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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
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-B,
a California limited partnership
(Exact name of Registrant as specified in its charter)
California 77-0081346
(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
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 IV
LLC (the "General Partner"), the general partner of Zond Windsystem Partners,
Ltd. Series 85-B (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 583 holders of Partnership Interests, owned assets with a book
value of approximately $43.3 million and had liabilities of approximately $20.1
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.
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Zond Windsystem Partners, Ltd. Series 85-B
a California Limited Partnership
for the fiscal years ended December 31, 2001, 2002, 2003, 2004 and 2005
TABLE OF CONTENTS
Item Number Page
1. Business..................................................................1
1A. Risk Factors.............................................................10
2. Financial Information....................................................11
3. Properties...............................................................18
4. Security Ownership of Certain Beneficial Owners and Management...........19
5. Directors and Executive Officers.........................................19
6. Executive Compensation...................................................21
7. Certain Relationships and Related Transactions...........................21
8. Legal Proceedings........................................................24
9. Market Price of and Dividends on the Registrant's Common Equity
and Related Stockholder Matters..........................................26
10. Recent Sales of Unregistered Securities..................................27
11. Description of Registrant's Securities to be Registered..................27
12. Indemnification of the General Partner and its Affiliates................31
13. Financial Statements and Supplementary Data..............................36
14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................36
15. Financial Statements and Exhibits........................................36
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Item 1. Business
Introduction
Zond Windsystem Partners, Ltd. Series 85-B, a California limited partnership
(the "Partnership"), was formed on August 19, 1985 to purchase, own and operate
a system of 240 Vestas V-17 wind turbine electric generators (the "Turbines").
The electricity generated by the Turbines is sold by the Partnership to its sole
customer, Southern California Edison Company ("SCE").
Each Turbine has a rated capacity of 90 kilowatts, and the Turbines have an
aggregate rated capacity of 21.6 megawatts. The Turbines, together with certain
power transfer facilities and an electrical substation owned by the Partnership,
form an integrated electric power generating facility (the "Windsystem"). The
Windsystem is located in Kern 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 electricity 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 Windsystem is interconnected to SCE's transmission grid through a series of
transmission lines and substations. The electricity generated by the Windsystem
is transferred from the Partnership's substation to a substation (the "Tehachapi
Substation") pursuant to a 66 kV transmission line, which is owned by ZWHC LLC
("ZWHC"), an affiliate of the general partner of the Partnership. The
transformers at the Tehachapi Substation increase the voltage of the
Windsystem's electricity from 66 kVs to 230 kVs. The electricity produced by the
Windsystem is then transmitted from the Tehachapi Substation pursuant to a 230
kV transmission line (the "Westwind Transmission Line") to another substation
(the "Westwind Substation"). From the Westwind Substation the electricity is
transmitted pursuant to another 230 kV transmission line (the "Sagebrush
Transmission Line") to a SCE substation located in Vincent, California (the
"Vincent Substation"). The electricity produced by the Windsystem is transmitted
to SCE's transmission grid at the Vincent Substation. The Tehachapi Substation,
Westwind Transmission Line and the Westwind Substation are owned in co-tenancy
by the Partnership and several other wind power project owners. The Sagebrush
Transmission Line is owned by Sagebrush General Co-ownership Partnership
("Sagebrush Partnership"). The Partnership indirectly owns an undivided 5.66%
interest in Sagebrush Partnership through the Partnership's wholly-owned direct
subsidiary Sagebrush Partner Eighteen, Inc.
The Windsystem, which became operational in December 1985, was constructed by
Zond Construction Corporation III ("ZCC"), an affiliate of Zond Systems, Inc.
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("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. At December 31, 2001, the
principal balance had been repaid; however, there remained $4.9 million of
interest in arrears outstanding with respect to the Purchase Notes. All of the
remaining accrued and unpaid interest on the Purchase Notes was paid in 2004.
For further information regarding the Purchase Notes, see "Item 7. Certain
Relationships and Related Transactions - Purchase Note Financing" and Note 4 to
the Financial Statements.
Dissolution of the Partnership
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-B, a California Limited Partnership,
entered into on November 15, 1985 (the "Partnership Agreement"). The term of the
Partnership ended on December 31, 2005. The Partnership dissolved effective on
the day on which the term of the Partnership ended. The general partner of the
Partnership is Zond Windsystems Management IV LLC (the "General Partner" or
"ZWM"), a California limited liability company, which is wholly-owned by EWS.
The Partnership has entered into an agreement for the sale of substantially all
of its assets. See "Item 1. Business - Sale of Assets" for further information.
Upon the sale of the assets of the Partnership, the General Partner will apply
and distribute the proceeds thereof as contemplated by the Partnership
Agreement. Following the distribution of the proceeds from the sale of the
Partnership's assets, the General Partner plans to cause the cancellation of the
Partnership's Certificate of Limited Partnership with the Secretary of State of
the State of California. Upon cancellation of the Partnership's Certificate of
Limited Partnership, the Partnership will terminate and the General Partner
plans to 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.
Sale of Assets
On April 17, 2006, the Partnership, together with Zond Windsystem Partners, Ltd.
Series 85-A ("ZWP Series 85-A"), ZWHC and EWS (EWS, the Partnership, ZWP Series
85-A and ZWHC are collectively referred to as the "Sellers") entered into a
Purchase and Sale Agreement with AES Tehachapi Wind LLC ("AES Tehachapi") and
SeaWest Holdings Inc. to sell to AES Tehachapi all of the assets held by each
of the Sellers used in connection with the wind power projects owned by each of
ZWP Series 85-A and the Partnership (the "Purchase and Sale Agreement").
The assets to be sold by the Sellers pursuant to the Purchase and Sale Agreement
include, but are not limited to, the wind turbines and transmission assets
owned by each of ZWP Series 85-A and the Partnership, the real estate interests
relating to such projects owned by ZWHC and EWS and the power purchase
agreements used in connection with the projects held by EWS.
Pursuant to the terms of the Purchase and Sale Agreement, in consideration for
the purchase of such assets, AES Tehachapi has agreed to pay the Sellers an
aggregate purchase price of $15,800,000 and has agreed to assume those
liabilities and obligations arising under the assumed contracts on and after the
closing date of the transaction, those liabilities and obligations arising in
connection with the operation, ownership and maintenance of the wind projects
on and after such closing date and certain other obligations and liabilities
relating to the projects arising on and after such closing date. The Sellers
and AES Tehachapi have agreed to allocate the purchase price among the various
assets no later than ten days prior to the closing of the transaction.
The closing of the sale is subject to the satisfaction of certain conditions
precedent. The closing of the sale is expected to occur on or before June 30,
2006.
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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 IV, 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 IV 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 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.
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.
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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 583 holders of Partnership
Interests, owned assets with a book value of approximately $43.3 million and had
liabilities of approximately $20.1 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 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 March 28, 1986
through June 30, 2000. The Partnership also provided to the holders of its
Partnership Interests in 2004 and 2005 income tax basis reports on the
Partnership's financial and operating performance covering the 2002, 2003 and
2004 calendar years.
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 2001, the Partnership has
had less than $10,000,000 of total assets. As a result, if the Partnership were
formed at any time after 2001, 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 500 or more 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.
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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.
Operation and Maintenance Services
EWS manages the Windsystem pursuant to a Windsystem Management Agreement entered
into with the Partnership as of September 9, 1985 (the "Management Agreement").
EWS assumed the Management Agreement in connection with the Plan. The original
term of the Management Agreement ended on December 31, 2005. EWS and the
Partnership entered into a First Amendment to Windsystem Management Agreement
dated as of January 13, 2006, which extended the termination date of the
Management Agreement from December 31, 2005 to March 31, 2006, and entered into
a Second Amendment to Windsystem Management Agreement dated as of March 15,
2006, which further extended the termination date of the Management Agreement
from March 31, 2006 to June 30, 2006. 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 enXco
Service Corp. ("enXco") 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 enXco. 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 $36,000.
Sale of Electric Power
The Partnership sells the electric power generated by the Turbines to SCE under
two Power Purchase Contracts (the "Power Agreements"). Each of the Power
Agreements was originally entered into between SCE and ZSI in June 1984 and each
agreement covered 7 megawatts of generating capacity. The term of each of the
Power Agreements can be terminated by either party upon the delivery to the
other party, at least 90 days prior to the proposed termination date, of a
written notice that specifies a termination date of any time on or after June
21, 2014. In September 1985, ZSI assigned one of the Power Agreements (the "85-B
Power Agreement") to the Partnership and the other Power Agreement (the "85-A
Power Agreement") to ZWP Series 85-A. Each such assignment terminated on
December 31, 2005. The Partnership and EWS entered into a Reservation of Rights
Agreement (the "85-B Reservation of Rights Agreement") effective as of January
1, 2006 pursuant to which the Partnership is permitted to sell power to SCE from
the Windsystem under the 85-B Power Agreement and the 85-A Power Agreement.
Under the 85-B Reservation of
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Rights Agreement the Partnership pays to EWS an amount equal to 45% of the net
operating proceeds of the Partnership attributable to the period commencing on
February 15, 2006 and ending on the last day that the Partnership delivers power
to SCE under the Power Agreements. The 85-B Reservation of Rights Agreement
terminates on June 30, 2006, unless terminated earlier by either party upon ten
(10) days advance notice.
The 85-B Power Agreement was amended in September 1985 to increase the
generating capacity to 25 megawatts. In August 1989, the 85-B Power Agreement
was further amended to correctly identify the location of the Windsystem site
and to limit the size of the Windsystem, based on the aggregate name-plate
capacity of the Turbines, that the Partnership could install at the Windsystem
site. In October 1991, the 85-B Power Agreement was amended to add ZSI as an
additional seller under the agreement. In December 1991, the 85-B Power
Agreement was further amended to reduce the aggregate capacity of the power
contract from an aggregate of 25 MWs to 22 MWs. During the period commencing in
the early 1990's and ending on December 31, 2005, the Partnership permitted ZWP
Series 85-A to sell to SCE under the 85-B Power Agreement up to approximately
one (1) MW of electricity at any one time from eleven (11) of ZWP Series 85-A's
wind turbines. This arrangement is acknowledged and memorialized in the
Reservation of Rights Acknowledgement dated as of February 1, 2006 between the
Partnership and ZWP Series 85-A (the "85-A/85-B Reservation of Rights
Acknowledgement").
The 85-A Power Agreement was amended in September 1985 to increase the
generating capacity to 17 megawatts. In August 1989, the 85-A Power Agreement
was further amended to correctly identify the location of ZWP Series 85-A's
windsystem site and to limit the size of the windsystem, based on the aggregate
name-plate capacity of the Turbines, that ZWP Series 85-A could install at its
windsystem site.
Pursuant to that certain Power Agreement Co-Ownership Agreement dated as of
August 30, 1990 between ZWP Series 85-A and ZSI (the "85-A PPA Co-Ownership
Agreement"), ZWP Series 85-A granted ZSI the right to sell to SCE under the 85-A
Power Agreement up to one (1) megawatt ("MW") of electricity. In August 1991,
the 85-A Power Agreement was amended to add ZSI as an additional seller under
the agreement. In June 1992, ZSI assigned to ZWHC all of ZSI's interest in the
85-A Power Agreement and the 85-A PPA Co-Ownership Agreement, and in April 2004,
ZWHC assigned to Caithness 251 Wind, LLC, an unaffiliated third party, the
interest of ZWHC in the 85-A Power Agreement and the 85-A PPA Co-Ownership
Agreement.
During the period commencing in the early 1990's and ending on December 31,
2005, ZWP Series 85-A permitted the Partnership to sell to SCE under the 85-A
Power Agreement up to approximately 1.35 MWs of electricity at any one time from
fifteen (15) of ZWP Series 85-B's wind turbines. This arrangement is
acknowledged and memorialized in the 85-A/85-B Reservation of Rights
Acknowledgement.
Under the Power Agreements, SCE is required to purchase all of the electric
output from the sellers under the Power Agreements, provided that the aggregate
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name-plate capacity of the wind turbines selling under the 85-A Power Agreement
and the 85-B Power Agreement may not exceed 17 MWs and 22.5 MWs, respectively.
Under the Power Agreements, energy generated was 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. SCE paid a fixed rate for energy delivered under the 85-A
Power Agreement through November 1995, and paid a fixed rate for energy
delivered under the 85-B Power Agreement through November 1996. See "Item 1.
Business - 1996 SCE Payments". Beginning in December 1996 under the 85-A Power
Agreement, and beginning in December 1997 under the 85-B Power Agreement, and in
each case through May 2002, the energy rates paid by SCE for energy delivered
under each of the Power Agreements were based on forecasts of the short run
avoided cost of energy for SCE. During 2001, in connection with the settlement
of certain litigation against SCE, SCE renegotiated the energy component of the
price paid for energy under the Power Agreements. As a result, the energy
component is based on a fixed schedule with an average estimate price of $.0537
per kilowatt hour ("kWh") from May 2002 through April of 2007. In January of
2003, the 85-B Power Agreement was further modified to provide that the annual
as-available capacity rate for electricity delivered to SCE from December 2002
through the end of the term of the 85-B Power Agreement is $124 per kilowatt of
installed capacity per year. In January of 2003, the 85-A Power Agreement also
was further modified to provide that the annual as-available capacity rate for
electricity delivered to SCE from December 2002 through the end of the term of
the 85-A Power Agreement is $106 per kilowatt of installed capacity per year.
See "Item 8. Legal Proceedings - SCE Dispute and FERC Investigation".
Windsystem Performance
The amount of electricity produced by the Turbines depends upon wind speed,
which is subject to significant seasonal variations in the Tehachapi 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 SCE. During 2001,
2002, 2003, 2004 and 2005, SCE purchased an aggregate of 30.0 million kWh, 32.7
million kWh, 28.3 million kWh, 28.8 million kWh and 25.8 million kWh of
electricity, respectively, from the Partnership for an aggregate purchase price
of $3.1 million, $2.5 million, $2.1 million, $2.1 million and $1.8 million,
respectively.
1996 SCE Payments
The Partnership's Windsystem and ZWP Series 85-A's windsystem each commenced
operations in December 1985. Each of the 85-A Power Agreement and the 85-B Power
Agreement provides that SCE is responsible for the installation and maintenance
of metering equipment, and preparing and paying invoices for power delivered by
each of ZWP Series 85-A and the Partnership. During the first twelve months of
operation, SCE used a single meter to measure the energy delivered from both
wind power projects. As a result, during 1986 SCE provided invoices and payments
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to ZWP Series 85-A under the 85-A Power Agreement for the power generated by
both ZWP Series 85-A's windsystem and the Partnership's Windsystem. Following
the installation by SCE of remote metering equipment at each windsystem site in
late 1986, SCE provided separate invoices and payments to each of ZWP Series
85-A and the Partnership for deliveries of power under the 85-A Power Agreement
and 85-B Power Agreement, respectively. Each of the 85-A Power Agreement and the
85-B Power Agreement provides for the payment of a scheduled fixed rate for
energy delivered under the contract during the first 10-year period following
the commencement of operation of the applicable windsystem and the payment of an
avoided cost variable rate thereafter. SCE stopped paying the 10-year fixed rate
under the 85-A Power Agreement at the end of 1995. SCE stopped paying the
10-year fixed rate under the 85-B Power Agreement at the end of 1996. The
difference between the fixed rate received by both the Partnership and ZWP
Series 85-A under the 85-B Power Agreement during 1996 and the avoided cost
variable rates that year was approximately $4.1 million in the aggregate (the
"Energy Price Differential").
Although the 85-B Power Agreement appears to provide that the 10-year fixed rate
period was initiated in December 1985, it appears that SCE paid for energy
delivered under the 85-B Power Agreement during 1996 under the belief that the
10-year fixed rate period was initiated on or around December 1986 (at the time
of SCE's installation of the remote metering equipment). This would have
resulted in a 10-year fixed rate period that ended in December 1996, as opposed
to December 1995 (10 years from when the Windsystem began operations). In 1996,
the Partnership informed the Limited Partners that it was reviewing the payments
received from SCE in 1996 for energy delivered under the 85-B Power Agreement in
the context of the Partnership's contractual rights, and due to the apparent
uncertainty concerning this issue, the Partnership recognized the difference
between the cash received by the Partnership applicable to the Windsystem under
the fixed rate of the 85-B Power Agreement and the avoided cost variable rates
during the year ended December 31, 1996 (approximately $3.9 million) as deferred
revenue (the "Deferred Energy Revenue"), segregated this amount from its
operating cash account, and did not recognize such cash as income.
In 2001, two events occurred which appear to have been relevant to the
Partnership's treatment of the Deferred Energy Revenue. First, the Partnership
appears to have determined that prior to September 2001 the applicable statute
of limitations expired with respect to any potential claim by SCE for repayment
of any portion of the energy payments received by the Partnership in 1996.
Second, in connection with the settlement of certain disputes between SCE and
the Partnership relating to SCE's failure to pay for energy deliveries between
November 1999 and March 2000, SCE and the Partnership entered into an agreement
that provided for the mutual release of certain claims that each party may have
had against the other party arising out of the 85-B Power Agreement that arose
prior to the execution of the settlement agreement. In September 2001, the
Partnership paid the cash representing the Deferred Energy Revenue, plus accrued
interest (approximately $4.2 million in aggregate), to EWS in payment of
principal and interest owing under the Purchase Notes. In turn, these funds were
paid to Enron for repayment of certain indebtedness. Additionally, the Deferred
Energy Revenue, plus accrued interest, was included as ordinary income in the
Partnership's 2001 U.S. Return of Partnership Income. In the accompanying
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financial statements, the Deferred Energy Revenue, plus accrued interest,
remains deferred in accordance with accounting principles generally accepted in
the United States.
Notwithstanding the foregoing, Enron contacted SCE in November 2005 regarding
SCE's understanding of the contract payment provisions in view of the
circumstances relating to the Energy Price Differential. In connection with
discussions with SCE, it was further discovered that from January 1996 through
December 2005 SCE made capacity payments under the 85-B Power Agreement in the
amount of approximately $607,000 in excess of the amounts required to be paid
under the 85-B Power Agreement (the "Capacity Price Differential"). Of this
amount, approximately $570,000 was retained by the Partnership (the "Excess
Capacity Revenue"). In the context of a full and complete settlement, Enron has
offered to pay to SCE the amount of the Energy Price Differential and the
Capacity Price Differential, plus applicable interest, and the balance was
retained by ZWP Series 85-A.
Irrespective of Enron's recent discussions with, and commitments to, SCE
regarding this matter, there is no assurance that SCE will not assert some claim
against the Partnership related to this matter, and there is no assurance that
regulators or other governmental authorities will not make certain assertions
related to this matter, including that a violation of law has occurred, or take
some type of action against the Partnership or others associated with these
events. Accordingly, the Deferred Energy Revenue, plus accrued interest, remains
deferred in the accompanying financial statements, and the Excess Capacity
Revenue is classified as deferred revenue in the accompanying financial
statements. At this time, the Partnership is unable to determine whether, and to
what extent, the Partnership has financial exposure related to any such
potential claims, assertions or actions, and the Partnership reserves all of its
rights and defenses associated therewith. Therefore, the Partnership is unable
to predict the ultimate outcome this matter may have on the Partnership's
financial position, results of operations or cash flows.
Going Concern
As discussed in "Item 1. Business - Dissolution of the Partnership", the term of
the Partnership ended on December 31, 2005. The Partnership dissolved effective
on the day on which the term of the Partnership ended. The Partnership has
entered into an agreement for the sale of substantially all of its assets. See
"Item 1. Business - Sale of Assets" for further information. Upon the sale of
the assets of the Partnership, the General Partner will apply and distribute the
proceeds thereof as contemplated by the Partnership Agreement, and plans to
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 plans to 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
- 9 -
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 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 1A. Risk Factors
Wind Risk
The Partnership's sole source of revenue is from the sale to SCE of electric
power generated from the Windsystem. The generation of electric power is
dependent on the wind resource available at the Operating Site. This wind
resource is variable and there is a risk that the wind resource will reduce over
any particular time, or there will be no wind resource available for the
Windsystem over any particular time.
Equipment Risk
There is a risk that some or all of the Turbines will fail to operate or operate
less effectively or less often than they have in the past. Because the
Partnership's sole source of revenue is the sale of electric power generated
from the Windsystem, poorly operating or non-operating Turbines will result in
the generation of less electric power, and less revenue to the Partnership.
Environmental Risk
There is a risk that the operation and maintenance of the Windsystem at the
Operating Site has resulted, or will result, in environmental damage to the
Operating Site, or some portion thereof, and that the Partnership could have
liability associated with such damage.
Risk of Non-payment or Curtailment by SCE
There is a risk of the Partnership not being paid by SCE for some or all of the
electric power generated and delivered by the Partnership and that SCE may
curtail the deliveries of electric power from the Windsystem. SCE is the sole
purchaser of the electric power generated by the Windsystem, and SCE's refusal
or inability to pay the Partnership for electric power delivered to SCE or SCE's
curtailment of deliveries of electric power from the Windsystem would remove or
reduce the Partnership's sole source of revenue.
- 10 -
No Market for Partnership Interests
There is no public market for the Partnership Interests. Partnership Interests
may not be transferred without the consent of the General Partner. There is a
substantial risk that any holder of Partnership Interests will have no ability
to transfer, sell or assign any such Partnership Interests.
Valuation Risk in Sale Process
The Partnership is currently operating in liquidation and has entered into an
agreement for the sale of substantially all of its assets. However, there is no
assurance that the asset sale transaction will close and there is no assurance
of the amount of proceeds the Partnership will receive for the assets of the
Partnership. See "Item 1. Business - Sale of Assets" for further information. As
a result, there is significant risk that the Partnership will be unable to pay
off its liabilities prior to the termination of the Partnership, and that the
holders of the Partnership Interests will receive no distributions following the
termination of the Partnership.
1996 SCE Payments
There is a risk that SCE, regulators or other governmental authorities will
assert some claim or take some type of action against the Partnership relating
to the Partnership's receipt or treatment of the Deferred Energy Revenue or the
Excess Capacity Revenue. See "Item 1. Business - 1996 SCE Payments" for further
information.
Contractual Rights
There is a risk that the Partnership may not able to extend the term of several
of its material agreements, including without limitation the Wind Park Easement
Agreement and the sublease (each as defined in "Item 3. Properties"), and the
85-B Reservation of Rights Agreement. If this were to occur, there is a risk the
Partnership will be unable to continue the operation of the Windsystem beyond
June 30, 2006.
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.
- 11 -
As of and for the years ended December 31,
2005 2004 2003 2002 2001
===================================================================
Total revenue $ 1,807 $ 2,078 $ 2,816 $ 2,539 $ 3,362
Net income (loss) (982) (1,179) 68 (799) (474)
Per unit:
Net income (loss) $ (1,116) $ (1,340) $ 77 $ (908) $ (539)
Partners' capital (deficit) $ (4,017) $ (2,901) $ (1,561) $ (1,639) $ (731)
Total assets $ 1,547 $ 2,485 $ 5,037 $ 8,715 $ 8,891
Current portion of notes
payable to related party $ - $ - $ - $ - $ -
Accrued interest to related party $ - $ - $ 989 $ 4,918 $ 4,918
Partners' capital (deficit) $ (3,535) $ (2,553) $ (1,374) $ (1,442) $ (643)
(Dollars in thousands, except per Unit values which are in whole dollars)
All per Unit values were calculated based on 880 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 relating to the Partnership's status as a going
concern.
Liquidity and Capital Resources
The Partnership experienced a lack of liquidity throughout 2001, 2002 and 2003
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 were sufficient during such years to fund the Partnership's operating
expenses; however, the Partnership was unable to meet its obligations under the
Purchase Notes during such years. The Purchase Notes matured in December 2001.
During 2001, 2003 and 2004, the Partnership made principal and interest payments
to EWS on the Purchase Notes of $6.5 million, $3.9 million and $1.0 million,
respectively. The Partnership did not make any principal or interest payments on
the Purchase Notes during 2002. At December 31, 2001, approximately $4.9 million
of accrued interest was due to EWS under the Purchase Notes. At December 31,
2002, approximately $4.9 million of accrued interest in arrears continued to be
due to EWS under the Purchase Notes. At December 31, 2003, approximately $1.0
million of accrued interest in arrears was due to EWS under the Purchase Notes.
At December 31, 2004, all accrued and unpaid interest due under the Purchase
Notes had been repaid. The Partnership's failure to make timely payments on the
Purchase Notes gave EWS the right to foreclose against the collateral of its
loans as set forth in the security agreements relating to the Purchase Notes.
- 12 -
The Partnership did not receive a foreclosure notice from EWS with respect to
the Purchase Notes.
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 SCE. The price paid by SCE for the
electricity is contractually defined under the Power Agreements. See "Item 1.
Business - Sale of Electric Power" for additional information.
As of December 31, 2005, the Partnership had no current or planned commitments
for capital expenditures.
Results of Operations for the Year Ended December 31, 2005 Compared to
December 31, 2004
During the year ended December 31, 2005, the Partnership's electricity revenue
was $1.8 million, and the Windsystem produced 25.8 million kWh of electricity
sold to SCE. This was a decrease of $0.3 million or 14% in revenue and a
decrease of 3.0 million kWh or 10% of electricity produced as compared to the
year ended December 31, 2004. The Partnership believes the decrease in
electricity produced is primarily due to lower average wind speeds during 2005
as compared to 2004.
Costs and expenses during 2005 were $2.8 million, a decrease of $0.5 million or
14% as compared to 2004. Depreciation was $1.7 million in 2005 as compared to
$2.1 million in 2004. This decrease in depreciation was due to the Turbines
becoming fully depreciated during 2005. Property taxes remained comparable in
2005 as compared to 2004. Easement and management fees remained comparable
during 2005 as compared to 2004. Easement and management fees are calculated as
a percentage of 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. Maintenance expenses decreased by $0.06 million due to a decrease in
unscheduled maintenance in 2005 as compared to 2004. Insurance costs decreased
by $0.06 million in 2005 as compared to 2004 due to decreased premiums. Other
operating costs increased $0.05 million in 2005 as compared to 2004 due to
increased third party consultant fees.
Overall, the Partnership reported a net loss of $1.0 million in 2005, a change
of $0.2 million from the net loss of $1.2 million for 2004. This decrease was
primarily due to decreased revenues during 2005. During 2005, the total
partners' deficit increased by $1.0 million to $3.5 million. The net loss per
Unit was $1,116 for 2005 compared with a net loss per Unit of $1,340 for 2004.
Cash flows from operations increased by $1.5 million in 2005 as compared to
2004. This increase was primarily due to favorable changes in working capital
during 2005.
- 13 -
Results of Operations for the Year Ended December 31, 2004 Compared to
December 31, 2003
During the year ended December 31, 2004, the Partnership's electricity revenue
was $2.1 million, and the Windsystem produced 28.8 million kWh of electricity
sold to SCE. This was an increase of $0.02 million or 0.7% in revenue and an
increase of 0.5 million kWh or 2% of electricity produced as compared to the
year ended December 31, 2003. Other income decreased $0.8 million in 2004 as
compared to 2003. During 2003, the Partnership recognized approximately $0.8
million of income as a result of a payment to the Partnership by EWS relating to
a settlement of a dispute between SCE and EWS that resulted in the reduction of
the capacity payments payable under the Power Agreements. The Partnership did
not recognize any similar income in 2004.
Costs and expenses during 2004 were $3.3 million, an increase of $0.5 million or
19% as compared to 2003. Depreciation was $2.1 million in both 2004 and 2003.
During 2003, the Partnership recognized $0.8 million of bad debt expense related
to receivables from SCE for electricity delivered by the Partnership in 2000 and
2001, which had been deemed uncollectible. In addition, during 2003, the
Partnership recognized approximately $1.4 million of bad debt recovery as a
result of a payment to the Partnership by EWS relating to a settlement of a
dispute between SCE and EWS that resulted in the forgiveness of certain
receivables of the Partnership owing by SCE under the Power Agreements. The
Partnership did not recognize any similar bad debt expense or recovery in 2004.
Property taxes increased $0.01 million due to an increased tax assessment by the
Kern County Tax Assessor in 2004 as compared with 2003. Easement and management
fees decreased $0.03 million and $0.07 million, respectively, during 2004 as
compared to 2003. The decrease in easement and management fees is directly
related to the decrease in Gross Operating Proceeds received in 2004 as compared
to 2003 due to timing of receipts. Maintenance expense increased by $0.04
million due to an increase 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 $0.01 million in 2004 as
compared to 2003 due to increased third party consulting fees.
Overall, the Partnership reported a net loss of $1.2 million for 2004, a change
of $1.1 million from the net income of $0.1 million in 2003. During 2004, the
total partners' deficit increased by $1.2 million to $2.6 million. The net loss
per Unit was $1,340 for 2004 compared with a net income per Unit of $77 for
2003.
Cash flows from operations increased by $0.04 million in 2004 as compared to
2003. This increase was primarily due to favorable changes in working capital
during 2004. Cash flows from operations were used primarily to fund payments of
the interest in arrears on the Purchase Notes in both 2004 and 2003.
Results of Operations for the Year Ended December 31, 2003 Compared to
December 31, 2002
- 14 -
During the year ended December 31, 2003, the Partnership's electricity revenue
was $2.1 million, and the Windsystem produced 28.3 million kWh of electricity
sold to SCE. This was a decrease of $0.4 million or 16% in revenue and a
decrease of 4.4 million kWh or 13% of electricity produced as compared to the
year ended December 31, 2002. Other income increased $0.7 million in 2003 as
compared to 2002. During 2003, the Partnership recognized approximately $0.8
million of income as a result of a payment to the Partnership by EWS relating to
a settlement of a dispute between SCE and EWS that resulted in the reduction of
the capacity payments payable under the Power Agreement. During 2002, the
Partnership did not recognize any similar income; however, during 2002 the
Partnership recognized $0.06 million of other income from the California Energy
Commission and $0.02 million of interest income on cash accounts.
Costs and expenses during 2003 were $2.7 million, a decrease of $0.6 million or
18% as compared to 2002. Depreciation was $2.1 million in both 2003 and 2002.
During 2003, the Partnership recognized $0.8 million of bad debt expense related
to receivables from SCE for electricity delivered by the Partnership in 2000 and
2001, which had been deemed uncollectible. Alternately, during 2003, the
Partnership recognized approximately $1.4 million of bad debt recovery as a
result of a payment to the Partnership by EWS relating to a settlement of a
dispute between SCE and EWS that resulted in the forgiveness of certain
receivables of the Partnership owing by SCE under the Power Agreements. The
Partnership recognized only $0.01 million of bad debt expense and no bad debt
recovery in 2002. Property taxes increased $0.01 million due to an increased tax
assessment by the Kern county Tax Assessor in 2003 as compared to 2002. Easement
and management fees increased $0.03 million and $0.06 million, respectively,
during 2003 as compared to 2002. The increase in easement and management fees is
directly related to the increase in Gross Operating Proceeds received in 2003 as
compared to 2002 due to timing of receipt. Maintenance expense decreased $0.1
million in 2003 as compared to 2002 due to a decrease in unscheduled
maintenance. 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 net income of $0.1 million for 2003, a change
of $0.9 million from the net loss of $0.8 million in 2002. During 2003, the
total partners' deficit decreased by $0.1 million to $1.4 million. The net
income per Unit was $77 for 2003 compared with a net loss per Unit of $908 for
2002.
Cash flows from operations decreased by $2.2 million in 2003 as compared to
2002. This decrease was primarily due to increased payments of accrued interest
on the Purchase Notes and bad debt expense recovery in 2003 offset by favorable
changes in working capital. Excess cash flows from operations were used
primarily to fund payments of the interest in arrears on the Purchase Notes.
Results of Operation for the Year Ended December 31, 2002 Compared to
December 31, 2001
- 15 -
During the year ended December 31, 2002, the Partnership's electricity revenue
was $ 2.5 million, and the Windsystem produced 32.7 million kWh of electricity
sold to SCE. This was a decrease of $0.6 million or 20% in revenue, and an
increase of 2.7 million kWh or 9% of electricity produced as compared to the
year ended December 31, 2001. Other income decreased $0.2 million during 2002 as
compared to 2001. During 2001, the Partnership recognized $0.07 million on
outstanding amounts due from SCE for delivery of energy and capacity during the
period November 1, 2000 to March 27, 2001, $0.03 million of other income from
the California Energy Commission and $0.2 million of interest income on cash
accounts. During 2002, the Partnership recognized $0.06 million of other income
from the California Energy Commission and $0.02 million of interest income on
cash accounts.
Costs and expenses during 2002 were $3.3 million, a decrease of $0.5 million or
13%, as compared to 2001. Depreciation was $2.1 million in both 2002 and 2001.
During 2001, the Partnership recognized bad debt expense of $0.6 million related
to receivables from SCE for electricity delivered by the Partnership in 2000 and
2001, which had been deemed uncollectible. There was only $0.01 million of 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 February 1, 2006
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, and the Partnership paid off all of the outstanding
principal under the Purchase Notes 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 schedules).
As a result, interest expense decreased by $0.2 million in 2002 as compared to
2001. Property taxes, easement fees and management fees remained comparable in
2002 as compared to 2001. Maintenance expense increased $0.1 million in 2002 as
compared to 2001 due to an increase in unscheduled maintenance. Insurance
expense increased $0.1 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 experience in prior years. Other operating costs
increased by $0.02 million in 2002 as compared to 2001 due to increased backfeed
electricity charges associated with increased production during 2002.
Overall, the Partnership reported a net loss of $0.8 million for 2002, a change
of $0.3 million from the net loss of $0.5 million in 2001. During 2002,
the total partners' deficit increased by $0.8 million resulting in total
partners' deficit of $1.4 million. The net loss per Unit was $908 for 2002
compared with a net loss per Unit of $539 for 2001.
Cash flows from operations increased by $0.8 million in 2002 as compared to
2001. This increase was primarily due to favorable changes in working capital
during 2002. Cash flows used in financing activities decreased by $6.0 million
- 16 -
during 2002 due to principal payments on the Purchase Notes made in 2001. No
principal or interest payments were made on the Purchase Notes in 2002.
Contractual Obligations
The Partnership's contractual obligations as of December 31, 2005 are as follows
(in millions):
-------------------------------------- ----------------------
2006*
-------------------------------------- ----------------------
Purchase obligations:
-------------------------------------- ----------------------
-------------------------------------- ----------------------
Scheduled maintenance fees $0.187
-------------------------------------- ----------------------
-------------------------------------- ----------------------
Minimum sublease fees $0.007
-------------------------------------- ----------------------
-------------------------------------- ----------------------
Demobilization Fees $0.036
-------------------------------------- ----------------------
-------------------------------------- ----------------------
*The term of the Partnership ended on December 31, 2005; however, the
Partnership is operating in liquidation and obtained the right to sell power
under the Power Agreements, and extended the term of the Management Agreement,
through June 30, 2006.
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.
- 17 -
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 a portion of the Operating Site pursuant to a
20-year easement granted by ZWHC under the terms of the Amended and Restated
Series B Wind Park Easement Agreement dated as of March 24, 1986 (the "Wind Park
Easement Agreement") between the Partnership and ZWHC, as successor to EWS. The
term of the Wind Park Easement Agreement ends on June 30, 2006; provided,
however, that certain provisions of the Wind Park Easement Agreement relating to
the removal, abandonment or sale of the Turbines continue beyond the end of the
term of the Wind Park Easement Agreement. There are 226 of the Turbines located
on the real property that is subject to the Wind Park Easement Agreement. In
addition, the Partnership uses a portion of the Operating Site pursuant to a
sublease dated as of August 30, 1990 between EWS (as successor to ZSI) and the
Partnership (the "Sublease"). The Partnership and EWS entered into an Amendment
to Sublease dated as of March 21, 2006, which amended the term of the Sublease
and provided the Partnership with an eleven-month period following the end of
the term of the Sublease to remove the Turbines from the subleased property. The
term of the Sublease ends on June 30, 2006; provided, however, that certain
provisions of the Sublease relating to the removal or abandonment of the
Turbines continue beyond the term of the Sublease. There are 14 of the Turbines
located on the real property that is subject to the Sublease. The Sublease is
subject to all of the terms and conditions of that certain Lease and Royalty
Agreement for Meteorological Research Sites and the Construction and Operation
of Wind Energy Conversion Systems entered into by John M. Wuerth Family Trust,
as lessor, on July 26, 1989 and EWS, (as successor to ZSI), as lessee, on
December 12, 1989 (the "Wuerth Lease"). The term of the Wuerth Lease ends on the
later of December 31, 2021 or the termination of all power purchase agreements
that receive power generated on or transmitted over the leased property. EWS and
its affiliates have developed and sold additional wind turbines on the Operating
Site to ZWP Series 85-A, and ZWHC, as successor to ZCC, granted a similar
easement to ZWP Series 85-A. The general partner of ZWP Series 85-A is an
affiliate of the General Partner.
The transmission system used by the Partnership to transmit to SCE the
electricity generated by the Windsystem consists of (i) a 66 kV transmission
line owned by third parties, (ii) a 230 kV transmission line owned in co-tenancy
by the Partnership and certain third parties and (iii) a 230 kV transmission
line owned by Sagebrush Partnership, of which Sagebrush Partner Eighteen Inc.,
the Partnership's wholly-owned subsidiary, is a general partner. Pursuant to
that certain Series B Power Transfer Agreement dated as of September 9, 1985
between the Partnership and ZWHC, as successor to EWS, the Partnership uses one
of ZWHC's 66 kV transmission lines to transmit power from the Partnership's
substation to the Tehachapi Substation, which is owned in co-tenancy by the
Partnership and certain other parties. The Partnership owns an undivided 5.94%
interest in (x) the Tehachapi Substation, (y) the Westwind Transmission Line and
(z) the Westwind Substation pursuant to that certain Agreement Among Co-Tenants
dated December 13, 1990 among Sky River
- 18 -
Partnership, Victory Garden Phase IV Partnership, ZWP Series 85-A, Caithness 251
Wind, LLC and the Partnership. Sagebrush Partner, Eighteen Inc., the
Partnership's wholly-owned subsidiary, owns an undivided 5.66% interest in
Sagebrush Partnership, which owns the Sagebrush Transmission Line, the
transmission line that connects the Westwind Substation to SCE's Vincent
Substation, the location where the power generated by the Windsystem is
delivered to SCE under the Power Agreements.
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. ZWM and EWS each
own fractional limited partnership interests in the Partnership. No person who
is deemed to be an executive officer or director of the Partnership as of 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.
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.
Jesse E. Neyman, age 62, has served as President and Chief Executive Officer of
ZWM since January 3, 2006. Mr. Neyman is responsible for managing and
liquidating the global wind business operations of Enron and its affiliates. Mr.
Neyman has served as Vice President, Principal Investments, Enron since early
2002. He is responsible for managing financial investment portfolios of Enron
and its affiliates. Prior to these assignments, Mr. Neyman served as Vice
President of Enron Producer Finance, providing risk capital to the oil and gas
sector.
Mr. Neyman 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.
- 19 -
Johnna D. Kokenge, age 35, has served as Chief Financial Officer of ZWM since
March 22, 2005. Ms. Kokenge has served in various accounting capacities for
Enron and certain Enron affiliates since 1999.
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-C, and Zond-PanAero Windsystem Partners I, each a California Limited
Partnership. Set forth below is certain information regarding the directors of
EREC.
K. Wade Cline, age 43, 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, and was elected Managing Director and General Counsel of Enron in
September 2005. Mr. Cline has served multiple Enron companies in various legal
and management roles since 1992.
Richard Lydecker, age 61, has been a director of EREC since January 3, 2006, and
has served as Managing Director and Chief Accounting Officer of Enron since
February 2002. Mr. Lydecker also was elected as Enron's Chief Financial Officer
effective December 20, 2005. Prior to his appointment to these positions with
Enron, Mr. Lydecker was Vice President, Principal Investments of Enron. The
board of directors of EREC has determined that Mr. Lydecker is an "audit
committee financial expert" as such term is defined by the rules of the
Commission. Mr. Lydecker is not "independent" as such term is defined under the
listing standards of the New York Stock Exchange.
Messrs. Cline and Lydecker 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.
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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 2005. Eric D. Gadd served as President and Chief
Executive Officer of ZWM from September 26, 2002 through December 31, 2005.
Individuals that may be deemed executive officers of the Partnership are
compensated by Enron or subsidiaries of Enron for all of their services rendered
to Enron and its affiliates, including services to the Partnership, and are not
compensated directly by the Partnership. The directors of EREC are compensated
for all of their services rendered, including services to the Partnership, by
Enron and they are not 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 and ZWHC.
Item 7. Certain Relationships and Related Transactions
The following summarizes payments made to and proposed to be made to, and made
by and proposed to be made by, the Partnership to the General Partner and its
affiliates in connection with certain agreements. These payments were determined
by and among affiliated entities and, consequently, are not the result of
arm's-length negotiations.
EWS receives payments from the Partnership pursuant to the Purchase Notes, the
Management Agreement, the Sublease and the Reservation of Rights Agreement, and
ZWHC, an affiliate of EWS, receives payments from the Partnership pursuant to
the Wind Park Easement Agreement.
On August 8, 2005 the executive officers of EWS resigned and accordingly, since
such date, the executive officers of EREC may be deemed executive officers of
EWS. Eric D. Gadd was Chief Executive Officer and President of EWS from May 11,
2002 through August 7, 2005. Richard Lydecker has been Chief Accounting Officer
of EREC since September 8, 2005. Jesse Neyman, Jr. has been President and Chief
Operating Officer of EREC since January 3, 2006. Robert Semple was a director of
EREC from December 12, 2002 through December 31, 2005 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, and has been the Executive Vice President of EREC since September 6, 2005.
Purchase Note Financing
EWS earned interest from the Partnership under the Purchase Notes. The interest
rate under the Purchase Notes was 11.25% 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, the Partnership made principal and interest payments to EWS on the
Purchase Notes of $6.7 million, $3.9 million and $1.0 million, respectively. The
Partnership did not make any principal or interest payments on the Purchase
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Notes during 2002. At December 31, 2001, approximately $4.9 million of accrued
interest was due to EWS under the Purchase Notes. At December 31, 2002,
approximately $4.9 million of accrued interest in arrears continued to be due to
EWS under the Purchase Notes. At December 31, 2003, approximately $1.0 million
of accrued interest in arrears was due to EWS under the Purchase Notes. At
December 31, 2004, all accrued and unpaid interest due under the Purchase Notes
had been repaid.
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 did not pay all of the accrued interest in arrears owing under the
Purchase Notes until 2004. 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 the portion of the annual principal payments that was
due and unpaid at the end of any calendar year during such period. As a result
of this arrangement, the Partnership paid or has been obligated to pay
approximately $1.1 million less in interest through December 31, 2004 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 entered into between EWS and the Partnership dated as of
February 1, 2006. In addition, pursuant to the terms of the Purchase Notes, the
Partnership was not required to pay additional interest on the accrued and
unpaid interest due under the Purchase Notes.
Prior to the date of the payment of all the accrued and unpaid interest on the
Purchase Notes in December 2004, the Partnership was in default under the
Purchase Notes. During such period and upon notice of default, EWS had the right
to foreclose against its security interest in the assets of the Partnership,
including the Windsystem. However, EWS did not elect to foreclose on its
security interest during such period.
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 SCE, (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. Costs incurred in respect to
the power transfer facilities owned by ZWHC are allocated between the
Partnership and ZWP Series 85-A.
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As compensation for its services under the Management Agreement, EWS receives a
management fee of 3% 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 $0.8 million. During
2002, the Partnership made payments under the Management Agreement to or on
behalf of EWS in an aggregate amount of approximately $0.9 million. During 2003,
the Partnership made payments under the Management Agreement to or on behalf of
EWS in an aggregate amount of approximately $0.8 million. During 2004, the
Partnership made payments under the Management Agreement to or on behalf of EWS
in an aggregate amount of approximately $0.8 million. During 2005, the
Partnership made payments under the Management Agreement to or on behalf of EWS
in an aggregate amount of approximately $0.8 million.
Wind Park Easement Agreement and Sublease Agreement
The Partnership uses a portion of the Operating Site (the "Easement Site")
pursuant to the Wind Park Easement Agreement. There are 226 of the Turbines
located on the Easement Site. Under the Wind Park Easement Agreement, ZWHC
charges the Partnership rental fees in an amount equal to 1% of Gross Operating
Proceeds. For 2001, 2002, 2003, 2004 and 2005, the Partnership's easement fees
were $0.02 million, $0.02 million, $0.04 million, $0.02 million and $0.03
million, respectively.
At the termination of the Wind Park Easement Agreement, the Partnership is
required to remove from the Easement Site, within ninety (90) days of the
termination date, the Turbines and the Partnership's substation, unless the
Partnership elects to (i) abandon the Turbines, related equipment and substation
or (ii) sell the Turbines. If the Partnership elects to abandon the Turbines,
the related equipment and the substation, then all right, title and interest in
such equipment shall transfer to ZWHC without the payment of any compensation to
the Partnership. However, if the Turbines, related equipment and substation are
abandoned, neither ZWHC nor any affiliate shall have the right to operate the
Turbines, related equipment and substation unless ZWHC (or its affiliate) pays
to the Partnership the appraised fair market value (as defined in the Wind Park
Easement Agreement) of the Turbines, related equipment and substation. If the
Partnership elects to sell the Turbines at any time, the Partnership must first
offer the Turbines to ZWHC on the same terms and conditions. It is anticipated
that ZWHC will waive its right of first offer in connection with the closing of
the transactions contemplated by the Purchase and Sale Agreement. See "Item 1.
Business - Sale of Assets" for more information. In the event that the
Partnership elects to sell the Turbines, related equipment and the substation,
and does not complete such sale within eleven (11) months of the termination
date of the Wind Park Easement Agreement, then the Partnership must immediately
remove the Turbines and the substation. Failure to remove such equipment will
result in the abandonment of such equipment to ZWHC.
The Partnership also uses a portion of the Operating Site (the "Lease Site")
pursuant to the Sublease with EWS. There are 14 of the Turbines located on the
Lease Site. Under the Sublease, EWS charges the Partnership rent in an amount
equal to: (i) the Partnership's pro rata share of the sum of: (A) adjusted
minimum rent, as escalated for inflation, (B) taxes and/or assessments and
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utility charges - other than taxes and/or assessments and utility charges
directly assessed against or related to the Partnership's property or operations
within the subleased property and (C) all other costs or charges imposed or
resulting in connection with the general maintenance and upkeep of the leased
property; (ii) rent payments due under section 4.2 of the Sublease (5% of Gross
Operating Proceeds (as defined in the Sublease)), if greater than the minimum
rent; and (iii) property taxes and/or assessments and utility charges directly
assessed against or related to the Partnership's property or operations at the
Lease Site. The Partnership's pro rata share for calculating rent due under
clause (i) above is determined by the ratio of the rated capacity of the
Turbines owned by the Partnership on the Lease Site to the rated capacity of all
turbines on the Lease Site. For 2001, 2002, 2003, 2004 and 2005, the
Partnership's sublease fees were $0.01 million, $0.01 million, $0.01 million,
$0.01 million and $0.01 million, respectively.
At the end of the term of the Sublease, the Partnership may remove, within
eleven (11) months of such termination, the Turbines and related equipment from
the Lease Site. If the Partnership fails to remove any of such equipment from
the Lease Site within such period, then such equipment shall be deemed abandoned
to EWS.
Reservation of Rights Agreement
Since January 1, 2006, the Partnership has been selling power to SCE under the
Power Agreements pursuant to the 85-B Reservation of Rights Agreement. Under the
85-B Reservation of Rights Agreement, the Partnership pays to EWS an amount
equal to 45% of the net operating proceeds of the Partnership attributable to
the period commencing on February 15, 2006 and ending on the last day that the
Partnership delivers power to SCE under the Power Agreements.
Item 8. Legal Proceedings
SCE Dispute and FERC Investigation
Market conditions in the California energy sector during 2000 and 2001 created a
significant cash flow problem for SCE. At the end of January 2001, SCE advised
the Partnership that SCE would not make payments for power deliveries in
November and December 2000. The Partnership, along with other renewable source
generators, engaged in discussions with SCE seeking payment from SCE for past
due amounts under applicable power agreements entered into with SCE.
The Partnership continued to operate the Windsystem and deliver power to SCE
believing that eventually a solution would be negotiated. SCE continued to
default on its contractual obligations by missing payments due for January,
February, and March 2001 power deliveries.
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On March 27, 2001, the California Public Utilities Commission (the "CPUC")
issued an order (the "CPUC Order") obligating SCE to begin payments for power
delivered on a prospective basis. Following the issuance of the CPUC Order, SCE
initiated discussions with renewable source generators, including the
Partnership, to agree on a payment plan for power delivered on a prospective
basis. The Partnership and SCE agreed that SCE would pay for delivered power
twice a month. This payment plan was effective from March 27, 2001, the date of
the CPUC Order, through August 2003. The CPUC Order did not address the issue of
payments due for the period from November 1, 2000 to March 26, 2001.
By the end of April 2001, the Partnership and SCE were not able to resolve SCE's
non-payment for power delivered for the period between November 1, 2000 and
March 26, 2001. The Partnership, along with other renewable source generators
(collectively, the "Power Generators"), assisted by outside counsel, explored
various legal alternatives to enforce the contractual rights of the Power
Generators. On May 2, 2001, certain Power Generators, including the Partnership,
filed suit against SCE in Los Angeles Superior Court (the "SCE Litigation"). The
suit sought to recover compensation from SCE for power delivered, and at the
option of the plaintiffs, relief from the obligation to deliver power under the
existing contracts with SCE coupled with the right to sell power in the open
market across the SCE transmission grid.
In June 2001, SCE offered to settle all amounts past due, including a payment
for the past due amounts, with the Power Generators. The offer provided for the
payment of all amounts past due with interest accruing at an annual rate of 7%
through the date of payment. On June 15, 2001, the Partnership entered into an
Agreement Addressing Renewable Energy Pricing and Payment Issues with SCE that,
among other things, set forth the terms for payment of past due amounts to the
Partnership (the "SCE Payment Agreement"). Pursuant to the SCE Payment
Agreement, SCE acknowledged that it owed the Partnership approximately $1.6
million in connection with the delivery of electricity by the Partnership to SCE
during the period from November 2000 through March 26, 2001. In June 2001, SCE
paid the Partnership the first of two installments due under the SCE Payment
Agreement, which aggregated approximately $0.2 million.
In November 2001, SCE and the Partnership entered into that certain Amendment
No. 1 to Agreement Addressing Renewable Energy Pricing and Payment Issues.
Pursuant to this amendment, the parties revised SCE's installment payment plan
for the amount due and payable by SCE to the Partnership. As of December 31,
2001, approximately $1.4 million remained to be paid by SCE under the SCE
Payment Agreement (the "Remaining SCE Payment"). The conditions precedent for
payment of the Remaining SCE Payment under the SCE Payment Agreement were
satisfied in 2002, but SCE did not pay the Remaining SCE Payment to the
Partnership at such time.
In October 2002, SCE filed at the FERC, pursuant to FERC Docket No. EL03-19 et
al, a petition for declaratory relief order (the "SCE Petition") seeking
revocation of the qualifying facility ("QF") status under PURPA for certain wind
power projects owned or managed by EWS or its affiliates, including the
Windsystem. SCE contended that these wind power projects failed to meet the
ownership criteria for QF status following Enron's acquisition of Portland
General Electric Company in 1997. Under PURPA, and the applicable FERC
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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. In December 2002, FERC consolidated the FERC proceeding established in
connection with the SCE Petition (FERC Docket No. EL03-19 et al) with another
FERC investigation proceeding relating to three other wind power projects owned
or managed by EWS and known as "Investigation of Certain Enron-Affiliated QFs",
FERC Docket No., EL 03-17-00 et al (collectively, the "Consolidated
Proceedings").
In January 2003, the Partnership, certain parties affiliated with EWS, and
certain third parties (collectively the "PPA Sellers"), and SCE entered into
that certain Master Definitive Agreement (the "Master Definitive Agreement") to
resolve all of the disputes between SCE and the PPA Sellers arising in
connection with the Consolidated Proceedings. Pursuant to the terms of the
Master Definitive Agreement (i) the Partnership forgave the Remaining SCE
Payment owing from SCE, (ii) the Partnership agreed to reduce the capacity
payments due under the 85-B Power Agreement over the remaining term of the power
purchase agreement, (iii) SCE released all its claims against the Partnership
regarding QF ownership with respect to the Windsystem and (iv) SCE agreed to
amend the 85-B Power Agreement to remove the requirement that the Windsystem be
a QF project.
In April 2003, in conjunction with the settlement reached with SCE under the
Master Definitive Agreement, Enron Wind LLC and certain other third parties
settled with the FERC Trial Staff the issues under investigation in connection
with the Consolidated Proceedings and entered into a Consent Agreement dated
April 15, 2003 (the "Consent Agreement"). The FERC Trial Staff and the other
parties to the Consent Agreement agreed that the Consent Agreement and the
Master Definitive Agreement were being submitted to FERC together in order to
resolve all the issues regarding the QF status of the entities subject to the
Consolidated Proceedings. 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.
Following the receipt of all the regulatory, bankruptcy court and other
approvals required in connection with the Master Definitive Agreement and the
Consent Agreement in late 2003, EWS reimbursed/contributed to the Partnership,
pursuant to an offset against amounts owing under the Purchase Notes, $2.2
million, which is equal to the sum of (i) the total amount of the reduction in
the estimated capacity payments under the Power Agreements that would have been
paid to the Partnership for the production from the Windsystem as a result of
the SCE settlement set forth in the Master Definitive Agreement and (ii) the
amount of the Remaining SCE Payment.
Item 9. Market Price of and Dividends on Registrant's Common Equity
and Related Stockholder Matters
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There is no established public trading market for the Partnership Interests. As
of December 31, 2005, there were 597 holders of the 880 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, December 31, 2004 and December 31, 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 in the Partnership. 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.
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.
- 27 -
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 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 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.
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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
date on which the aggregate amount of distributions to Limited Partners equals
$7.3 million 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 date on
which the aggregate amount of distributions to Limited Partners equals $7.3
million or January 1, 1996, 70% to the regular Limited Partners in proportion to
their regular Units, 5% to the Special Limited Partners in proportion to their
special Units and 25% 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; or (iv) 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
- 29 -
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 the 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 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
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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 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
- 31 -
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 the 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 Sublease, the Partnership has agreed to indemnify
EWS, its officers, employees and agents from any losses, claims, liabilities,
judgments, damages, costs and expenses caused by any breach by the Partnership,
its agents or employees (other than EWS or its affiliates) of a duty, if any,
imposed on it or any of them by law or under the Sublease and for any 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). EWS has similarly agreed to indemnify the Partnership for any
losses, claims, liabilities, judgments, damages, costs and expenses caused by
any breach by EWS or its affiliates (excluding ZWP Series 85-A), agents or
employees of any duty, if any, imposed on any of them by law or under the
Sublease and for any injury or damages to persons or property resulting from or
attributable to the fault or neglect of EWS, its affiliates (excluding ZWP
Series 85-A), agents or employees.
Pursuant to the terms of the Wind Park Easement Agreement, the Partnership has
agreed to indemnify ZWHC for any losses, liabilities, claims, judgments,
damages, costs and expenses caused by any breach by the Partnership, its agents
or employees (other than ZWHC or its affiliates) of a duty imposed on any of
them by law or under the Wind Park Easement Agreement or for any 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 ZWHC or its
affiliates). ZWHC has similarly agreed to indemnify the Partnership from any
losses, liabilities, claims, judgments, damages, costs and expenses caused by
any breach by ZWHC, its affiliates (excluding the Partnership and ZWP Series
85-A) or its agents or employees of a duty imposed on any of them by law or
under the Wind Park Easement Agreement or for any injury or damage to persons or
property resulting from or attributable to the fault or neglect of ZWHC, its
affiliates (excluding the Partnership and ZWP Series 85-A), agents or employees.
- 32 -
Pursuant to the terms of the Series A Power Transfer Facilities Agreement (the
"PTF Agreement") dated as of September 9, 1985 between ZWHC (as successor to
ZSI) and the Partnership, the Partnership has agreed to indemnify ZWHC for any
losses, liabilities, claims, judgments, damages, costs and expenses caused by
any breach by the Partnership, its agents or employees (other than ZWHC or its
affiliates) of a duty imposed on any of them by law or under the PTF Agreement
or for any 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 ZWHC or its affiliates). ZWHC has similarly agreed to indemnify the
Partnership from any losses, liabilities, claims, judgments, damages, costs and
expenses caused by any breach by ZWHC, its affiliates (excluding the Partnership
and ZWP Series 85-A) or its agents or employees of a duty imposed on any of them
by law or under the PTF Agreement or for any injury or damage to persons or
property resulting from or attributable to the fault or neglect of ZWHC, its
affiliates (excluding the Partnership and ZWP Series 85-A), agents or employees.
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 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
- 33 -
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 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.
- 34 -
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 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
- 35 -
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.
On January 27, 2005, the Partnership initially retained Hein & Associates LLP as
its independent accountant. During the 2003 and 2004 years and during the 2005
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 December 31, 2005, 2004, 2003, 2002 and 2001
Statements of Operations for the years ended December 31, 2005, 2004,
2003, 2002 and 2001
- 36 -
Statements of Changes in Partners' Deficit for the years ended
December 31, 2005, 2004, 2003, 2002 and 2001
Statements of Cash Flows for the years ended December 31, 2005,
2004, 2003, 2002 and 2001
Notes to Financial Statements
(a)2 Schedules
None
(b) Exhibits
Number Description
- ------ -----------
3.1+ Certificate of Limited Partnership filed in the office of the California
Secretary of State on August 19, 1985.
3.2+ First Amended and Restated Agreement of Limited Partnership of Zond
Windsystem Partners, Ltd. Series 85-B dated November 15, 1985.
10.1+ Windsystem Construction Agreement, dated as of September 9, 1985,
between Zond Construction Corporation III ("ZCC") and Zond Windsystem Partners,
Ltd. Series 85-B (the "Partnership").
10.2+ Amended and Restated Series B Wind Park Easement Agreement, dated as of
March 24, 1986, between ZWHC LLC (as successor to ZCC) and the Partnership.
10.3+ a) Windsystem Management Agreement, dated as of September 9, 1985,
between Enron Wind Systems, LLC ("EWS"), as successor to Zond Systems, Inc.
("ZSI"), and the Partnership;
b) First Amendment to Windsystem Management Agreement dated as of
January 13, 2006, between EWS and the Partnership;
c) Second Amendment to Windsystem Management Agreement dated as of
March 21, 2006, between EWS and the Partnership.
10.4+ a) Series B Promissory Note, dated as of November 13, 1985, in the
amount of $12,852,000 issued by the Partnership to EWS (as successor to ZCC);
b) Series B Promissory Note, dated as of November 27, 1985, in the
amount of $3,255,840 issued by the Partnership to EWS (as successor to ZCC);
c) Series B Promissory Note, dated as of December 16, 1985, in the
amount of $4,455,360 issued by the Partnership to EWS (as successor to ZCC);
- 37 -
d) Modification Agreement, dated as of February 19, 1986 between the
Partnership and EWS (as successor to ZCC); and
e) Second Modification Agreement dated as of March 21, 1986 between the
Partnership and EWS (as successor to ZCC).
10.5+ a) Purchase Note and Security Agreement (Series B), dated as of
November 7, 1985, between EWS (as successor to ZCC) and the Partnership;
b) Amendment to Purchase Note and Security Agreement (Series B) between
EWS (as successor to ZCC) and the Partnership dated as of March 26, 1986;
c) Amendment to Purchase Note and Security Agreement (Series B) between
EWS (as successor to ZCC) and the Partnership dated as of August 30, 1990;
d) Supplemental Security Agreement (Series B) between EWS (as successor
to Zond Windsystems Holding Company (formerly known as ZCC)) and the Partnership
dated as of June 30, 1992.
10.6+ a) Series B Deed of Trust and Assignment of Rents made by the
Partnership in favor of EWS (as successor to ZCC) dated as of November 7, 1985;
b) First Amendment to Series B Deed of Trust and Assignment of Rents
between EWS (as successor to ZCC) and the Partnership dated as of March 24,
1986; and
c) Second Amendment to Series B Deed of Trust and Assignment of Rents
between EWS (as successor to ZWHC) and the Partnership dated as of June 30,
1992.
10.7+ Deed of Trust and Assignment of Rents (Series B - Co-Tenancy Interest)
between the Partnership and EWS (as successor to ZCC) dated as of April 19,
1991.
10.8+ a) Power Purchase Contract, dated June 22, 1984, between ZSI and
Southern California Edison Company ("SCE");
b) Amendment No. 1 to the Power Purchase Contract between SCE and ZSI
dated September 20, 1985;
c) Amendment No. 2 to the Power Purchase Contract between SCE and Zond
Windsystems Partners, Ltd. Series 85-A ("ZWP Series 85-A") dated August 25,
1989;
d) Amendment No. 3 to the Power Purchase Contract between SCE and ZWP
Series 85-A dated October 31, 1991;
e) Amendment No. 4 to the Power Purchase Contract between SCE and ZWP
Series 85-A dated January 15, 2003;
f) Agreement Addressing Renewable Energy Pricing and Payment Issues
between ZWP Series 85-A and SCE dated June 19, 2001;
g) Amendment No. 1 to the Agreement Addressing Renewable Energy Pricing
and Payment Issues between ZWP Series 85-A and SCE dated November 30, 2001;
h) Assignment of Power Purchase Contract, dated as of September 9, 1985,
between ZSI and ZWP Series 85-A;
i) Power Agreement Co-Ownership Agreement dated as of August 30, 1990
between Caithness 251 Wind, LLC and ZWP Series 85-A; and
j) Reservation of Rights Acknowledgement dated as of February 1, 2006
between the Partnership and ZWP Series 85-A.
10.9+ a) Power Purchase Contract dated June 22, 1984 between SCE and ZSI;
b) Amendment No. 1 to the Power Purchase Contract between SCE and ZSI
dated September 20, 1985;
c) Amendment No. 2 to the Power Purchase Contract between SCE and the
Partnership dated September 13, 1989;
d) Amendment No. 3 to the Power Purchase Contract between SCE and the
Partnership dated October 31, 1991;
e) Letter Agreement Amendment dated August 15, 1991 between SCE and the
Partnership;
f) Amendment No. 4 to the Power Purchase Contract between SCE and the
Partnership dated January 15, 2003;
g) Agreement Addressing Renewable Energy Pricing and Payment Issues
between the Partnership and SCE dated June 19, 2001;
- 38 -
h) Amendment No. 1 to the Agreement Addressing Renewable Energy Pricing
and Payment Issues between the Partnership and SCE dated November 30, 2001;
i) Assignment of Power Purchase Contract, dated as of September 9, 1985,
between ZWHC LLC (as successor to ZSI) and the Partnership;
j) Power Agreement Co-Ownership Agreement dated as of August 30, 1990
between ZWHC LLC (as successor to ZSI) and the Partnership;
k) Reservation of Rights Agreement dated as of February 15, 2006 between
EWS and the Partnership.
10.10+ a) Amended and Restated Interconnection Facilities Agreement dated
November 18, 1988 among SCE, Caithness 251 Wind, LLC (as successor to ZSI),
Helzel & Schwarzhoff L.P., Victory Garden Phase IV Partnership, the Partnership
and ZWP Series 85-A;
b) Amendment No. 1 to the Amended and Restated Interconnection
Facilities Agreement dated October 11, 1989;
c) Amendment No. 2 to the Amended and Restated Interconnection
Facilities Agreement dated August 31, 1992.
10.11+ Amended and Restated Interconnection Facilities Agreement Co-Ownership
Agreement dated as of June 30, 1992 by and among Caithness 251 Wind, LLC, (as
successor to ZSI), Victory Garden Phase IV Partnership, Helzel & Schwarzhoff
L.P., the Partnership and ZWP Series 85-A.
10.12+ Series B Power Transfer Facilities Agreement between ZWHC LLC (as
successor to ZSI) and the Partnership dated as of September 9, 1985.
10.13+ a) Sublease dated as of August 30, 1990 by and between EWS (as successor
to ZSI) and the Partnership;
b) Amendment to Sublease dated as of March 21, 2006 by and between EWS
and the Partnership;
c) Lease and Royalty Agreement for Meteorological Research Sites and the
Construction and Operation of Wind Energy Conversion Systems dated July 26, 1989
between EWS (as successor to ZSI) and John M. Wuerth Family Trust.
10.14+ Amended and Restated Right of Way Grant Agreement and Grant of Easement
dated as of May 10, 2002 among EWS, GE Wind Energy, LLC, Caithness 251 Wind,
LLC, as successor to ZWHC LLC, the Partnership and ZWP Series 85-A.
10.15+ a) Agreement among Co-Tenants dated as of December 13, 1990 among Sky
River Partnership, Victory Garden Phase IV Partnership, Helzel & Schwarzhoff
L.P., the Partnership, ZWP Series 85-A and Caithness 251 Wind, LLC (as successor
to ZSI);
b) First Amendment to Agreement Among Co-Tenants dated as of June 30,
1992 among Sky River Partnership, Victory Garden Phase IV Partnership, Helzel &
Schwarzhoff L.P., the Partnership, ZWP Series 85-A and Caithness 251 Wind, LLC
(as successor to ZSI);
c) Second Amendment to Agreement Among Co-Tenants dated as of August 19,
2003 among Sky River Partnership, Victory Garden Phase IV Partnership, Helzel &
Schwarzhoff L.P., the Partnership, ZWP Series 85-A and Caithness 251 Wind, LLC
(as successor to ZWHC LLC);
- 39 -
d) Third Amendment to Agreement Among Co-Tenants dated as of
December 29, 2003 among Sky River Partnership, Victory Garden Phase IV
Partnership, Helzel & Schwarzhoff L.P., the Partnership, ZWP Series 85-A and
Caithness 251 Wind, LLC (as successor to ZWHC LLC);
e) Fourth Amendment to Agreement Among Co-Tenants dated as of March 31,
2004 among Sky River Partnership, Victory Garden Phase IV Partnership, Helzel &
Schwarzhoff L.P., the Partnership, ZWP Series 85-A and Caithness 251 Wind, LLC
(as successor to ZWHC LLC).
10.16+ a) Second Amended and Restated Sagebrush General Co-Ownership Agreement
dated as of September 1, 1989 by and among Alpha Mariah, Inc., Beta Mariah,
Inc., Gamma Mariah, Inc., Delta Mariah, Inc., Alpha Willow, Inc., Beta Joshua,
Inc., Alpha Joshua, Inc., Alpha Joshua (Prime), Inc., Beta Willow, Inc., Beta
Willow (Prime), Inc., Sagebrush Partner Eleven, Inc., Sagebrush Partner Twelve,
Inc., Sagebrush Partner Thirteen, Inc., Sagebrush Partner Fourteen, Inc.,
Sagebrush Partner Fifteen, Inc., Sagebrush Partner Seventeen, Inc., Sagebrush
Partner Eighteen, Inc., Sagebrush Partner Nineteen, Inc., Sagebrush Partner
Twenty, Inc., and Sagebrush Partner Twenty-One, Inc. (collectively, the
"Sagebrush Partners");
b) First Amendment to Second Amended and Restated Sagebrush General
Co-Ownership Agreement dated as of December 1, 1990 among the Sagebrush
Partners;
c) Omnibus Amendment to Sagebrush Partnership Documents dated as of
August 19, 2003 among the Sagebrush Partners, Sagebrush, a California general
partnership and Eurus ToyoWest Management LLC (as successor to ToyoWest
Management, Inc.).
10.17+ a) Sagebrush Management and Maintenance Agreement dated as of
September 1, 1989 by and among Sagebrush, a California general partnership,
each of the Sagebrush Partners and Eurus ToyoWest Management LLC (as successor
to ToyoWest Management Company);
b) First Amendment to Sagebrush Management and Maintenance Agreement
dated as of December 1, 1990 among Sagebrush, each of the Sagebrush Partners and
Eurus ToyoWest Management LLC (as successor to ToyoWest Management, Inc).
10.18+ Interest Expense Acknowledgement between EWS and the Partnership dated
as of February 1, 2006.
10.19+ a) Master Definitive Agreement dated January 15, 2003 among SCE, Enron
Wind LLC, ESI Sky River Limited Partnership, ESI VG Limited Partnership, the
Partnership, and certain other parties named therein;
b) Letter Agreement Amendment dated May 12, 2003;
c) Letter Agreement Amendment dated July 25, 2003.
10.20 Purchase and Sale Agreement dated as of April 12, 2006 by and among EWS,
ZWHC LLC, the Partnership, and ZWP Series 85-A, and AES Tehachapi Wind, LLC and
Seawest Holdings, Inc.
- --------------------
+ Previously filed
- 40 -
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-B, a California limited partnership
By: Zond Windsystems
Management IV LLC,
General Partner
Dated April 27, 2006 By: /s/ Jesse E. Neyman
-----------------------
Name: Jesse E. Neyman
---------------------
Title: President and CEO
--------------------
- 41 -
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2005, 2004, 2003, F-1
2002 and 2001
Statements of Operations for the years ended F-2
December 31, 2005, 2004, 2003, 2002 and 2001
Statements of Changes in Partners' Deficit for the years ended F-3
December 31, 2005, 2004, 2003, 2002 and 2001
Statements of Cash Flows for the years ended F-4
December 31, 2005, 2004, 2003, 2002 and 2001
Notes to Financial Statements F-5
- 42 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Zond Windsystem Partners, Ltd. Series 85-B:
We have audited the accompanying balance sheets of Zond Windsystem Partners,
Ltd. Series 85-B (the "Partnership") as of December 31, 2005, 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 audits 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, 2005, 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, certain agreements relating to the Partnership's ability
to generate electricity expire in 2006 and the Partnership is expected to
liquidate and terminate in 2006. 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.
Hein & Associates LLP
Houston, Texas
March 1, 2006, except for the Sale of Assets section of
Note 9 as to which the date is April 17, 2006
- 43 -
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
(Dollars in thousands)
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
--------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,284 $ 355 $ 968 $ 1,616 $ 23
Accounts receivable, net
allowance of $0, $0, $592, $578 222 394 240 1,009 914
Accounts receivable from
related party 1 1 16 213 -
Other current assets
40 39 41 29 30
--------------------------------------------------------------------------------
Total current assets 1,547 789 1,265 2,867 967
--------------------------------------------------------------------------------
Property, plant and
equipment:
Plant equipment 41,162 41,162 41,162 41,162 41,162
Less - accumulated depreciation (41,162) (39,466) (37,390) (35,314) (33,238)
--------------------------------------------------------------------------------
Property, plant and equipment, net - 1,696 3,772 5,848 7,924
--------------------------------------------------------------------------------
Total assets $ 1,547 $ 2,485 $ 5,037 $ 8,715 $ 8,891
================================================================================
Liabilities and partners' deficit
Current liabilities:
Accounts payable and
accrued expenses $ 228 $ 211 $ 182 $ 91 $ 3
Accounts payable to related party 132 150 621 582 112
Accrued interest to related party - - 989 4,918 4,918
Deferred revenue 4,722 4,677 4,619 4,566 4,501
--------------------------------------------------------------------------------
Total current liabilities 5,082 5,038 6,411 10,157 9,534
--------------------------------------------------------------------------------
Partners' deficit:
General partner 279 288 300 299 307
Limited partners (7,711) (6,747) (5,592) (5,658) (4,875)
Substituted limited partners 3,897 3,906 3,918 3,917 3,925
--------------------------------------------------------------------------------
Total partners' deficit (3,535) (2,553) (1,374) (1,442) (643)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total liabilities and
partners' deficit $ 1,547 $ 2,485 $ 5,037 $ 8,715 $ 8,891
================================================================================
The accompanying notes are an integral part of the financial statements.
F-1
- 44 -
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B,
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, December 31,
2005 2004 2003 2002 2001
------------ ------------ ------------ ------------- ---------------
Revenue:
Sale of electricity $ 1,785 $ 2,074 $ 2,059 $ 2,461 $ 3,073
Other Income 22 4 757 78 289
------------ --------------------------------------------------------
Total revenue 1,807 2,078 2,816 2,539 3,362
Costs and expenses:
Depreciation 1,696 2,076 2,076 2,076 2,076
Bad debt expense/(recovery) - - (592) 14 578
Interest expense - - - - 189
Property taxes 78 84 73 63 58
Easement fees 33 35 63 37 36
Management fees to related party 60 60 128 73 69
Maintenance and other operating costs
to related and other parties 696 760 720 838 726
Insurance costs 119 180 228 181 70
Other operating costs 107 62 52 56 34
------------- ---------------------------------------------------------
Total costs and expenses 2,789 3,257 2,748 3,338 3,836
------------- ---------------------------------------------------------
Net income (loss) $ (982) $ (1,179) $ 68 $ (799) $ (474)
============= ==========================================================
Net income (loss) per Unit $ (1,116) $ (1,340) $ 77 $ (908) $ (539)
============= ==========================================================
Number of outstanding Limited
Partner Units 880 880 880 880 880
============= ==========================================================
The accompanying notes are an integral part of the financial statements.
F-2
- 45 -
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Dollars in thousands)
For the years ended December 31, 2005, 2004, 2003, 2002 and 2001
Substituted
General Limited Limited
Total Partner Partners Partner
===================================================================
Profit and loss allocation 100.00% 1.00% 98.00% 1.00%
===================================================================
Balance at December 31, 2000 $ (169) $ 312 $ (4,411) $ 3,930
Net loss (474) (5) (464) (5)
-------------------------------------------------------------------
Balance at December 31, 2001 $ (643) $ 307 $ (4,875) $ 3,925
Net loss (799) (8) (783) (8)
-------------------------------------------------------------------
Balance at December 31, 2002 $ (1,442) $ 299 $ (5,658) $ 3,917
Net Income 68 1 66 1
-------------------------------------------------------------------
Balance at December 31, 2003 $ (1.374) $ 300 $ (5,592) $ 3,918
Net loss (1,179) (12) (1,155) (12)
-------------------------------------------------------------------
Balance at December 31, 2004 $ (2,553) $ 288 $ (6,747) $ 3,906
Net loss (982) (9) (964) (9)
-------------------------------------------------------------------
Balance at December 31, 2005 $ (3,535) $ 279 $ (7,711) $ 3,897
===================================================================
The accompanying notes are an integral part of the financial statements.
F-3
- 46 -
>
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the years ended,
-------------------------------------------------------------------------------------
December 31, December 31, December 31, December 31, December 31,
2005 2004 2003 2002 2001
---------------- --------------- ---------------- ---------------- ---------------
Cash Flow From Operating Activities:
Net income (loss) $ (982) $ (1,179) $ 68 $ (799) $ (474)
Reconciliation of net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation
1,696 2,076 2,076 2,076 2,076
Changes in operating assets and liabilities:
Accounts receivable 172 (154) 769 (95) (308)
Accounts receivable from related party - 15 197 (213) -
Other current assets (1) 2 (12) 1 (1)
Accounts payable and accrued expenses 17 29 91 88 3
Amount payable to related party (18) (471) 39 470 (66)
Accrued interest payable to related party - (989) (3,929) - (523)
Deferred revenue 45 58 53 65 55
-------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 929 (613) (648) 1,593 762
Cash flows used in financing activities:
Principal payments on notes payable to
related party - - - - (5,967)
---------------- -------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 929 (613) (648) 1,593 (5,205)
Cash and cash equivalents at beginning of
the period 355 968 1,616 23 5,228
---------------- -------------------------------------------------------------------
Cash and cash equivalents at end of period 1,284 $ 355 $ 968 $ 1,616 $ 23
================ ===================================================================
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ - $ 989 $ 3,929 $ - $ 712
The accompanying notes are an integral part of the financial statements.
F-4
- 47 -
ZOND WINDSYSTEM PARTNERS, LTD. SERIES 85-B,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - THE PARTNERSHIP
Introduction
Zond Windsystem Partners, Ltd. Series 85-B, a California limited partnership
(the "Partnership"), was formed on August 19, 1985 to purchase, own and operate
a system of 240 Vestas V-17 wind turbine electric generators (the "Turbines").
The electricity generated by the Turbines is sold by the Partnership to its sole
customer, Southern California Edison Company ("SCE").
Each Turbine has a rated capacity of 90 kilowatts, and the Turbines have an
aggregate rated capacity of 21.6 megawatts. The Turbines, together with certain
power transfer facilities and an electrical substation owned by the Partnership,
form an integrated electric power generating facility (the "Windsystem"). The
Windsystem is located in Kern 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 electricity 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 Windsystem is interconnected to SCE's transmission grid through a series of
transmission lines and substations. The electricity generated by the Windsystem
is transferred from the Partnership's substation to a substation (the "Tehachapi
Substation") pursuant to a 66 kV transmission line, which is owned by ZWHC LLC
("ZWHC"), an affiliate of the general partner of the Partnership. The
transformers at the Tehachapi Substation increase the voltage of the
Windsystem's electricity from 66 kVs to 230 kVs. The electricity produced by the
Windsystem is then transmitted from the Tehachapi Substation pursuant to a 230
kV transmission line (the "Westwind Transmission Line") to another substation
(the "Westwind Substation"). From the Westwind Substation the electricity is
transmitted pursuant to another 230 kV transmission line (the "Sagebrush
Transmission Line") to a SCE substation located in Vincent, California (the
"Vincent Substation"). The electricity produced by the Windsystem is transmitted
to SCE's transmission grid at the Vincent Substation. The Tehachapi Substation,
Westwind Transmission Line and the Westwind Substation are owned in co-tenancy
by the Partnership and several other wind power project owners. The Sagebrush
Transmission Line is owned by Sagebrush General Co-ownership Partnership
("Sagebrush Partnership"). The Partnership indirectly owns an undivided 5.66%
interest in Sagebrush Partnership through the Partnership's wholly-owned direct
subsidiary Sagebrush Partner Eighteen, Inc.
F-5
- 48 -
The Windsystem, which became operational in December 1985, was constructed by
Zond Construction Corporation III ("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"). See Note 4 below. 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"). 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 III 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.
Dissolution of the Partnership
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-B, a California Limited Partnership,
entered into on November 15, 1985 (the "Partnership Agreement"). The term of the
Partnership ended on December 31, 2005. The Partnership dissolved effective on
the day on which the term of the Partnership ended. The Partnership has entered
into an agreement for the sale of substantially all of its assets. See Note 9
for additional information. Upon the sale of the assets of the Partnership, the
General Partner will apply and distribute the proceeds thereof as contemplated
by the Partnership Agreement. Following the distribution of the proceeds from
the sale of the Partnership's assets, the General Partner plans to cause the
cancellation of the Partnership's Certificate of Limited Partnership with the
Secretary of State of the State of California. Upon cancellation of the
Partnership's Certificate of Limited Partnership, the Partnership will terminate
and the General Partner plans to 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 the
other limited liability company on April 19, 2002, and the surviving limited
liability company changed its name to Enron Wind Systems, LLC.
- 49 -
On April 12, 2002, Zond Windsystems Management Corporation IV, 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 IV 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.
Operation and Maintenance Services
EWS manages the Windsystem pursuant to a Windsystem Management Agreement entered
into with the Partnership as of September 9, 1985 (the "Management Agreement").
EWS assumed the Management Agreement in connection with the Plan. The original
term of the Management Agreement ended on December 31, 2005. EWS and the
Partnership extended the termination date of the Management Agreement from
December 31, 2005 to June 30, 2006. See Note 9 for additional information. 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 enXco
Service Corp. ("enXco") to provide certain operation and maintenance services
- 50 -
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 enXco. 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 $36,000.
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
SCE under two Power Purchase Contracts (the "Power Agreements"). Each
of the Power Agreements was originally entered into between SCE and ZSI
in June 1984 and each agreement covered 7 megawatts of generating
capacity. The term of each of the Power Agreements can be terminated by
either party upon the delivery to the other party, at least 90 days
prior to the proposed termination date, of a written notice that
specifies a termination date of any time on or after June 21, 2014. In
September 1985, ZSI assigned one of the Power Agreements (the "85-B
Power Agreement") to the Partnership and the other Power Agreement (the
"85-A Power Agreement") to Zond Windsystem Partners, Ltd. Series 85-A (
"ZWP Series 85-A"). Each such assignment terminated on December 31,
2005. The Partnership and EWS entered into an agreement effective as of
January 1, 2006 pursuant to which the Partnership is permitted to sell
power to SCE from the Windsystem under the 85-B Power Agreement and the
85-A Power Agreement through June 30, 2006, unless terminated earlier
by either party upon ten (10) days advance notice. See Note 9 for
additional information.
The 85-B Power Agreement was amended in September 1985 to increase the
generating capacity to 25 MWs. In August 1989, the 85-B Power Agreement
was amended to correctly identify the location of the Windsystem site
and to limit the size of the Windsystem, based on the aggregate
name-plate capacity of the Turbines, that the Partnership could install
at the Windsystem site. In October 1991, the 85-B Power Agreement was
amended to add ZSI as an additional seller under the agreement. In
December 1991, the 85-B Power Agreement was further amended to reduce
the aggregate capacity of the power contract from an aggregate of 25
MWs to 22.5 MWs. During the period commencing in the early 1990's and
ending on December 31, 2005, the Partnership permitted ZWP Series 85-A
to sell to SCE under the 85-B Power Agreement up to approximately one
(1) MW of electricity at any one time from eleven (11) of ZWP Series
85-A's wind turbines. This arrangement is acknowledged and memorialized
- 51 -
in the Reservation of Rights Acknowledgement dated as of February 1,
2006 between the Partnership and ZWP Series 85-A (the "85-A/85-B
Reservation of Rights Acknowledgement").
The 85-A Power Agreement was amended in September of 1985 to increase
the generating capacity to 17 megawatts. In August 1989, the 85-A Power
Agreement was further amended to correctly identify the location of ZWP
Series 85-A's windsystem site and to limit the size of the windsystem,
based on the aggregate name-plate capacity of the turbines, that ZWP
Series 85-A could install at its windsystem site.
Pursuant to that certain Power Agreement Co-Ownership Agreement dated
as of August 30, 1990 between ZWP Series 85-A and ZSI (the "85-A PPA
Co-Ownership Agreement"), ZWP Series 85-A granted ZSI the right to sell
to SCE under the 85-A Power Agreement up to one (1) megawatt ("MW") of
electricity. In August 1991, the 85-A Power Agreement was amended to
add ZSI as an additional seller under the agreement. In June 1992, ZSI
assigned to ZWHC all of ZSI's interest in the 85-A Power Agreement and
the 85-A PPA Co-Ownership Agreement, and in April 2004, ZWHC assigned
to Caithness 251 Wind, LLC the interest of ZWHC's in the 85-A Power
Agreement and the 85-A PPA Co-Ownership Agreement.
During the period commencing in the early 1990's and ending on December
31, 2005, ZWP Series 85-A permitted the Partnership to sell to SCE
under the 85-A Power Agreement up to approximately 1.35 MWs of
electricity at any one time from fifteen (15) of the Partnership's wind
turbines. This arrangement is acknowledged and memorialized in the
85-A/85-B Reservation of Rights Acknowledgement.
Under the Power Agreements, SCE is required to purchase all of the
electric output from the sellers under the Power Agreements, provided
that the aggregate name-plate capacity of the wind turbines selling
under the 85-A Power Agreement and the 85-B Power Agreement may not
exceed 17 MWs and 22.5 MWs, respectively. Under the Power Agreements,
energy generated was 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. SCE paid a fixed rate for energy delivered under the
85-A Power Agreement through November 1995, and paid a fixed rate for
energy delivered under the 85-B Power Agreement through November 1996.
See "1996 SCE Payments" below. Beginning in December 1995 under the
85-A Power Agreement, and beginning in December 1996 under the 85-B
Power Agreement, and in each case through May 2002, the energy rates
paid by SCE for energy delivered under each of the Power Agreements
were based on forecasts of the short run avoided cost of energy for
SCE. During 2001, in connection with the settlement of certain
litigation against SCE, SCE renegotiated the energy component of the
price paid for energy under the Power Agreements. As a result, the
energy component is based on a fixed schedule with an average estimated
- 52 -
price of $.0537 per kilowatt hour ("kWh") from May 2002 through April
of 2007. In January of 2003, the 85-B Power Agreement was further
modified to provide that the annual as-available capacity rate for
electricity delivered to SCE from December 2002 through the end of the
term of the 85-B Power Agreement is $124 per kilowatt of installed
capacity per year. In January of 2003, the 85-A Power Agreement also
was further modified to provide that the annual as-available capacity
rate for electricity delivered to SCE from December 2002 through the
end of the term of the 85-A Power Agreement is $106 per kilowatt of
installed capacity per year.
The amount of electricity produced by the Turbines depends upon wind
speed, which is subject to significant seasonal variations in the
Tehachapi 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 SCE. During 2001, 2002,
2003, 2004 and 2005, SCE purchased an aggregate of 30.0 million kWh,
32.7 million kWh, 28.3 million kWh, 28.8 million kWh and 25.8 million
kWh of electricity, respectively, from the Partnership for an aggregate
purchase price of $3.2 million, $6.7 million, $2.1 million, $2.1
million and $1.8 million, respectively.
(2) 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 SCE, (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. Costs
incurred in respect to the power transfer facilities owned by EWS are
allocated between the Partnership and ZWP Series 85-A.
As compensation for its services under the Management Agreement, EWS
receives a management fee of 3% of the Partnership's Gross Operating
Proceeds. Under the Management Agreement, EWS is also reimbursed for
- 53 -
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. See Note 5 below.
(3) The Partnership uses a portion of the Operating Site (the "Easement
Site") pursuant to the Amended and Restated Series B Wind Park Easement
Agreement dated as of March 24, 1986 (the "Wind Park Easement
Agreement"). The term of the Wind Park Easement Agreement ends on June
30, 2006; provided, however, that certain provisions of the Wind Park
Easement Agreement relating to the removal, abandonment or sale of the
Turbines continue beyond the end of the term of the Wind Park Easement
Agreement. There are 226 of the Turbines located on the Easement Site.
Under the Wind Park Easement Agreement, ZWHC charges the Partnership
rental fees in an amount equal to 1% of Gross Operating Proceeds. For
2001, 2002, 2003, 2004 and 2005, the Partnership's easement fees were
$0.02 million, $0.02 million, $0.03 million, $0.01 million and $0.03
million, respectively.
At the termination of the Wind Park Easement Agreement, the
Partnership is required to remove from the Easement Site, within
ninety (90) days of the termination date, the Turbines and the
Partnership's substation, unless the Partnership elects to (i) abandon
the Turbines, related equipment and substation or (ii) sell the
Turbines. If the Partnership elects to abandon the Turbines, the
related equipment and the substation, then all right, title and
interest in such equipment shall transfer to ZWHC without the payment
of any compensation to the Partnership. However, if the Turbines,
related equipment and substation are abandoned, neither ZWHC nor any
affiliate shall have the right to operate the Turbines, related
equipment and substation unless ZWHC (or its affiliate) pays to the
Partnership the appraised fair market value (as defined in the Wind
Park Easement Agreement) of the Turbines, related equipment and
substation. If the Partnership elects to sell the Turbines at any
time, the Partnership must first offer the Turbines to ZWHC on the
same terms and conditions. It is anticipated that ZWHC will waive its
right of first offer in connection with the closing of the
Parternship's proposed asset sale transaction. See Note 9 for
additional information. In the event that the Partnership elects to
sell the Turbines, related equipment and the substation, and does not
complete such sale within eleven (11) months of the termination date
of the Wind Park Easement Agreement, then the Partnership must
immediately remove the Turbines and the substation. Failure to remove
such equipment will result in the abandonment of such equipment to
ZWHC.
The Partnership also uses a portion of the Operating Site (the "Lease
Site") pursuant to a Sublease dated as of August 30, 1990 between EWS
(as successor to ZSI) and the Partnership (the "Sublease"). See Note 9
for additional information. There are 14 of the Turbines located on the
Lease Site. Under the Sublease, EWS charges the Partnership rent in an
amount equal to: (i) the Partnership's pro rata share of the sum of:
(A) adjusted minimum rent, as escalated for inflation, (B) taxes and/or
assessments and utility charges - other than taxes and/or assessments
and utility charges directly assessed against or related to the
Partnership's property or operations within the subleased property and
(C) all other costs or charges imposed or resulting in connection with
- 54 -
the general maintenance and upkeep of the leased property; (ii) rent
payments due under section 4.2 of the Sublease (5% of Gross Operating
Proceeds (as defined in the Sublease)), if greater than the minimum
rent and (iii) property taxes and/or assessments and utility charges
directly assessed against or related to the Partnership's property or
operations at the Lease Site. The Partnership's pro rata share for
calculating rent due under (i) above is determined by the ratio of the
rated capacity of the Turbines owned by the Partnership on the Lease
Site to the rated capacity of all turbines on the Lease Site. For 2001,
2002, 2003, 2004 and 2005, the Partnership's sublease fees were $0.01
million, $0.01 million, $0.01 million, $0.01 million, and $0.01
million, respectively.
The term of the sublease ends on June 30, 2006. At the end of the
term of the Sublease, the Partnership may remove, within eleven (11)
months of such termination, the Turbines and related equipment from
the Lease Site. If the Partnership fails to remove any of such
equipment from the Lease Site within such period, then such equipment
shall be deemed abandoned to EWS.
1996 SCE Payments
The Partnership's Windsystem and ZWP Series 85-A's windsystem each commenced
operations in December 1985. Each of the 85-A Power Agreement and the 85-B Power
Agreement provides that SCE is responsible for the installation and maintenance
of metering equipment, and preparing and paying invoices for power delivered by
each of ZWP Series 85-A and the Partnership. During the first twelve months of
operation, SCE used a single meter to measure the energy delivered from both
wind power projects. As a result, during 1986 SCE provided invoices and payments
to ZWP Series 85-A under the 85-A Power Agreement for the power generated by
both ZWP Series 85-A's windsystem and the Partnership's Windsystem. Following
the installation by SCE of remote metering equipment at each windsystem site in
late 1986, SCE provided separate invoices and payments to each of ZWP Series
85-A and the Partnership for deliveries of power under the 85-A Power Agreement
and 85-B Power Agreement, respectively. Each of the 85-A Power Agreement and the
85-B Power Agreement provides for the payment of a scheduled fixed rate for
energy delivered under the contract during the first 10-year period following
the commencement of operation of the applicable windsystem and the payment of an
avoided cost variable rate thereafter. SCE stopped paying the 10-year fixed rate
under the 85-A Power Agreement at the end of 1995. SCE stopped paying the
10-year fixed rate under the 85-B Power Agreement at the end of 1996. The
difference between the fixed rate received by both the Partnership and ZWP
Series 85-A under the 85-B Power Agreement during 1996 and the avoided cost
variable rates that year was approximately $4.1 million in the aggregate (the
"Energy Price Differential").
Although the 85-B Power Agreement appears to provide that the 10-year fixed rate
period was initiated in December 1985, it appears that SCE paid for energy
delivered under the 85-B Power Agreement during 1996 under the belief that the
10-year fixed rate period was initiated on or around December 1986 (at the time
- 55 -
of SCE's installation of the remote metering equipment). This would have
resulted in a 10-year fixed rate period that ended in December 1996, as opposed
to December 1995 (10 years from when the Windsystem began operations). In 1996,
the Partnership informed the Limited Partners that it was reviewing the payments
received from SCE in 1996 for energy delivered under the 85-B Power Agreement in
the context of the Partnership's contractual rights, and due to the apparent
uncertainty concerning this issue, the Partnership recognized the difference
between the cash received by the Partnership applicable to the Windsystem under
the fixed rate of the 85-B Power Agreement and the avoided cost variable rates
during the year ended December 31, 1996 (approximately $3.9 million) as deferred
revenue (the "Deferred Energy Revenue"), segregated this amount from its
operating cash account, and did not recognize such cash as income.
In 2001, two events occurred which appear to have been relevant to the
Partnership's treatment of the Deferred Energy Revenue. First, the Partnership
appears to have determined that prior to September 2001 the applicable statute
of limitations expired with respect to any potential claim by SCE for repayment
of any portion of the energy payments received by the Partnership in 1996.
Second, in connection with the settlement of certain disputes between SCE and
the Partnership relating to SCE's failure to pay for energy deliveries between
November 1999 and March 2000, SCE and the Partnership entered into an agreement
that provided for the mutual release of certain claims that each party may have
had against the other party arising out of the 85-B Power Agreement that arose
prior to the execution of the settlement agreement. In September 2001, the
Partnership paid the cash representing the Deferred Energy Revenue, plus accrued
interest (approximately $4.2 million in aggregate), to EWS in payment of
principal and interest owing under the Purchase Notes. In turn, these funds were
paid to Enron for repayment of certain indebtedness. Additionally, the Deferred
Energy Revenue, plus accrued interest, was included as ordinary income in the
Partnership's 2001 U.S. Return of Partnership Income. In the accompanying
financial statements, the Deferred Energy Revenue, plus accrued interest,
remains deferred in accordance with accounting principles generally accepted in
the United States.
Notwithstanding the foregoing, Enron contacted SCE in November 2005 regarding
SCE's understanding of the contract payment provisions in view of these
circumstances. In connection with discussions with SCE, it was further
discovered that from January 1996 through December 2005 SCE made capacity
payments under the 85-B Power Agreement in the amount of approximately $607,000
in excess of the amounts required to be paid under the 85-B Power Agreement (the
"Capacity Price Differential"). Of this amount, approximately $570,000 was
retained by the Partnership (the "Excess Capacity Revenue"). In the context of a
full and complete settlement, Enron has offered to pay to SCE the amount of the
Energy Price Differential and the Capacity Price Differential, plus applicable
interest.
Irrespective of Enron's recent discussions with, and commitments to, SCE
regarding this matter, there is no assurance that SCE will not assert some claim
against the Partnership related to this matter, and there is no assurance that
- 56 -
regulators or other governmental authorities will not make certain assertions
related to this matter, including that a violation of law has occurred, or take
some type of action against the Partnership or others associated with these
events. Accordingly, the Deferred Energy Revenue, plus accrued interest, remains
deferred in the accompanying financial statements, and the Excess Capacity
Revenue is classified as deferred revenue in the accompanying financial
statements. At this time, the Partnership is unable to determine whether, and to
what extent, the Partnership has financial exposure related to any such
potential claims, assertions or actions, and the Partnership reserves all of its
rights and defenses associated therewith. Therefore, the Partnership is unable
to predict the ultimate outcome this matter may have on the Partnership's
financial position, results of operations or cash flows.
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
As discussed in Note 1, the term of the Partnership ended on December 31, 2005.
The Partnership dissolved effective on the day on which the term of the
Partnership ended. The Partnership has entered into an agreement for the sale of
substantially all of its assets. See Note 9 for additional information. Upon the
sale of the assets of the Partnership, the General Partner will apply and
distribute the proceeds thereof as contemplated by the Partnership Agreement,
and plans to 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 plans to 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.
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
- 57 -
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 were depreciated on the
straight-line method over a twenty-year life. Capitalized improvements were
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. The Turbines
were fully depreciated as of December 31, 2005.
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, notes payable
to related party, interest payable to related party, accounts payable, accrued
expenses and accounts payable to related party, the carrying amount approximates
fair value because of the short maturity of those instruments.
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.
- 58 -
Electricity Sales and Significant Customer
Power generated by the Windsystem is recognized as revenue upon delivery of
power to SCE at prices as defined in the Power Agreements. All power produced is
sold to SCE under contracts that are terminable on or after June 21, 2014;
however, the Partnership will lose its rights to sell power under the Power
Agreements on or about June 30, 2006. See Notes 1 and 9 for additional
information. SCE is to deliver payment to the Partnership for energy delivered
no later than 30 days from the end of the monthly billing period. 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 11.25% 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, the Partnership made principal and interest payments to EWS on the
Purchase Notes of $6.5 million, $3.9 million and $1.0 million, respectively.
The Partnership did not make any principal or interest payments on the Purchase
Notes during 2002. At December 31, 2001, approximately $4.9 million of accrued
interest was due to EWS under the Purchase Notes. At December 31, 2002,
approximately $4.9 million accrued interest in arrears continued to be due to
EWS under the Purchase Notes. At December 31, 2003, approximately $1.0 million
of accrued interest in arrears was due to EWS under the Purchase Notes. At
December 31, 2004, all accrued and unpaid interest due under the Purchase Notes
had been paid.
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 did not pay all of the accrued interest in arrears on the Purchase
Notes until 2004. Notwithstanding the terms of the Purchase Notes, the payee
under the Purchase Notes has 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 the portion of the annual principal payments that was
due and unpaid at the end of any calendar year during such period. As a result
of this arrangement, the Partnership paid or has been obligated to pay
approximately $1.1 million less in interest through December 31, 2004 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 entered into between EWS and the Partnership
dated as of February 1, 2006. In addition, pursuant to the terms of the Purchase
Notes, the Partnership was not required to pay additional interest on the
accrued and unpaid interest under the Purchase Notes.
- 59 -
Prior to the date of the payment of all the accrued and unpaid interest on the
Purchase Notes in December, 2004, the Partnership was in default under the
Purchase Notes. During such period and upon notice of default, EWS had a right
to foreclose against its security interest in the assets of the Partnership,
including the Windsystem. However, EWS did not elect to foreclose on its
security interest during such period.
NOTE 5 - TRANSACTIONS WITH RELATED PARTIES
In addition to the Partnership's obligations to EWS under the Purchase Notes
(See Note 4 above), the Partnership had other amounts payable to ZWHC and EWS.
Amounts payable to EWS include lease fees related to the Partnership's use of a
portion of the Operating Site and management fees, maintenance costs and other
miscellaneous expenses related to Windsystem operations. Amounts payable to ZWHC
include easement fees related to the Partnership's use of a portion of the
Operating Site.
The Partnership has the following related party transactions and relationships:
(1) The Partnership uses a portion of the Operating Site pursuant to the
Wind Park Easement Agreement (See Note 1 above). The Partnership paid
ZWHC $0.02 million, $0.02 million, $0.04 million, $0.02 million and
$0.03 million in easement fees during each of the years ended December
31, 2001, 2002, 2003, 2004 and 2005, respectively, pursuant to the Wind
Park Easement Agreement.
(2) The Partnership also uses a portion of the Operating Site pursuant to
the Sublease (See Note 1 above). The Partnership paid EWS $0.01
million, $0.01 million, $0.01 million, $0.01 million and $0.01 million
in sublease fees during each of the years ended December 31, 2001,
2002, 2003, 2004 and 2005, respectively, pursuant to the Sublease.
(3) 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 $0.8 million, $0.9 million, $0.8 million, $0.8
million and $0.8 million during the years ended December 31, 2001,
2002, 2003, 2004 and 2005, respectively, pursuant to the Management
Agreement.
NOTE 6- LITIGATION
SCE Dispute and FERC Investigation
Market conditions in the California energy sector during 2000 and 2001 created a
significant cash flow problem for SCE. At the end of January 2001, SCE advised
the Partnership that SCE would not make payments for power deliveries in
November and December 2000. The Partnership, along with other renewable source
- 60 -
generators, engaged in discussions with SCE seeking payment from SCE for past
due amounts under applicable power agreements entered into with SCE.
The Partnership continued to operate the Windsystem and deliver power to SCE
believing that eventually a solution would be negotiated. SCE continued to
default on its contractual obligations by missing payments due for January,
February, and March 2001 power deliveries.
On March 27, 2001, the California Public Utilities Commission (the "CPUC")
issued an order (the "CPUC Order") obligating SCE to begin payments for power
delivered on a prospective basis. Following the issuance of the CPUC Order, SCE
initiated discussions with renewable source generators, including the
Partnership, to agree on a payment plan for power delivered on a prospective
basis. The Partnership and SCE agreed that SCE would pay for delivered power
twice a month. This payment plan was effective from March 27, 2001, the date of
the CPUC Order, through August 2003. The CPUC Order did not address the issue of
payments due for the period from November 1, 2000 to March 26, 2001.
By the end of April 2001, the Partnership and SCE were not able to resolve SCE's
non-payment for power delivered for the period between November 1, 2000 and
March 26, 2001. The Partnership, along with other renewable source generators
(collectively, the "Power Generators"), assisted by outside counsel, explored
various legal alternatives to enforce the contractual rights of the Power
Generators. On May 2, 2001, certain Power Generators, including the Partnership,
filed suit against SCE in Los Angeles Superior Court (the "SCE Litigation"). The
suit sought to recover compensation from SCE for power delivered, and at the
option of the plaintiffs, relief from the obligation to deliver power under the
existing contracts with SCE coupled with the right to sell power in the open
market across the SCE transmission grid.
In June 2001, SCE offered to settle all amounts past due, including a payment
for the past due amounts, with the Power Generators. The offer provided for the
payment of all amounts past due with interest accruing at an annual rate of 7%
through the date of payment. On June 15, 2001, the Partnership entered into an
Agreement Addressing Renewable Energy Pricing and Payment Issues with SCE that,
among other things, set forth the terms for payment of past due amounts to the
Partnership (the "SCE Payment Agreement"). Pursuant to the SCE Payment
Agreement, SCE acknowledged that it owed the Partnership approximately $1.4
million in connection with the delivery of electricity by the Partnership to SCE
during the period from November 2000 through March 26, 2001.
In November 2001, SCE and the Partnership entered into that certain Amendment
No. 1 to Agreement Addressing Renewable Energy Pricing and Payment Issues.
Pursuant to this amendment, the parties revised SCE's installment payment plan
for the amount due and payable by SCE to the Partnership. In June 2001, SCE paid
the Partnership the first of two installments due under the SCE Payment
Agreement, which aggregated approximately $0.02 million. As of December 31,
2001, approximately $1.4 million remained to be paid by SCE under the SCE
- 61 -
Payment Agreement (the "Remaining SCE Payment"). The conditions precedent for
payment of the Remaining SCE Payment under the SCE Payment Agreement were
satisfied in 2002, but SCE did not pay the Remaining SCE Payment to the
Partnership at such time.
In October 2002, SCE filed at the FERC, pursuant to FERC Docket No. EL03-19 et
al, a petition for declaratory relief order (the "SCE Petition") seeking
revocation of the qualifying facility ("QF") status under PURPA for certain wind
power projects owned or managed by EWS or its affiliates, including the
Windsystem. SCE contended that these wind power projects failed to meet the
ownership criteria for QF status 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. In December 2002, FERC consolidated the FERC proceeding established in
connection with the SCE Petition (FERC Docket No. EL03-19 et al) with another
FERC investigation proceeding relating to three other wind power projects owned
or managed by EWS and known as "Investigation of Certain Enron-Affiliated QFs",
FERC Docket No., EL 03-17-00 et al (collectively, the "Consolidated
Proceedings").
In January 2003, the Partnership, certain parties affiliated with EWS, and
certain third parties (collectively the "PPA Sellers"), and SCE entered into
that certain Master Definitive Agreement (the "Master Definitive Agreement") to
resolve all of the disputes between SCE and the PPA Sellers arising in
connection with the Consolidated Proceedings. Pursuant to the terms of the
Master Definitive Agreement (i) the Partnership forgave the Remaining SCE
Payment owing from SCE, (ii) the Partnership agreed to reduce the capacity
payments due under the 85-B Power Agreement over the remaining term of the power
purchase agreement, (iii) SCE released all its claims against the Partnership
regarding QF ownership with respect to the Windsystem and (iv) SCE agreed to
amend the 85-B Power Agreement to remove the requirement that the Windsystem be
a QF project.
In April 2003, in conjunction with the settlement reached with SCE under the
Master Definitive Agreement, Enron Wind LLC and certain other third parties
settled with the FERC Trial Staff the issues under investigation in connection
with the Consolidated Proceedings and entered into a Consent Agreement dated
April 15, 2003 (the "Consent Agreement"). The FERC Trial Staff and the other
parties to the Consent Agreement agreed that the Consent Agreement and the
Master Definitive Agreement were being submitted to FERC together in order to
resolve all the issues regarding the QF status of the entities subject to the
Consolidated Proceedings. 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.
Following the receipt of all the regulatory, bankruptcy court and other
approvals required in connection with the Master Definitive Agreement and the
Consent Agreement in late 2003, EWS reimbursed/contributed to the Partnership,
- 62 -
pursuant to an offset against amounts owing under the Purchase Notes, $2.2
million, which was equal to the sum of (i) the total amount of the reduction in
the estimated capacity payments under the Power Agreements that would have been
paid to the Partnership for the production from the Windsystem as a result of
the SCE settlement set forth in the Master Definitive Agreement and (ii) the
amount of the Remaining SCE Payment.
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)
mandatorily 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
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.
- 63 -
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.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leases Payable
Future annual minimum payments under non-cancelable obligations as of December
31, 2005 are $0.007 million.
NOTE 9 - SUBSEQUENT EVENTS
Directors and Executive Officers
Effective December 31, 2005, Eric. D. Gadd resigned from his positions as
President and Chief Executive Officer of the General Partner. Effective January
3, 2006, Jesse E. Neyman was elected President and Chief Executive Officer of
the General Partner.
Effective December 31, 2005, Robert Semple resigned from his position as a
director of EREC. Effective January 3, 2006, Richard Lydecker and K. Wade Cline
were elected as the directors of EREC.
- 64 -
Management Agreement
EWS and the Partnership entered into a First Amendment to Windsystem Management
Agreement dated as of January 13, 2006, which extended the termination date of
the Management Agreement from December 31, 2005 to March 31, 2006, and entered
into a Second Amendment to Windsystem Management Agreement dated as of March 21,
2006, which further extended the termination date of the Management Agreement
from March 31, 2006 to June 30, 2006.
Power Agreements
The Partnership and EWS entered into a Reservation of Rights Agreement (the
"85-B Reservation of Rights Agreement") effective as of January 1, 2006 pursuant
to which the Partnership is permitted to sell power to SCE from the Windsystem
under the 85-B Power Agreement and the 85-A Power Agreement. Under the 85-B
Reservation of Rights Agreement the Partnership pays to EWS an amount equal to
45% of the net operating proceeds of the Partnership attributable to the period
commencing on February 15, 2006 and ending on the last day that the Partnership
delivers power to SCE under the Power Agreements. The 85-B Reservation of Rights
Agreement terminates on June 30, 2006, unless terminated earlier by either party
upon ten (10) days advance notice.
Sublease
The Partnership and EWS entered into an Amendment to Sublease dated as of March
21, 2006, which amended the term of the Sublease to end on June 30, 2006, and
provided the Partnership with an eleven-month period following the end of the
term of the Sublease to remove the Turbines from the subleased property.
Sale of Assets
On April 17, 2006, the Partnership, together with ZWP Series 85-A, ZWHC and EWS
(EWS, the Partnership, ZWP Series 85-A and ZWHC are collectively referred to as
the "Sellers") entered into a Purchase and Sale Agreement with AES Tehachapi
Wind LLC ("AES Tehachapi") and SeaWest Holdings Inc. to sell to AES Tehachapi
all of the assets held by each of the Sellers used in connection with the wind
power projects owned by each of ZWP Series 85-A and the Partnership (the
"Purchase and Sale Agreement").
The assets to be sold by the Sellers pursuant to the Purchase and Sale Agreement
include, but are not limited to, the wind turbines and transmission assets owned
by each of ZWP Series 85-A and the Partnership, the real estate interests
relating to such projects owned by ZWHC and EWS and the power purchase
agreements used in connection with the projects held by EWS.
Pursuant to the terms of the Purchase and Sale Agreement, in consideration for
the purchase of such assets, AES Tehachapi has agreed to pay the Sellers an
aggregate purchase price of $15,800,000 and has agreed to assume those
liabilities and obligations arising under the assumed contracts on and after the
closing date of the transaction, those liabilities and obligations arising in
connection with the operation, ownership and maintenance of the wind projects on
and after such closing date and certain other obligations and liabilities
relating to the projects arising on and after such closing date. The Sellers and
AES Tehachapi have agreed to allocate the purchase price among the various
assets no later than ten days prior to the closing of the transaction.
The closing of the sale is subject to the satisfaction of certain conditions
precedent, including the receipt of certain consents from third parties relating
to the transfer of various contracts. The closing of the sale is expected to
occur on or before June 30, 2006.
- 65 -
NOTE 10 - 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-B,
A CALIFORNIA LIMITED PARTNERSHIP
RECONCILIATION OF GAAP BASIS AND TAX BASIS FINANCIAL STATEMENTS
(Dollars in thousands)
For the years ended December 31,
2005 2004 2003 2002 2001
-------------------------------------------------------------------------
Tax basis income $ 799 $ 916 $ 2,322 $ 1,286 $ 5,806
Tax basis depreciation less than
GAAP depreciation (1,696) (2,076) (2,076) (2,076) (2,076)
Deferred revenue (45) (58) (53) (65) (4,206)
Other (40) 39 (125) 56 2
-------------------------------------------------------------------------
GAAP basis income (loss) $ (982) $ (1,179) $ 68 $ (799) $ (474)
=========================================================================
Tax basis partners' income (loss) $ 1,187 $ 388 $ (528) $ (2,851) $ (4,137)
Cumulative tax basis income (losses)
in excess of cumulative GAAP income (losses) (4,722) (2,941) (846) 1,409 3,494
-------------------------------------------------------------------------
GAAP basis partners' capital $ (3,535) $ (2,553) $ (1,374) $ (1,442) $ (643)
=========================================================================
Tax basis total assets $ 1,547 $ 789 $ 1,265 $ 2,806 $ 958
Cumulative tax depreciation
in excess of GAAP depreciation - 1,696 3,772 5,848 7,924
Other - - - 61 9
-------------------------------------------------------------------------
GAAP basis total assets $ 1,547 $ 2,485 $ 5,037 $ 8,715 $ 8,891
=========================================================================
- 66 -
NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION (Dollars in thousands):
2005
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Revenue:
Sale of electricity $ 306 $ 679 $ 468 $ 332
Other Income
3 3 6 10
------------- ------------- ------------- -------------
Total revenue 309 682 474 342
Costs and expenses:
Depreciation 519 519 519 139
Property taxes 20 19 19 20
Easement fees 8 7 10 8
Management fees to
related party 14 12 21 13
Maintenance and other
operating costs to
related and other
parties 160 165 166 205
Insurance costs 29 29 29 32
Other operating costs 44 4 43 16
------------- ------------- ------------- -------------
Total costs and expenses
794 755 807 433
------------- ------------- ------------- -------------
Net loss $ (485) $ (73) $ (333) $ (91)
============= ============= ============= =============
Net loss per Unit $ (551) $ (83) $ (378) $ (103)
============= ============= ============= =============
Number of outstanding
Limited Partner Units 880 880 880 880
============= ============= ============= =============
- 67 -
NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION (Dollars in thousands):
2004
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Revenue:
Sale of electricity $ 367 $ 826 $ 625 $ 256
Other Income - - - 4
------------- ------------- ------------- -------------
Total revenue 367 826 625 260
Costs and expenses:
Depreciation 519 519 519 519
Property taxes 22 22 20 20
Easement fees 7 11 12 5
Management fees to
related party 10 14 26 10
Maintenance and other
operating costs
to related and
other parties 200 172 196 192
Insurance costs 45 45 45 45
Other operating costs 11 11 31 9
------------- ------------- ------------- -------------
Total costs and expenses 814 794 849 800
------------- ------------- ------------- -------------
Net income (loss) $ (447) $ 32 $ (224) $ (540)
============= ============= ============= =============
Net loss per Unit $ (508) $ 36 $ (255) $ (614)
============= ============= ============= =============
Number of outstanding
Limited Partner Units 880 880 880 880
============= ============= ============= =============
- 68 -
NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION (Dollars in thousands):
2003
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Revenue:
Sale of electricity $ 402 $ 722 $ 559 $ 376
Other Income - - - 757
------------- ------------- ------------- -------------
Total revenue 402 722 559 1,133
Costs and expenses:
Depreciation 519 519 519 519
Bad debt
expense/(recovery) - 813 - (1,405)
Property taxes 17 16 20 20
Easement fees 7 10 9 37
Management fees to
related party 9 20 23 76
Maintenance and other
operating costs
to related and
other parties 177 221 147 175
Insurance costs 57 57 57 57
Other operating costs 8 23 15 6
------------- ------------- ------------- -------------
Total costs and expenses 794 1,679 790 (515)
------------- ------------- ------------- -------------
Net income (loss) $ (392) $ (957) $ (231) $ 1,648
============= ============= ============= =============
Net loss per Unit $ (445) $ (1,088) $ (263) $ 1,873
============= ============= ============= =============
Number of outstanding
Limited Partner Units 880 880 880 880
============= ============= ============= =============
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NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION (Dollars in thousands):
2002
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Revenue:
Sale of electricity $ 224 $ 937 $ 944 $ 356
Other Income 78 - - -
------------- ------------- ------------- -------------
Total revenue 302 937 944 356
Costs and expenses:
Depreciation 519 519 519 519
Bad debt expense - - - 14
Property taxes 15 15 16 17
Easement fees 5 9 12 11
Management fees to
related party 6 18 27 22
Maintenance and other
operating costs
to related and
other parties 207 162 270 199
Insurance costs 45 45 46 45
Other operating costs 24 4 11 17
------------- ------------- ------------- -------------
Total costs and expenses 821 772 901 844
------------- ------------- ------------- -------------
Net income (loss) $ (519) $ 165 $ 43 $ (488)
============= ============= ============= =============
Net loss per Unit $ (590) $ 188 $ 49 $ (555)
============= ============= ============= =============
Number of outstanding
Limited Partner Units 880 880 880 880
============= ============= ============= =============
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NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION (Dollars in thousands):
2001
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- ------------- ------------- -------------
Revenue:
Sale of electricity $ 1,039 $ 1,169 $ 642 $ 223
Other Income 46 99 75 69
------------- ------------- ------------- -------------
Total revenue 1,085 1,268 747 292
Costs and expenses:
Depreciation 519 519 519 519
Bad debt expense 578 - - -
Interest expense 73 57 38 21
Property taxes 14 15 14 15
Easement fees 3 14 11 8
Management fees to
related party - 31 26 12
Maintenance and other
operating costs
to related and
other parties 176 156 172 222
Insurance costs 18 17 18 17
Other operating costs 7 10 3 14
------------- ------------- ------------- -------------
Total costs and expenses 1,388 819 801 828
------------- ------------- ------------- -------------
Net income (loss) $ (303) $ 449 $ (84) $ (536)
============= ============= ============= =============
Net loss per Unit $ (344) $ 510 $ (95) $ (609)
============= ============= ============= =============
Number of outstanding
Limited Partner Units 880 880 880 880
============= ============= ============= =============
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