limited Partners requesting a meeting may fix
in advance a date as the record date for determining the regular Limited
Partners entitled to
23
vote at a meeting. The date will be not more than 50 days nor less than 10 days
before any such meeting.
Voting
The approval of the holders of a majority of the regular Units is required,
subject to the provisions of the Partnership Agreement, to: (i) amend the
Partnership Agreement; (ii) dissolve the Partnership; (iii) remove a General
Partner, provided that removal of a sole General Partner will not become
effective until the election of a new General Partner; (iv) admit a new General
Partner upon the removal, withdrawal, retirement, death, insanity, bankruptcy,
insolvency or dissolution of a General Partner; (v) approve the assignment,
transfer, mortgage or sale of any portion of a General Partner's interest in the
Partnership (other than with respect to an affiliate); or (vi) sell or transfer
all or substantially all of the assets of the Partnership other than a sale or
transfer of Partnership assets in the ordinary course of business.
Notwithstanding the foregoing, (i) the affirmative vote of all of the Limited
Partners is required to admit a General Partner or elect to continue the
business of the Partnership after a General Partner ceases to be a General
Partner other than by removal where there is no remaining or surviving General
Partner and (ii) the affirmative vote of a majority-in-interest of the Limited
Partners is required to admit a General Partner in all circumstances other than
where a General Partner is removed and there is no remaining or surviving
General Partner. Special Limited Partners are not entitled to vote other than as
described in this paragraph.
Books, Records and Reports
The Partnership will keep at its principal place of business, for inspection by
any partner during normal business hours, all the following: (i) a current list
of the full name and last known business or residence address of each partner,
together with the contribution and the share in profits and losses of each
partner; (ii) a copy of the Certificate of Limited Partnership and all
certificates of amendment thereto, together with executed copies of any powers
of attorney pursuant to which any certificate has been executed; (iii) copies of
the Partnership's federal, state, and local income tax or information returns
and reports, if any, for the six most recent taxable years; (iv) copies of the
original Partnership Agreement and all amendments thereto; (v) financial
statements of the Partnership for the six most recent fiscal years; and (vi) the
Partnership's books and records for at least the current and past three fiscal
years. The General Partner will cause an annual report to be sent to each of the
partners not later than 120 days after the close of the fiscal year. That report
will contain a balance sheet as of the end of the fiscal year and an income
statement and statement of changes in financial position for the fiscal year,
and a report on the activities of the Partnership during the period covered by
the report. Limited Partners representing at least 5 percent of the interests of
Limited Partners may make written request to the General Partner for an income
statement of the Partnership for the initial three-month, six-month, or
nine-month period of the most current fiscal year ended more than 30 days prior
to the date of the request and a balance sheet of the Partnership
24
as of the end of that period. The statement will be delivered or mailed to the
Limited Partners within 30 days thereafter.
Item 12. Indemnification of the General Partner and its Affiliates
Pursuant to the terms of the Partnership Agreement, the Partnership has agreed
to indemnify the General Partner and its officers and directors for any act
performed by them within the scope of authority conferred upon the General
Partner by the Partnership Agreement provided that they acted in good faith and
in a manner reasonably believed to be in, or not opposed to, the best interests
of the Partnership and the Limited Partners, and had no reasonable grounds to
believe that their conduct was negligent or unlawful. However, no
indemnification may be made with respect to any claim, issue or matter as to
which the General Partner or its officers and directors are adjudged to be
liable for negligence or willful misconduct in the performance of their duties
to the Partnership unless, and only to the extent that, the court in which such
action or suit is brought shall determine that, despite the adjudication of
liability for negligence or willful misconduct, and in view of all the
circumstances of the case, the General Partner and its officers and directors
are fairly and reasonably entitled to indemnity for such expenses. Any indemnity
shall be paid from, and only to the extent of, assets of the Partnership, and
the Limited Partners shall not have any personal liability on account thereof.
Pursuant to the terms of the Management Agreement, the Partnership has agreed to
indemnify EWS against all actions, claims, losses, damages, injuries,
liabilities, costs, charges and expenses incurred by EWS in its proper
performance of its duties under the Management Agreement to the extent directly
or indirectly resulting from or attributable to the fault or neglect of the
Partnership and on account of any failure of EWS to comply with any applicable
governmental orders or requirements pursuant to the written instructions of the
Partnership. EWS has similarly agreed to indemnify the Partnership where the
action, claim, loss, damage, injury, liability, cost, charge or expense is
directly or indirectly attributable to the fault or neglect of EWS or its
officers or employees in the performance of EWS' duties under the Management
Agreement.
Pursuant to the terms of the Wind Park Easement Agreement, the Partnership has
agreed to indemnify EWS against any losses, liabilities, claims, judgments,
damages, costs and expenses (including without limitation reasonable attorneys'
fees) caused by any breach by the Partnership, its agents or employees (other
than EWS or its affiliates) of a duty imposed on it or any of them by law or
under the Wind Park Easement Agreement for injury or damage to persons or
property resulting from or attributable to the fault or neglect of the
Partnership, its agents or employees (other than EWS or its affiliates).
Indemnification of Officers and Directors
Enron
The Third Amended and Restated Articles of Incorporation ("Enron's Articles")
and the Amended and Restated Bylaws ("Enron's Bylaws") of Enron provide
indemnification for
25
officers and directors of Enron and its subsidiaries, including the General
Partner and EREC, to the fullest extent permitted by the Oregon Revised Statutes
(the "ORS").
The ORS permit a corporation to include a provision in its articles of
incorporation that eliminates personal liability of directors or officers of the
corporation to the corporation and its shareholders for monetary damages for
conduct as a director or officer of the corporation, except that no provision
may eliminate or limit a director's liability for (a) breach of the director's
duty of loyalty to the corporation or its shareholders, (b) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (c) an unlawful payment of a dividend or repurchase of stock or (d) any
transaction from which the director derived an improper personal benefit.
Enron's Articles provide that to the fullest extent permitted by the ORS, no
director or officer of Enron shall be personally liable to Enron or its
shareholders for monetary damages for conduct as a director or officer. Certain
provisions of the ORS and Enron's Articles and Bylaws concerning indemnification
of directors and officers are discussed below.
Oregon Revised Statutes. The ORS provides that a director or officer who has
been or is threatened to be made a defendant in a legal proceeding because that
person is or was a director or officer of a corporation (1) shall be indemnified
by the corporation for reasonable expenses of that litigation when the director
or officer is wholly successful on the merits or otherwise, (2) may be
indemnified by the corporation, even if the director or officer is not
successful on the merits or otherwise, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful) and (3) may be indemnified
by the corporation for reasonable expenses of a derivative suit (a proceeding by
or in the right of the corporation), even if the director or officer is not
successful on the merits, if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, provided that the director or officer is not adjudged liable to the
corporation. The indemnification described in clauses (2) and (3) above may be
made only upon a determination by (a) a majority of a quorum of disinterested
directors or a committee of disinterested directors, (b) independent legal
counsel or (c) the shareholders that indemnification is proper because the
applicable standard of conduct has been met. The ORS authorizes the advancement
of litigation expenses to a director or officer upon receipt of a written
affirmation of the director's or officer's good faith belief that the standard
of conduct has been met and an undertaking by the director or officer to repay
the expenses if it is ultimately determined that he or she is not entitled to be
indemnified. The ORS authorizes a court to award additional indemnification. The
ORS also authorizes a corporation to provide officers' and directors' liability
insurance and provides that statutory indemnification rights are not exclusive
of any other right to which those indemnified may be entitled under any bylaw,
agreement, board action, vote of shareholders or otherwise.
Enron's Articles, Bylaws and Insurance. Enron's Articles and Bylaws provide that
Enron will indemnify to the fullest extent permitted by the ORS a person who is
made, or threatened to be made, a party to or a witness in, or is otherwise
involved in, any
26
threatened pending or completed action, suit or proceeding, whether civil,
criminal, administrative, investigative or otherwise (including any action, suit
or proceeding by or in the right of Enron) because that person (1) is or was a
director or officer of Enron or any of its subsidiaries, (2) is or was serving
as a fiduciary within the meaning of the Employee Retirement Income Security Act
of 1974 with respect to any employee benefit plan of Enron or any of its
subsidiaries, or (3) while serving as an officer or director of Enron, is or was
serving, at the request of Enron or any of its subsidiaries, as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The expenses incurred by the director or officer in connection with
any of the above such actions is to be paid by Enron in advance upon written
request of the indemnified person, provided the director or officer furnishes to
Enron (i) a written affirmation that the director or officer believes that he or
she is entitled to be indemnified by Enron and (ii) a written undertaking to
repay such advance to the extent that it is ultimately determined by a court
that such person is not entitled to be indemnified by Enron.
Enron's Articles provide that notwithstanding any of the foregoing, absent
specific authorization by the Board of Directors of Enron, Enron shall not
provide any indemnification to any person who is (x) a "Person" (as defined in
the Plan) that is not entitled to a release or waiver of claims by the Debtors
and/or Debtors in Possession (as such terms are defined in the Plan) because of
application of clause (a) of the first proviso under Section 42.6 of the Plan or
(y) a Person against whom the Debtors and/or Debtors in Possession have a claim
that is not entitled to be released or waived because of application of clause
(b) of the first proviso under Section 42.6 of the Plan.
Enron has obtained insurance pertaining to officers and directors of Enron and
its subsidiaries against specified liabilities which they may incur in their
capacities as officers or directors.
EREC
The Amended and Restated Certificate of Incorporation of EREC ("EREC's
Articles") provides indemnification for officers and directors of EREC to the
fullest extent permitted by the Delaware General Corporation Law ("DGCL"). The
relevant provisions of the DGCL and EREC's Articles concerning indemnification
of directors and officers are discussed below.
Delaware General Corporation Law. Under Section 145 of the DGCL, a corporation
may indemnify a person made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees) actually
and reasonably incurred if he acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and in criminal actions, where he had no reasonable cause to believe
his conduct was unlawful. Indemnification against expenses (including attorneys'
fees) is
27
also permitted in lawsuits brought by or on behalf of the corporation if the
standards of conduct described above are met, except that no indemnification is
permitted in respect of any matter in which the person is adjudged to be liable
to the corporation unless a court determines that indemnification is fair and
reasonable in view of all the circumstances of the case.
Expenses (including attorneys' fees) incurred by an officer or director in
defense of a lawsuit of the type described above may be paid by the corporation
in advance of the final disposition of such suit upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the corporation.
Such indemnification rights are specifically not deemed to be exclusive of other
rights of indemnification by agreement or otherwise.
EREC's Articles. EREC's Articles provides that EREC will indemnify and hold
harmless, to the fullest extent authorized by the DGCL, each person who was or
is made or is threatened to be made a party to, or is involved in any action,
suit or proceeding, including civil, criminal, administrative or investigative
proceedings, by reason of the fact that such person is or was a director or
officer of EREC (or serving at the request of EREC as a director, officer,
employee or agent for another entity). Such persons seeking indemnification in
connection with a suit or proceeding of the type discussed above that was
initiated by such person may only be indemnified by EREC if the suit or
proceeding was authorized by EREC's Board of Directors. EREC's Articles also
provide that EREC will pay the expenses incurred in defending any such action in
advance of its final disposition.
Item 13. Financial Statements and Supplementary Data
The information requested by this Item is incorporated by reference to the
Financial Statements beginning on page F-1.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
As described above, commencing on December 2, 2001, and periodically thereafter,
Enron and certain of its subsidiaries filed voluntary petitions for relief under
the Bankruptcy Code. On January 17, 2002, the Board of Directors of Enron
discharged Enron's independent auditor Arthur Andersen LLP ("Arthur Andersen").
Since that date, Enron and many of its subsidiaries have not had an independent
auditor. Arthur Andersen did not audit the Partnership's financial statements
for the fiscal year ended December 31, 2001 or thereafter. The reports of Arthur
Andersen on the Partnership's federal income tax basis financial statements for
the years ended December 31, 1999 and 2000 did not contain an adverse opinion or
disclaimer of opinion and were not qualified or modified as to the audit scope,
uncertainty or accounting principles.
28
On January 27, 2005, the Partnership retained Hein & Associates LLP as its
independent accountant to audit the Partnership's financial statements as of and
for the years ended December 31, 2001, 2002, 2003 and 2004 and to review interim
financial information to be filed with the Commission during the year ending
December 31, 2005. During the two most recent fiscal years and during the
current fiscal year through January 27, 2005, the Partnership did not consult
with Hein & Associates LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed; (ii) the
type of audit opinion that might be rendered on the Partnership's financial
statements; or (iii) any matter which was the subject of a disagreement or a
reportable event, as such terms are defined in Item 304(a)(1) of Regulation S-K
and its related instructions.
Item 15. Financial Statements and Exhibits
(a) Financial Statements
Balance Sheets at June 30, 2005 (Unaudited) and December 31, 2004, 2003,
2002 and 2001
Statements of Operations for the years ended December 31, 2004, 2003,
2002 and 2001
Unaudited Statements of Operations for the six months ended June 30,
2005 and 2004
Statements of Changes in Partners' Deficit for the six months ended June
30, 2005 (Unaudited) and the years ended December 31, 2004, 2003, 2002
and 2001
Statements of Cash Flows for the years ended December 31, 2004, 2003,
2002 and 2001
Unaudited Statements of Cash Flows for the six months ended June 30,
2005 and 2004
Notes to Financial Statements
(a)2 Schedules
29
None
(b) Exhibits
Number Description
- ------ ------------------------------------------------------------------------
3.1 Certificate of Limited Partnership filed in the office of the California
Secretary of State on October 25, 1985.
3.2 First Amended and Restated Agreement of Limited Partnership of Zond
Windsystem Partners, Ltd. Series 85-C, dated as of December 23, 1985.
10.1 Windsystem Construction Agreement, dated as of November 4, 1985, between
Zond Construction Corporation IV ("ZCC") and Zond Windsystem Partners,
Ltd. Series 85-C (the "Partnership").
10.2 (a) Purchase Note and Security Agreement (Series C) dated as of
December 2, 1985 between ZCC and the Partnership;
(b) Amendment to Purchase Note and Security Agreement between ZCC
and the Partnership dated as of July 1, 1986;
(c) Supplemental Security Agreement (Series C) between Zond
Windsystems Holding Company (successor by merger to ZCC) and the
Partnership dated as of June 30, 1992.
10.3 (a) Series C Promissory Note dated as of December 23, 1985 in the
amount of $7,920,000 issued by the Partnership in favor of ZCC;
(b) Series C Promissory Note dated as of December 27, 1985 in the
amount of $7,920,000 issued by the Partnership in favor of ZCC.
10.4 (a) Deed of Trust and Assignment of Rents dated as of December 2,
1985 by the Partnership in favor of ZCC;
(b) First Amendment to Deed of Trust and Assignment of Rents dated
as of July 1, 1986 between the Partnership and ZCC.
10.5 Amended Ground Lease For Wind Park Development on the Rooney Ranch,
Alameda County dated October 29, 1985 by and between the City of Santa
Clara and Zond Systems, Inc. ("ZSI").
10.6 Amended and Restated Wind Park Easement Agreement, dated as of July 1,
1986, between ZSI and the Partnership.
10.7 Windsystem Management Agreement, dated as of November 4, 1985, between
ZSI and the Partnership.
30
10.8 (a) Power Purchase Agreement For Long-Term Energy and Capacity,
dated January 17, 1985, between Wind Developers, Inc. and
Pacific Gas and Electric Company ("PG&E");
(b) Assignment of Power Purchase Agreement effective as of September
17, 1985, between Wind Developers, Inc. and ZSI;
(c) Assignment of Power Purchase Agreement dated November 4, 1985,
between ZSI and the Partnership;
(d) First Amendment to Power Purchase Agreement between PG&E and the
Partnership dated December 11, 1985;
(e) Second Amendment to the Long-Term Energy and Capacity Power
Purchase Agreement between PG&E and the Partnership dated
September 19, 1988;
(f) Third Amendment to the Power Purchase Agreement between PG&E and
the Partnership dated November 13, 2001.
10.9 Agreement dated as of July 13, 2001 between PG&E and the Partnership.
10.10 Interest Expense Acknowledgement dated as of August 30, 2005 between
EWS and the Partnership.
31
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
ZOND WINDSYSTEM PARTNERS, LTD.
SERIES 85-C, a California limited
partnership
By: Zond Windsystems
Management V LLC,
General Partner
Dated August 30, 2005 By: /s/ Eric D. Gadd
-------------------------------
Name: Eric Gadd
------------------------------
Title: President and CEO
-----------------------------
32
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets at
June 30, 2005 (Unaudited) and December 31, 2004, 2003, 2002 and 2001 F-1
Statements of Operations for
the years ended December 31, 2004, 2003, 2002 and 2001 F-2
Unaudited Statements of Operations for
The six months ended June 30, 2005 and 2004 F-2
Statements of Changes in Partners' Deficit for
the six months ended June 30, 2005 (Unaudited) and for the years ended
December 31, 2004, 2003, 2002 and 2001 F-3
Statements of Cash Flows for the
years ended December 31, 2004, 2003, 2002 and 2001 F-4
Unaudited Statements of Cash Flows for
the six months ended June 30, 2005 and 2004 F-4
Notes to Financial Statements F-5
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Zond Windsystem Partners, Ltd. Series 85-C:
We have audited the accompanying balance sheets of Zond Windsystem Partners,
Ltd. Series 85-C (the "Partnership") as of December 31, 2004, 2003, 2002 and
2001 and the related statements of operations, changes in partners' deficit and
cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Partnership has determined
that it is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Partnership's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 2004, 2003, 2002 and 2001 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership has not had sufficient cash flows from
operations to make payments of principal and interest in arrears on outstanding
debt and certain agreements relating to the Partnership's ability to generate
electricity expire in 2005. These matters raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties. The
term of the Partnership ends on December 31, 2005, unless terminated earlier in
accordance with the terms of the Partnership Agreement. The Partnership will
dissolve effective on the day on which the term of the Partnership ends.
July 15, 2005
HEIN & ASSOCIATES LLP
Houston, Texas
34
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
(Dollars in thousands)
June 30, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
(Unaudited)
------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 145 $ 1,050 $ 2,100 $ 1,596 $ 18
Accounts receivable, net of
allowance of $0, $0, $0, $298, $298 499 60 65 449 424
Accounts receivable from related party - - - - 20
Other current assets 349 16 16 16 482
------------------------------------------------------------------------
Total current assets 993 1,126 2,181 2,061 944
------------------------------------------------------------------------
Property, plant and equipment:
Plant and equipment 32,660 32,660 32,660 32,660 32,660
Less - accumulated depreciation (31,921) (31,181) (29,534) (27,887) (26,240)
------------------------------------------------------------------------
Property, plant and equipment, net 739 1,479 3,126 4,773 6,420
------------------------------------------------------------------------
Total assets $ 1,732 $ 2,605 $ 5,307 $ 6,834 $ 7,364
========================================================================
Liabilities and partners' deficit
Current liabilities:
Accounts payable and accrued
expenses $ 64 $ 78 $ 237 $ 32 $ 32
Accounts payable to related party 85 53 217 240 -
Current portion of notes payable
to related party 1,512 1,702 3,452 4,052 4,052
Accrued interest to related party 2,532 2,532 2,532 2,532 2,532
Deferred Rent 177 353 664 1,043 1,252
------------------------------------------------------------------------
Total current liabilities 4,370 4,718 7,102 7,899 7,868
------------------------------------------------------------------------
Contingencies (Note 6)
Partners' deficit:
General partner 208 213 216 223 229
Limited partners (5,977) (5,462) (5,150) (4,434) (3,885)
Special limited partner (Note 1) 3,131 3,136 3,139 3,146 3,152
------------------------------------------------------------------------
Total partners' deficit (2,638) (2,113) (1,795) (1,065) (504)
------------------------------------------------------------------------
Total liabilities and partners' deficit $ 1,732 $ 2,605 $ 5,307 $ 6,834 $ 7,364
========================================================================
The accompanying notes are an integral part of the financial statements.
F-1
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per Unit value, which is in whole dollars)
For the years ended,
---------------------------------------------------------
December 31, December 31, December 31, December 31,
2004 2003 2002 2001
---------------------------------------------------------
Revenue:
Sale of electricity $ 2,468 $ 2,080 $ 2,205 $ 3,011
Other income 6 2 50 9
---------------------------------------------------------
Total revenue 2,474 2,082 2,255 3,020
Costs and expenses:
Depreciation 1,647 1,647 1,647 1,647
Bad dept expense - (298) - 298
Interest expense - - - 155
Property taxes 34 32 33 33
Easement fees to related party 257 257 257 257
Management fees to related party 25 26 24 24
Maintenance and other operating costs
to related and other parties 534 852 614 551
Insurance costs 154 199 152 60
Other operating costs 141 97 89 91
---------------------------------------------------------
Total costs and expenses 2,792 2,812 2,816 3,116
---------------------------------------------------------
Net loss $ (318) $ (730) $ (561) $ (96)
=========================================================
Net loss per Unit $ (419) $ (962) $ (739) $ (126)
=========================================================
Number of outstanding Limited
Partner Units 759 759 759 759
=========================================================
The accompanying notes are an integral part of the financial statements.
F-2
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
UNAUDITED STATEMENTS OF OPERATIONS (Dollars in thousands,
except per Unit value, which is in whole dollars)
For the six months ended,
---------------------------
June 30, June 30,
2005 2004
------------ ------------
Revenue:
Sale of electricity $ 727 $ 1,301
Other Income 5 -
------------ ------------
Total revenue 732 1,301
Costs and expenses:
Depreciation 740 824
Property taxes 16 17
Easement fees to related party 129 129
Management fees to related party 2 13
Maintenance and other operating costs
to related and other parties 289 292
Insurance costs 44 77
Other operating costs 37 92
------------ ------------
Total costs and expenses 1,257 1,444
------------ ------------
Net loss $ (525) $ (143)
============ ============
Net loss per Unit $ (692) $ (188)
============ ============
Number of outstanding Limited
Partner Units 759 759
============ ============
The accompanying notes are an integral part of the financial statements.
F-2
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Dollars in thousands)
Special
General Limited Limited
Total Partner Partners Partners
-------------------------------------------------
Profit and loss allocation 100.00% 1.00% 98.00% 1.00%
-------------------------------------------------
Balance at December 31, 2000 $ (408) $ 230 $ (3,791) $ 3,153
Net loss (96) (1) (94) (1)
-------------------------------------------------
Balance at December 31, 2001 $ (504) $ 229 $ (3,885) $ 3,152
Net loss (561) (6) (549) (6)
-------------------------------------------------
Balance at December 31, 2002 $ (1,065) $ 223 $ (4,434) $ 3,146
Net loss (730) (7) (716) (7)
-------------------------------------------------
Balance at December 31, 2003 $ (1,795) $ 216 $ (5,150) $ 3,139
Net loss (318) (3) (312) (3)
-------------------------------------------------
Balance at December 31, 2004 $ (2,113) $ 213 $ (5,462) $ 3,136
Net loss (Unaudited) (525) (5) (515) (5)
-------------------------------------------------
Balance at June 30, 2005 (Unaudited) $ (2,638) $ 208 $ (5,977) $ 3,131
=================================================
The accompanying notes are an integral part of the financial statements.
F-3
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended,
December 31, December 31, December 31, December 31,
2004 2003 2002 2001
---------------------------------------------------------
Cash Flow From Operating Activities:
Net loss $ (318) $ (730) $ (561) $ (96)
Reconciliation of net loss to net cash
provided by operating activities:
Depreciation 1,647 1,647 1,647 1,647
Changes in operating assets and liabilities:
Accounts receivable 5 384 (25) (311)
Accounts receivable from related party - - 20 -
Other current assets - - 466 (31)
Accounts payable and accrued expenses (159) 205 - 32
Amount payable to related party (164) (23) 240 (124)
Deferred rent (311) (379) (209) (177)
Accrued interest payable to related party - - - 155
---------------------------------------------------------
Net cash provided by operating activities 700 1,104 1,578 1,095
Cash flows used in financing activities - principal payments
on notes payable to related party (1,750) (600) - (1,095)
---------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (1,050) 504 1,578 -
Cash and cash equivalents at beginning of year 2,100 1,596 18 18
---------------------------------------------------------
Cash and cash equivalents at end of year $ 1,050 $ 2,100 $ 1,596 $ 18
=========================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ - $ - $ - $ -
The accompanying notes are an integral part of the financial statements.
F-4
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
UNAUDITED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the six months ended,
---------------------------
June 30, June 30,
2005 2004
------------ ------------
Cash Flow From Operating Activities:
Net loss $ (525) $ (143)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation 740 824
Changes in operating assets and liabilities:
Accounts receivable (439) (460)
Other current assets (333) (345)
Accounts payable and accrued expenses (15) (77)
Amount payable to related party 33 (27)
Deferred rent (176) (156)
------------ ------------
Net cash used in operating activities (715) (384)
Cash flows used in financing activities - principal and interest
payments on notes payable to related party (190) (750)
------------ ------------
Net decrease in cash and cash equivalents (905) (1,134)
Cash and cash equivalents at beginning of the period 1,050 2,100
------------ ------------
Cash and cash equivalents at end of period $ 145 $ 966
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ - $ -
The accompanying notes are an integral part of the financial statements.
F-4
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Introduction
Zond Windsystem Partners, Ltd. Series 85-C, a California limited partnership
(the "Partnership"), was formed on October 25, 1985 to purchase, own and operate
a system of 200 Vestas V-17 wind turbine electric generators (the "Turbines").
The electricity generated by the Turbines is sold by the Partnership to its sole
customer, Pacific Gas and Electric Company ("PG&E").
Each Turbine has a rated capacity of 90 kilowatts, and the Turbines have an
aggregate rated capacity of 18.0 megawatts. The Turbines, together with a
substation and power transfer facilities also owned by the Partnership, form an
integrated electric power generating facility (the "Windsystem"). The Windsystem
is located in Alameda County, California (the "Operating Site").
The Turbines are interconnected by a system of transformers and power transfer
lines to a substation owned by the Partnership. The individual power lines from
each of the Turbines are fed into step-up transformers, which increase the
voltage of the Windsystem's power from 480 volts to 12.5 kilovolts ("kVs").
Additional 12.5 kV power transfer lines carry electricity to the Partnership's
substation which steps up the power to 66 kVs. The power generated by the
Windsystem is delivered at this voltage to PG&E at the interconnection point
located adjacent to the Partnership's substation.
The Windsystem, which became operational in December 1985, was constructed by
Zond Construction Corporation IV ("ZCC"), an affiliate of Zond Systems, Inc.
("ZSI"). The Partnership financed its purchase of the Windsystem with cash
raised through a private placement of limited partnership units ("Partnership
Interests" or "Units") and equipment financing in the form of promissory notes
payable to ZCC (the "Purchase Notes"). The Purchase Notes matured in December
2001; however the Purchase Notes remain unpaid. See Notes 2 and 4 below. ZCC's
rights under the Purchase Notes were assigned to ZSI, which was later renamed
Enron Wind Systems, Inc. ("EWSI"), and subsequently merged into a California
limited liability company and renamed Enron Wind Systems, LLC ("EWS"). On
January 3, 1997, ZSI's parent company, Zond Corporation, became a wholly-owned
subsidiary of Enron Renewable Energy Corp. ("EREC"), which is wholly-owned by
Enron Corp. ("Enron"). The general partner of the Partnership (the "General
Partner") is Zond Windsystems Management V LLC ("ZWM"), a California limited
liability company, which is wholly-owned by EWS. See "Bankruptcy and Mergers"
regarding certain affiliated mergers and name changes affecting ZWM, EWSI and
EWS.
F-5
The business of the Partnership and the respective rights of its partners,
including the Partnership's limited partners (the "Limited Partners"), are
governed by the First Amended and Restated Agreement of Limited Partnership of
Zond Windsystem Partners, Ltd. Series 85-C, a California Limited Partnership,
entered into on December 23, 1985, (the "Partnership Agreement"). The term of
the Partnership Agreement ends on December 31, 2005, unless terminated earlier
in accordance with the terms of the Partnership Agreement. The Partnership will
dissolve effective on the day on which the term of the Partnership ends. Upon
the dissolution of the Partnership, the General Partner will liquidate the
assets of the Partnership, apply and distribute the proceeds thereof as
contemplated by the Partnership Agreement, and cause the cancellation of the
Partnership's Certificate of Limited Partnership with the Secretary of State of
the State of California. The Partnership will then terminate and the General
Partner will file with the Securities and Exchange Commission (the "Commission")
a Form 15 to terminate registration of the Units under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
Bankruptcy and Mergers
Commencing on December 2, 2001, and periodically thereafter, Enron and certain
of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). On February 20, 2002,
EWSI filed a voluntary petition for relief under Chapter 11 of the Bankruptcy
Code. Additionally, a California limited liability company formed on February
19, 2002 for the purpose of merging with EWSI in anticipation of the sale of
Enron's wind turbine manufacturing business also filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code. EWSI merged with and into such
limited liability company on April 19, 2002, and the surviving limited liability
company changed its name to Enron Wind Systems, LLC.
On April 12, 2002, Zond Windsystems Management Corporation V, the general
partner of the Partnership at such time, merged with and into a second
California limited liability company, formed on March 12, 2002, and the
surviving limited liability company changed its name to Zond Windsystems
Management V LLC. ZWM has not filed for bankruptcy.
On November 17, 2004, the Chapter 11 Plan (the "Plan") relating to the Enron
bankruptcy became effective. The Plan provides for Enron and its affiliated
debtor companies (including EWS) to sell most of their assets and distribute to
their creditors the proceeds of such sales. In connection with the Plan, EWS
assumed the Management Agreement (as defined in "Operation and Maintenance
Services" below) and that agreement remains in effect.
Sale to General Electric
On April 10, 2002, Enron, Enron Wind Corp. and certain of its subsidiaries,
including EWSI, entered into an Amended and Restated Purchase and Sale Agreement
in which such entities agreed to sell in an asset sale (the "GE Sale") their
wind turbine manufacturing, operation and maintenance and construction
businesses to General
F-6
Electric Company, acting through its GE Power Systems business ("GEPS"). The GE
Sale was consummated on May 10, 2002. EWS and its affiliated companies retained
their existing wind power projects, including the general partnership interest
in the Partnership. However, effective as of the sale, substantially all of the
employees who had been involved in the management of the Partnership transferred
to GEPS.
Following the GE Sale, certain Enron personnel who were not formerly involved
with the management or operations of the Partnership were appointed to manage
and operate the Partnership.
Operation and Maintenance Services
EWS manages the Windsystem pursuant to a Windsystem Management Agreement entered
into with the Partnership on November 4, 1985 (the "Management Agreement"). EWS
has assumed the Management Agreement in connection with the Plan. The Management
Agreement terminates by its terms on December 31, 2005. Prior to May 10, 2002,
Enron Wind Maintenance LLC, an affiliate of EWS, provided operation and
maintenance services for the Windsystem. On May 10, 2002, in connection with the
GE Sale, EWS contracted with GE Wind Energy, LLC to perform certain operation
and maintenance services relating to the Windsystem for a period of one year
ending on May 10, 2003.
In April 2003, EWS entered into an agreement (the "O&M Agreement") with SeaWest
Asset Management Services, LLC ("SeaWest") to provide certain operation and
maintenance services relating to the Windsystem beginning in May 2003 and ending
in May 2008. If EWS terminates the O&M Agreement prior to the end of its stated
term, EWS may be required to pay certain agreed demobilization fees to SeaWest.
If EWS is required to pay such fees, EWS may seek recovery from the Partnership
of some, or all, of the amount of such fees pursuant to the terms of the
Management Agreement. Management currently estimates that the amount of the
demobilization fee, if any, for which EWS could seek recovery from the
Partnership would not be in excess of approximately $31,000.
Substantial Transactions and Operating Agreements
The accompanying financial statements include substantial transactions with
related parties. These transactions are further described in Note 5 below.
A summary of the major operating agreements entered into by the Partnership,
directly or indirectly, is set forth below:
(1) The Partnership sells the electric power generated by the Turbines to
PG&E under a Power Purchase Agreement (the "Power Agreement"). The Power
Agreement was originally entered into between PG&E and Wind Developers,
F-7
Inc. on January 17, 1985 and covered an aggregate of 20 megawatts of
generating capacity. In December 1985, Wind Developers, Inc. assigned
its rights and obligations under the Power Agreement to ZSI, and ZSI
assigned its rights and obligations under the Power Agreement to the
Partnership. The term of the Power Agreement ends on the twentieth
anniversary of the date of the initial energy deliveries by the
Partnership to PG&E, which termination date is on or about December 31,
2005.
Under the Power Agreement, PG&E is required to purchase all of the
electric output from the Turbines. Under the Power Agreement, energy
generated is sold for a total price equal to the sum of (i) capacity
rates based on forecasts of annual as-available capacity and (ii) energy
rates. Through July 15, 2001, the energy rates were based on forecasts
of the short run avoided cost of energy for PG&E. In connection with
that certain agreement dated as of July 13, 2001 between the Partnership
and PG&E (the "PG&E Payment Agreement"), PG&E and the Partnership
entered into the Third Amendment to the Power Purchase Agreement, which
amended the energy component of the prices to be paid under the Power
Agreement to provide that, during the period of July 16, 2001 through
the end of the term of the Power Agreement, the energy component is
equal to an average price of $0.0537 per kilowatt hour ("kWh") rather
than based on the variable short run avoided cost of energy for PG&E.
The amount of electricity produced by the Turbines depends upon wind
speed, which is subject to significant seasonal variations in the
Altamont area. Wind speed is generally highest during the summer months
and lowest during the winter months. These seasonal variations result in
significant variations from month to month in the net power production
realized by the Turbines, and therefore result in monthly variations in
the amount of electricity sold to PG&E.
(2) Since November 1985, the Partnership has contracted with EWS (or its
predecessor) for the operation and maintenance of the Turbines and the
performance of certain ancillary management services, such as collection
of revenues from PG&E and the administration and payment of all
Partnership expenses. Under the provisions of the Management Agreement,
the Partnership pays a management fee of 1% of the Partnership's Gross
Operating Proceeds. "Gross Operating Proceeds" is defined as all gross
receipts from the sale of electricity generated by the Turbines and all
amounts paid in lieu of receipts from the sale of electricity
(including, without limitation, any proceeds of systems performance or
wind resource insurance, casualty loss and business interruption
insurance paid in reimbursement of lost revenues and warranty payments
in reimbursement of lost revenues), calculated without offset or other
deductions of any nature (except for such amounts as may be required to
be refunded by the Partnership to PG&E). Under the Management Agreement,
EWS is also reimbursed for 115% of the maintenance costs, including
labor and material costs that it incurs in the performance of
F-8
maintenance services, including maintenance services by third parties
relating to the Windsystem. See Note 5 below.
(3) The Operating Site is located in Alameda County, California. The
Partnership owns the Turbines, including the supporting towers and
related concrete support pads and controllers, a power collector system
and power substation. The Partnership uses the Operating Site pursuant
to an easement granted by ZSI under the terms of the Amended and
Restated Wind Park Easement Agreement dated as of July 1, 1986 (the
"Wind Park Easement Agreement").
The Wind Park Easement Agreement, unless earlier terminated, terminates
on March 6, 2006; provided, however, that the Partnership's rights under
the Wind Park Easement Agreement are subject and subordinate to all of
the terms and conditions of the Amended Ground Lease for Wind Park
Development on the Rooney Ranch, Alameda County dated October 29, 1985
(the "Ground Lease") by and between the City of Santa Clara (the "City")
and ZSI. Pursuant to the terms of the Ground Lease, the Ground Lease
terminates twenty (20) years from the date the last wind turbine
generator was "placed-in service". The Partnership believes that the
last wind turbine generator was "placed-in-service" in December 1985 and
that the term of the Ground Lease and, as a result, the term of the Wind
Park Easement Agreement, end in December 2005.
Under the terms of the Ground Lease and the Wind Park Easement
Agreement, the City has the option to purchase the Windsystem on
December 31, 2005 at a price set forth in the Ground Lease by notifying
EWS at least 180 days prior to the end of the year of its intent to make
such purchase. In a letter dated June 2, 2005 the City informed Enron
Wind LLC, a parent company of EWS, that the City did not wish to
exercise the purchase option under the Ground Lease. In addition, the
City's available period for notifying EWS of its intent to exercise such
purchase option lapsed on July 4, 2005, and no further notice of intent
to exercise the purchase option has been provided by the City.
Cash Distributions
The Partnership makes cash distributions in accordance with the terms of the
Partnership Agreement. Due to less-than-projected operating results, the
Partnership has not distributed any cash during any fiscal year. Under the
Purchase Notes, the Partnership cannot make cash distributions to its partners
unless certain cash reserve balances are maintained and no events of default
exist.
NOTE 2 - GOING CONCERN
The following matters raise substantial doubt about the Partnership's ability to
continue as a going concern:
F-9
1. As discussed in Note 4, the Partnership has not had, and does not
anticipate that it will have, sufficient cash flows from operations
to make payment in full of the outstanding principal and accrued but
unpaid interest on the outstanding Purchase Notes. The Partnership
continues to be in default of the Purchase Notes. Upon notice of
default, EWS has a right to foreclose against its security interests
in the assets of the Partnership. As of June 30, 2005, the
Partnership had not received a foreclosure notice from EWS with
respect to the Purchase Notes. Any such foreclosure by EWS on its
security interests in the assets of the Partnership would have a
material adverse effect on the Partnership.
2. As discussed in Note 1, the term of the Partnership ends on December
31, 2005, unless terminated earlier in accordance with the terms of
the Partnership Agreement. The Partnership will dissolve effective
on the day on which the term of the Partnership ends. Upon the
dissolution of the Partnership, the General Partner will liquidate
the assets of the Partnership, apply and distribute the proceeds
thereof as contemplated by the Partnership Agreement, and cause the
cancellation of the Partnership's Certificate of Limited Partnership
with the Secretary of State of the State of California. The
Partnership will then terminate and the General Partner will file
with the Commission a Form 15 to terminate registration of the Units
under the Exchange Act.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership's accounting records are maintained on the basis used for
federal income tax reporting purposes. For purposes of filing with the
Commission, the accounting records have been adjusted to reflect accounting
principles generally accepted in the United States of America ("GAAP").
Income Taxes
The Partnership is not subject to federal and state income taxes. Accordingly,
no recognition has been given to income taxes in the accompanying financial
statements since the income or loss of the Partnership is to be included in the
tax returns of the individual partners. The tax returns of the Partnership are
subject to examination by federal and state taxing authorities. If such
examinations result in adjustments to distributive shares of taxable income or
loss, the tax liability of the partners could be adjusted accordingly.
F-10
The tax attributes of the Partnership's net assets flow directly to each
individual partner. Individual partners will have different investment bases
depending upon the timing and prices of acquisition of Partnership Units.
Further, each partner's tax accounting, which is partially dependent upon their
individual tax position, may differ from the accounting followed in the
financial statements. Accordingly, there could be significant differences
between each individual partner's tax basis and their proportionate share of the
net assets reported in the financial statements. Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", requires
disclosure by a publicly held partnership of the aggregate difference in the
basis of its net assets for financial and tax reporting purposes. However, the
Partnership does not have access to information about each individual partner's
tax attributes in the Partnership, and the aggregate tax basis cannot be readily
determined. In any event, management does not believe that, in the Partnership's
circumstances, the aggregate difference would be meaningful information.
Cash Equivalents
Cash equivalents are considered to be all highly liquid investments purchased
with an original maturity of three months or less.
Property, Plant and Equipment
The Turbines are recorded at cost. The Turbines are depreciated on the
straight-line method over a twenty-year life. Capitalized improvements are being
depreciated on a straight-line method over a fifteen-year life. Expenditures
that materially increase the useful lives of assets are capitalized, while
ordinary maintenance and repairs are charged to operations as incurred.
Replacement of defective parts or expenditures designed to modify Turbines to
improve their productivity are expensed as incurred.
Earnings per Limited Partner Unit
Earnings per Limited Partner Unit are calculated based upon the number of
Partnership Interests outstanding during each year.
Fair Value of Financial Instruments
For each class of financial instruments, including cash and cash equivalents,
accounts receivable, prepaid insurance and other current assets, accounts
payable, accrued expenses and accounts payable to related party, the carrying
amount approximates fair value because of the short maturity of those
instruments.
F-11
The estimated fair value of the Partnership's note payable to related party and
accrued interest payable to related party does not approximate the carrying
amount as the Partnership is in default of the Purchase Notes. See Note 4 for
additional information.
Deferred Rent
The Partnership leases the Operating Site from EWS, pursuant to the Wind Park
Easement Agreement, at an amount that accelerates each year over the life of the
agreement. The Partnership has recorded rent expense straight line over the life
of the lease in the amount of $0.3 million for the years ended December 31,
2001, 2002, 2003 and 2004, respectively, and $0.1 million for the six month
period ended June 30, 2005. See Note 1 for additional information.
Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Electricity Sales and Significant Customer
Power generated by the Windsystem is recognized as revenue upon delivery of
power to PG&E at prices as defined in the Power Agreement. All power produced is
sold to PG&E under contracts that expire on or about December 31, 2005. PG&E is
to deliver payment to the Partnership no later than 30 days from the end of the
monthly billing period. See Note 1 for a description of the Power Agreement.
Write-offs and or allowances for doubtful accounts are recognized on an account-
by-account basis.
NOTE 4 - PURCHASE NOTES
EWS earned interest from the Partnership under the Purchase Notes. The interest
rate under the Purchase Notes was 10.75% per annum. Prior to maturity on
December 31, 2001, the Purchase Notes were payable in equal semi-annual
installments of principal and interest, commencing in 1986. During 2001, 2003
and 2004, and during the first six months of 2005, the Partnership made
principal payments to EWS on the Purchase Notes of $1.1 million, $0.6 million,
$1.8 million and $0.2 million, respectively. The Partnership did not make
principal payments on the Purchase Notes during 2002. At December 31, 2001,
approximately $4.1 million of outstanding principal, and $2.5 million of accrued
interest, was due to EWS under the Purchase Notes. At December 31, 2002,
approximately $4.1 million of outstanding principal, and $2.5 million of accrued
interest in arrears, continued to be due to EWS under the Purchase Notes. At
F-12
December 31, 2003, approximately $3.5 million of outstanding principal, and $2.5
million of accrued interest in arrears, was due to EWS under the Purchase Notes.
At December 31, 2004, approximately $1.7 million of outstanding principal, and
$2.5 million of accrued
interest in arrears, was due to EWS under the Purchase Notes. At June 30, 2005,
approximately $1.5 million of outstanding principal, and $2.5 million of accrued
interest in arrears, was due to EWS under the Purchase Notes.
During the period of 1996 through 2001, the Partnership did not pay all of the
annually scheduled principal payments due under the Purchase Notes and,
notwithstanding the maturity of the Purchase Notes in December 2001, the
Partnership has not paid all of the remaining outstanding principal balance on
the Purchase Notes. Notwithstanding the terms of the Purchase Notes, the payee
under the Purchase Notes required that the Partnership pay only the
originally-scheduled interest on the Purchase Notes as established under the
original amortization schedules that are attached to the Purchase Notes. The
payee under the Purchase Notes did not require the Partnership to pay any
additional interest with respect to (i) the portion of the annual principal
payments that was due and unpaid at the end of any calendar year during such
period and (ii) any principal balance of the Purchase Notes outstanding at any
time after the maturity date of the Purchase Notes. As a result of this
arrangement, the Partnership paid or has been obligated to pay approximately
$2.2 million less in interest through June 30, 2005 than it otherwise would have
paid or been obligated to pay in the absence of such arrangement. This
arrangement is acknowledged and memorialized in that certain Interest Expense
Acknowledgement between the Partnership and EWS dated as of August 30, 2005.
The Partnership is in default under the Purchase Notes. Upon notice of default,
EWS has a right to foreclose against its security interest in the assets of the
Partnership, including the Windsystem. As of June 30, 2005, EWS had not notified
the Partnership of its intent to foreclose on its security interest. Any such
foreclosure by EWS on its security interest in the assets of the Partnership
would have a material adverse effect on the Partnership.
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
In addition to the Purchase Notes (See Note 4 above), the Partnership had other
amounts payable to EWS. Amounts payable to EWS include easement fees related to
the Partnership's use of the Operating Site and management fees, maintenance
costs and other miscellaneous expenses related to Windsystem operations.
The Partnership has the following related party transactions and relationships:
(1) EWS assigned to the Partnership easement rights to the Operating Site
under the Wind Park Easement Agreement (See Note 1 above). The
Partnership paid $0.3 million in easement fees during each of the years
ended December 31, 2004, 2003, 2002 and 2001, respectively, and $0.1
F-13
million in easement fees for the six months ended June 30, 2005 pursuant
to the Wind Park Easement Agreement.
(2) The Partnership has a contract with EWS to operate and maintain the
Turbines and to perform certain management and administrative services
under the Management Agreement (See Note 1 above). The Partnership
incurred expenses of $0.6 million, $0.9 million, $0.6 million and $0.6
million during the years ended December 31, 2004, 2003, 2002, 2001,
respectively, and $0.3 million for the six months ended June 30, 2005
pursuant to the Management Agreement.
NOTE 6- LITIGATION
PG&E Bankruptcy
On April 6, 2001 PG&E filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of California, San Francisco Division (the "PG&E Bankruptcy
Proceeding"). At the time of this bankruptcy filing, PG&E owed the Partnership
$666,626 (the "PG&E Prepetition Payable") in connection with the prior delivery
of energy by the Partnership to PG&E under the Power Agreement. In July 2001,
the Partnership and PG&E entered into the PG&E Payment Agreement, pursuant to
which PG&E agreed to (i) amend the energy component of the prices to be paid
under the Power Agreement for the lesser of the term of the Power Agreement or
five years, (ii) pay to the Partnership the PG&E Prepetition Payable, together
with interest, and (iii) use its best efforts to assume the Power Agreement in
the PG&E Bankruptcy Proceeding. Pursuant to the Third Amendment to the Power
Purchase Agreement between PG&E and the Partnership dated November 13, 2001, the
Power Agreement was amended so that the energy component of the price to be paid
under the Power Agreement is equal to an average price of $0.0537 per kWh rather
than based on the variable short run avoided cost of energy for PG&E. PG&E
assumed the Power Agreement in the PG&E Bankruptcy Proceeding and, by April,
2003 PG&E paid to the Partnership the amount of the PG&E Prepetition Payable,
together with interest in the aggregate amount of $50,747.
FERC Investigation
In May 2003, the Federal Energy Regulatory Commission (the "FERC"), pursuant to
FERC Docket No. EL03-47-000, began investigating whether the Windsystem and
certain other power projects owned by Enron or its affiliates failed to meet the
ownership criteria for qualifying small power production facility ("QF") status
under the Public Utility Regulatory Policies Act of 1978 ("PURPA") following
Enron's acquisition of Portland General Electric Company in 1997. Under PURPA,
and the applicable FERC regulations, a power project is not a QF if more than
50% of the equity interest in the project is owned by an electric utility or
electric utility holding company. The Partnership and FERC Trial Staff have
settled the issues under investigation and entered into a Consent Agreement
dated March 10, 2004 (the "Consent Agreement"). The Consent Agreement is
available on the FERC website. Pursuant to the Consent Agreement, the
Partnership and FERC Trial Staff agree that the Windsystem is a QF
notwithstanding Enron's indirect equity interest in the Windsystem and the other
contractual relationships between the Partnership and various affiliates of
Enron. FERC approved the Consent Agreement effective June 2, 2004.
Avian Fatalities
The Operating Site is located in the Altamont Pass area, which is in Alameda
County, California. There are approximately 5,400 operating wind turbines in the
Altamont Pass area, including the 200 Turbines owned and operated by the
Partnership. The operation of wind turbines in the Altamont Pass area has
resulted in a significant number of avian fatalities, including the deaths of
certain hawks, eagles and owls, among other birds. Certain of these fatalities
may be a violation of law, including The Migratory Bird Treaty Act and the Bald
and Golden Eagle Protection Act. The Partnership and other turbine operators in
the Altamont Pass area have been working together to formulate and implement
various measures to reduce the number of avian fatalities. The Partnership
intends to take a number of measures to address this issue and, depending on the
measures taken, the cost (either direct cost or reduction in revenue) of such
measures, and the cost of any actions that may be brought against the
Partnership in connection with this issue, may be material to the ongoing
operations of the Partnership. In connection with formulating measures to
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address this avian fatality issue, the Partnership, along with the other
Altamont Pass area wind turbine operators, have had ongoing discussions with
representatives of the California Department of Fish and Game ("CDFG"), the U.S.
Fish and Wildlife Service ("FWS") and the U.S. Department of Justice ("DOJ"),
among others. At this point in time, the Partnership is unable to determine
whether the measures it expects to take to address the avian fatality concerns
applicable to the Operating Site will be satisfactory and whether CDFG, FWS or
DOJ will require further action by the Partnership, or will bring any actions
against the Partnership.
NOTE 7 - ACCOUNTING PRONOUNCEMENTS
SFAS NO. 150
On May 15, 2003, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 150 (FAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. FAS 150 changes the accounting
for certain financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity, by now requiring those instruments
to be classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, FAS 150 requires disclosure regarding
the terms of those instruments and settlement alternatives. FAS 150 affects an
entity's classification of the following freestanding instruments: a) mandatory
redeemable instruments; b) financial instruments to repurchase an entity's own
equity instruments; and c) financial instruments embodying obligations that the
issuer must or could choose to settle by issuing a variable number of its shares
or other equity instruments based solely on (i) a fixed monetary amount known at
inception or (ii) something other than changes in its own equity instruments.
FAS 150 does not apply to features embedded in a financial instrument that is
not a derivative in its entirety. The guidance in FAS 150 is generally effective
for all financial instruments entered into or modified after May 31, 2003, and
is otherwise effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of FAS No. 150 did not have an impact on the
Partnership's financial position, results of operations or cash flows.
SFAS NO. 149
In April 2003, the FASB issued SFAS No. 149 (FAS 149), "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." FAS 149 amends and
clarifies financial accounting and reporting for derivative instruments. This
statement is effective for contracts entered into or modified after June 30,
2003. The adoption of FAS 149 did not have an impact on the Partnership's
financial position, results of operations or cash flows.
SFAS NO. 143
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143 (FAS
143), "Accounting for Asset Retirement Obligations," effective for fiscal years
beginning after June 15, 2002. This standard addresses financial accounting and
reporting obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard requires that the
fair value of a liability for an asset retirement obligation be recorded in the
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period in which it is incurred and that its present value be adjusted in each
subsequent period. In addition, an amount equal to the adjustment must be
capitalized by increasing the carrying amount of the related long-lived asset,
which is depreciated over the remaining useful life of the related asset. The
Partnership adopted FAS 143 during the first quarter of 2003 and it did not have
an impact on the Partnership's financial position, results of operations or cash
flows.
FIN NO. 45
Effective January 1, 2003, the Partnership adopted FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, and Interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34"
("FIN No. 45"). The interpretation requires that upon issuance of a guarantee,
the entity must recognize a liability for the fair value of the obligation it
assumes under that guarantee. In addition, FIN No. 45 requires disclosures about
the guarantees that an entity has issued, including a roll forward of the
entity's product warranty liabilities. This interpretation is intended to
improve the comparability of financial reporting by requiring identical
accounting for guarantees issued with separately identified consideration and
guarantees issued without separately identified consideration. The adoption of
this statement did not have an impact on the financial position, results of
operations or cash flows of the Partnership.
FIN NO. 46
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51". ("FIN No. 46").
The interpretation requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity. FIN No. 46 is effective
for all new variable interest entities created or acquired after January 31,
2003. The adoption of this statement did not have an impact on the financial
position, results of operations or cash flows of the Partnership.
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NOTE 8 - RECONCILIATION OF GAAP BASIS AND TAX BASIS FINANCIAL STATEMENTS:
Listed below are the reconciliations between the Partnership's tax basis
financial statements and the financial statements included herein for results of
operations, partners' deficit balances and total assets:
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-C,
A CALIFORNIA LIMITED PARTNERSHIP
RECONCILIATION OF GAAP BASIS AND TAX BASIS FINANCIAL STATMENTS
(Dollars in thousands)
For the years ended December 31,
For the six months
ended June 30, 2005 2004 2003 2002 2001
(Unaudited)
--------------------- ------------------------------------------------
Tax basis income $ 37 $ 1,018 $ 592 $ 796 $ 1,362
Tax basis depreciation less than
GAAP depreciation (740) (1,647) (1,647) (1,647) (1,647)
Other 178 311 325 290 189
--------------------- ------------------------------------------------
GAAP basis loss $ (525) $ (318) $ (730) $ (561) $ (96)
===================== ================================================
Tax basis partners' deficit $ (3,242) $ (3,278) $ (4,296) $ (4,888) $ (5,680)
Cumulative tax depreciation and basis reduction
in excess of cumulative GAAP losses 604 1,165 2,501 3,784 5,176
--------------------- ------------------------------------------------
GAAP basis partners' deficit $ (2,638) $ (2,113) $ (1,795) $ (1,065) $ (504)
===================== ================================================
Tax basis total assets $ 993 $ 1,126 $ 2,181 $ 2,012 $ 937
Cumulative tax depreciation and basis reduction
in excess of GAAP depreciation 739 1,479 3,126 4,773 6,420
Other - - - 49 7
--------------------- ------------------------------------------------
GAAP basis total assets $ 1,732 $ 2,605 $ 5,307 $ 6,834 $ 7,364
===================== ================================================
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NOTE 9 - UNAUDITED QUARTERLY FINANCIAL INFORMATION:
2005
--------------------------------
First Quarter Second Quarter
-------------- --------------
Revenue:
Sale of electricity $ 120 $ 607
Other Income 4 1
-------------- --------------
Total revenue 124 608
Costs and expenses:
Depreciation 370 370
Bad dept expense
Interest expense
Property taxes 8 8
Easement fees to related party 64 65
Management fees to related party 1 1
Maintenance and other operating costs
to related and other parties 124 165
Insurance costs 22 22
Other operating costs 28 9
-------------- --------------
Total costs and expenses 617 640
-------------- --------------
Net loss $ (493) $ (32)
============== ==============
Net loss per Unit $ (650) $ (42)
============== ==============
Number of outstanding Limited
Partner Units 759 759
2004
---------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenue:
Sale of electricity $ 223 $ 1,078 $ 993 $ 174
Other Income - - - 6
------------- -------------- ------------- --------------
Total revenue 223 1,078 993 180
Costs and expenses:
Depreciation 412 412 411 412
Bad dept expense
Interest expense
Property taxes 9 8 8 9
Easement fees to related party 64 65 64 64
Management fees to related party 2 11 10 2
Maintenance and other operating costs
to related and other parties 135 157 119 123
Insurance costs 38 39 38 39
Other operating costs 28 65 24 24
------------- -------------- ------------- --------------
Total costs and expenses 688 757 674 673
------------- -------------- ------------- --------------
Net income (loss) $ (465) $ 321 $ 319 $ (493)
============= ============== ============= ==============
Net income (loss) per Unit $ (613) $ 423 $ 421 $ (650)
============= ============== ============= ==============
Number of outstanding Limited
Partner Units 759 759 759 759
---------------------------------------------------------------
F-18
2003
---------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenue:
Sale of electricity $ 201 $ 785 $ 834 $ 260
Other Income 2 - - -
------------- -------------- ------------- --------------
Total revenue 203 785 834 260
Costs and expenses:
Depreciation 412 412 411 412
Bad dept expense (298)
Interest expense
Property taxes 7 9 8 8
Easement fees to related party 64 65 64 64
Management fees to related party 2 8 8 8
Maintenance and other operating costs
to related and other parties 182 207 150 313
Insurance costs 50 50 50 49
Other operating costs 20 23 31 23
------------- -------------- ------------- --------------
Total costs and expenses 737 476 722 877
------------- -------------- ------------- --------------
Net income (loss) $ (534) $ 309 $ 112 $ (617)
============= ============== ============= ==============
Net income (loss) per Unit $ (704) $ 407 $ 148 $ (813)
============= ============== ============= ==============
Number of outstanding Limited
Partner Units 759 759 759 759
---------------------------------------------------------------
2002
---------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenue:
Sale of electricity $ 176 $ 949 $ 809 $ 271
Other Income 1 40 6 3
------------- -------------- ------------- --------------
Total revenue 177 989 815 274
Costs and expenses:
Depreciation 412 412 411 412
Bad dept expense
Interest expense
Property taxes 9 9 7 8
Easement fees to related party 64 65 64 64
Management fees to related party 2 10 8 4
Maintenance and other operating costs
to related and other parties 171 123 163 157
Insurance costs 38 38 37 39
Other operating costs 24 30 5 30
------------- -------------- ------------- --------------
Total costs and expenses 720 687 695 714
------------- -------------- ------------- --------------
Net income (loss) $ (543) $ (302) $ 120 $ (440)
============= ============== ============= ==============
Net income (loss) per Unit $ (715) $ (398) $ 158 $ (580)
============= ============== ============= ==============
Number of outstanding Limited
Partner Units 759 759 759 759
---------------------------------------------------------------
F-19
2001
---------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenue:
Sale of electricity $ 569 $ 1,098 $ 1,084 $ 260
Other Income - 1 4 4
------------- -------------- ------------- --------------
Total revenue 569 1,099 1,088 264
Costs and expenses:
Depreciation 412 412 411 412
Bad dept expense 149 149 - -
Interest expense 52 51 26 26
Property taxes 8 9 8 8
Easement fees to related party 64 65 64 64
Management fees to related party 2 8 16 (2)
Maintenance and other operating costs
to related and other parties 169 122 169 91
Insurance costs 15 15 15 15
Other operating costs 28 14 13 36
------------- -------------- ------------- --------------
Total costs and expenses 899 845 722 650
------------- -------------- ------------- --------------
Net income (loss) $ (330) $ 254 $ 366 $ (386)
============= ============== ============= ==============
Net income (loss) per Unit $ (435) $ 335 $ 482 $ (509)
============= ============== ============= ==============
Number of outstanding Limited
Partner Units 759 759 759 759
---------------------------------------------------------------
F-20