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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number 33-83618
SELKIRK COGEN PARTNERS, L.P.
(Exact name of Registrant (Guarantor) as specified in its charter)
Delaware 51-0324332
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
SELKIRK COGEN FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 51-0354675
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Bowdoin Square, Boston, Massachusetts 02114
(Address of principal executive offices, including zip code)
(617) 788-3000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OR 12 (g) OF THE ACT:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of November 13, 2000, there were 10 shares of common stock of
Selkirk Cogen Funding Corporation, $1 par value outstanding.
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TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999............................... 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999.. 4
Condensed Consolidated Statements of Cash Flows for the
three and nine months ended September 30, 2000 and 1999.. 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations.................................... 8
Liquidity and Capital Resources.......................... 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 15
SIGNATURES........................................................... 16
2
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
2000 1999
ASSETS ------------- ------------
- ------
Current assets:
Cash and cash equivalents.................................................. $ 1,748 $ 1,732
Restricted funds. ................................................... 28,372 5,516
Accounts receivable, net................................................... 18,868 15,505
Due from affiliates........................................................ 934 427
Fuel inventory and supplies................................................ 6,771 6,831
Other current assets....................................................... 452 195
---------- ----------
Total current assets................................................. 57,145 30,206
Plant and equipment, net....................................................... 288,379 297,034
Long-term restricted funds..................................................... 28,003 30,217
Deferred financing charges, net................................................ 8,785 9,630
---------- ----------
Total assets $ 382,312 $ 367,087
========== ==========
LIABILITIES AND PARTNERS' DEFICITS
- ----------------------------------
Current liabilities:
Accounts payable............................................................ $ 129 $ 2,126
Accrued bond interest payable............................................... 8,736 375
Accrued expenses............................................................ 14,906 11,389
Due to affiliates........................................................... 673 469
Current portion of long-term bonds.......................................... 10,296 7,307
---------- ----------
Total current liabilities............................................. 34,740 21,666
Long-term liabilities:
Deferred revenue............................................................ 5,461 5,981
Other long-term liabilities................................................. 10,770 16,446
Long-term bonds, net of current portion..................................... 367,816 373,826
---------- ----------
Total liabilities..................................................... 418,787 417,919
Partners' deficits:
General partners' deficits.................................................. (353) (497)
Limited partners' deficits.................................................. (36,122) (50,335)
---------- ----------
Total partners' deficits.............................................. (36,475) (50,832)
---------- ----------
Total liabilities and partners' deficits $ 382,312 $ 367,087
========== ==========
See notes to condensed consolidated financial statements.
3
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
For the Three Months Ended For the Nine Months Ended
--------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------- -------------- -------------- ----------------
Operating revenues:
Electric and steam.......................... $ 55,070 $ 45,564 $ 147,810 $ 124,484
Gas resale.................................. 1,111 939 9,146 5,306
-------------- -------------- -------------- ----------------
Total operating revenues............... 56,181 46,503 156,956 129,790
Cost of revenues.............................. 37,149 29,299 103,778 84,186
-------------- -------------- -------------- ----------------
Gross profit.................................. 19,032 17,204 53,178 45,604
Other operating expenses:
Administrative services, affiliates......... 409 563 1,762 1,321
Other general and administrative............ 552 323 1,594 1,205
Amortization of deferred financing charges.. 283 287 854 865
-------------- -------------- -------------- ----------------
Total other operating expenses......... 1,244 1,173 4,210 3,391
-------------- -------------- -------------- ----------------
Operating income.............................. 17,788 16,031 48,968 42,213
Interest (income) expense:
Interest income............................. (755) (549) (2,223) (1,629)
Interest expense 8,864 8,492 25,720 25,555
-------------- -------------- -------------- ----------------
Total interest expense, net........... 8,109 7,943 23,497 23,926
-------------- -------------- -------------- ----------------
Income before cumulative effect of a
change in accounting principle.............. $ 9,679 $ 8,088 $ 25,471 $ 18,287
============== ============== ============== ===============
Cumulative effect of a change in
accounting principle........................ --- --- 7,866 ---
-------------- -------------- -------------- ----------------
Net income.................................... $ 9,679 $ 8,088 $ 33,337 $ 18,287
============== ============== ============== ===============
Net income allocation:
General partners............................ $ 97 $ 81 $ 334 $ 183
Limited partners............................ 9,582 8,007 33,003 18,104
-------------- -------------- -------------- ----------------
Total.................................. $ 9,679 $ 8,088 $ 33,337 $ 18,287
============== ============== ============== ===============
See notes to condensed consolidated financial statements.
4
SELKIRK COGEN PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
For the Three Months Ended For the Nine Months Ended
---------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
--------------- ----------------- --------------- ---------------
Net cash provided by operating activities............. $ 23,279 $ 20,387 $ 45,581 $ 35,777
Cash flows from investing activities:
Plant and equipment additions..................... (72) --- (729) (310)
Plant and equipment disposals..................... 15 --- 15 ---
--------------- ----------------- --------------- ----------------
Net cash used in investing activities........ (57) --- (714) (310)
Cash flows from financing activities:
Restricted funds.................................. (22,850) (19,910) (22,850) (19,910)
Distributions to partners......................... --- (970) (18,980) (14,204)
Repayment of long-term debt....................... --- --- (3,021) (2,023)
--------------- ----------------- --------------- ----------------
Net cash used in financing activities........ (22,850) (20,880) (44,851) (36,137)
Net increase (decrease) in cash and cash equivalents.. 372 (493) 16 (670)
Cash and cash equivalents, beginning of period........ 1,376 1,662 1,732 18,839
--------------- ----------------- --------------- ----------------
Cash and cash equivalents, end of period.............. $ 1,748 $ 1,169 $ 1,748 $ 1,169
=============== ================= =============== ================
Supplemental cash flow information:
Cash paid for interest............................ $ --- --- $ 16,859 $ 17,067
=============== ================= =============== ================
See notes to condensed consolidated financial statements.
5
SELKIRK COGEN PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include
Selkirk Cogen Partners, L.P. and its wholly-owned subsidiary, Selkirk Cogen
Funding Corporation, (collectively the "Partnership"). All significant
intercompany accounts and transactions have been eliminated.
The condensed consolidated financial statements for the interim periods
presented are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
in the condensed consolidated financial statements reflects all normal recurring
adjustments which, in the opinion of management, are necessary for a fair
presentation of such financial statements. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to rules and regulations applicable to interim financial statements.
These condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the Partnership's
December 31, 1999 Annual Report on Form 10-K.
Note 2. Cumulative Effect of a Change in Accounting Principle
Effective January 1, 2000, the Partnership changed its method of accounting for
major maintenance and overhaul costs. Beginning January 1, 2000, the cost of
major maintenance and overhauls has been accounted for as incurred. Previously,
the estimated cost of major maintenance and overhauls was accrued in advance in
a systematic and rational manner over the period between major maintenance and
overhauls. The change resulted in the Partnership recording income of
approximately $7.9 million, reflecting the cumulative effect of the change in
accounting principle. The effect on results of operations for the nine months
ended September 30, 2000 was immaterial and the pro forma effect on results of
operations for the nine months ended September 30, 1999 was immaterial.
6
Note 3. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (as amended by SFAS No. 137). SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for the Partnership's fiscal years
beginning on January 1, 2001. Management has not completed an evaluation of the
impact on the Partnership's consolidated financial statements of adopting this
new standard.
In December of 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements."
("SAB 101"). SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements and it will be effective during
the fourth quarter of fiscal year 2001. Management continues to evaluate SAB 101
and it has not determined what impact, if any, will result from its adoption.
Note 4. Subsequent Event
On November 8, 2000, the Partnership signed a Consent to Field Audit Adjustment
in settlement of a gas import tax audit conducted by the New York State
Department of Taxation and Finance. The audit covered all gas import activity
beginning March 1, 1992 through August 31, 2000. This audit resulted in a total
assessment of approximately $1.5 million, comprised of approximately $1.0
million of additional tax liability and approximately $0.5 million of interest.
As of September 30, 2000, the Partnership had accrued reserves totaling $1.5
million as an estimate of this contingent liability.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------------------
Results of Operations
- ---------------------
Three and Nine Months Ended September 30, 2000 Compared to the Three and
Nine Months Ended September 30, 1999
- ------------------------------------------------------------------------
Net income for the quarter ended September 30, 2000 was approximately $9.7
million as compared to approximately $8.1 million for the corresponding period
in the prior year. The $1.6 million increase in net income is primarily due to
higher electric revenues and lower operating and maintenance expenses. Net
income for the nine months ended September 30, 2000 was approximately $33.3
million as compared to approximately $18.3 million for the corresponding period
in the prior year. The $15.0 million increase in net income is primarily due to
higher operating revenues, lower operating and maintenance expenses and the
Partnership changing its method of accounting for major maintenance and overhaul
costs.
Effective January 1, 2000, the Partnership changed its method of accounting for
major maintenance and overhaul costs. Beginning January 1, 2000, the cost of
major maintenance and overhauls has been accounted for as incurred. Previously,
the estimated cost of major maintenance and overhauls was accrued in advance in
a systematic and rational manner over the period between major maintenance and
overhauls. The change resulted in the Partnership recording income of
approximately $7.9 million, reflecting the cumulative effect of the change in
accounting principle. The effect on results of operations for the quarter and
nine months ended September 30, 2000 was a reduction of operating and
maintenance expenses of approximately $0.5 million and $1.4 million,
respectively.
Total operating revenues for the quarter ended and nine months ended September
30, 2000 were approximately $56.2 million and $157.0 million as compared to
approximately $46.5 million and $129.8 million for the corresponding periods in
the prior year.
Electric Revenues (dollars and kWh's in millions):
- -------------------------------------------------
For the Three Months Ended
September 30, 2000 September 30, 1999
------------------------------------ -------------------------------------
Dollars kWh's Capacity Dispatch Dollars kWh's Capacity Dispatch
------- ----- -------- -------- ------- ----- -------- --------
Unit 1 16.6 153.3 86.89% 97.60% 12.4 144.4 84.19% 99.28%
Unit 2 38.3 541.7 92.59% 100.00% 33.3 539.4 92.20% 96.65%
For the Nine Months Ended
September 30, 2000 September 30, 1999
------------------------------------ -------------------------------------
Dollars kWh's Capacity Dispatch Dollars kWh's Capacity Dispatch
------- ----- -------- -------- ------- ----- -------- --------
Unit 1 39.5 442.5 85.11% 94.22% 32.2 423.0 82.84% 96.64%
Unit 2 106.5 1,404.2 80.58% 91.89% 91.9 1,402.5 80.78% 86.40%
8
Unit 1 revenues increased approximately $4.2 million and $7.3 million for the
quarter and nine months ended September 30, 2000 as compared to the
corresponding periods in the prior year. During the quarter and nine months
ended September 30, 2000 revenues from Niagara Mohawk Power Corporation
("Niagara Mohawk") were approximately $13.8 million and $32.2 million,
respectively, and revenues from PG&E Energy Trading - Power, L.P. ("PG&E Energy
Trading") were approximately $2.8 million and $7.3 million, respectively. During
the quarter and nine months ended September 30, 1999 revenues from Niagara
Mohawk were approximately $9.3 million and $27.5 million, respectively, and
revenues from PG&E Energy Trading were approximately $3.1 million and $4.7
million, respectively. The increase in Unit 1 revenues for the quarter and nine
months ended September 30, 2000 was primarily due to higher market energy
prices. During the nine months ended September 30, 2000 and 1999, with the
exception of the month of April in each period, the Partnership received Monthly
Contract Payments and delivered energy up to the monthly contract quantity to
Niagara Mohawk ("Contract Energy"). During the nine months ended September 30,
2000, Contract Energy was sold at market prices established by the New York
Independent System Operator whereas, during the corresponding period in the
prior year, Contract Energy was sold at a proxy market price based upon Niagara
Mohawk's tariff for power purchases from Qualifying Facilities. During the nine
months ended September 30, 2000, with the exception of January, February and
March, the Partnership sold all of the energy produced by Unit 1 in excess of
the Contract Energy ("Unit 1 Excess Energy") to PG&E Energy Trading. During the
months of January and March 2000 the Partnership sold the Unit 1 Excess Energy
to both Niagara Mohawk and PG&E Energy Trading and during the month of February
2000 the Partnership sold all of the Unit 1 Excess Energy to Niagara Mohawk.
During the month of January 1999 the Partnership sold all of the Unit 1 Excess
Energy to Niagara Mohawk. During the months of February, March, June and
September 1999 the Partnership sold all of the Unit 1 Excess Energy to PG&E
Energy Trading. During the months of April, May, July and August 1999 the
Partnership sold Unit 1 Excess Energy to both Niagara Mohawk and PG&E Energy
Trading. Unit 1 Excess Energy delivered to Niagara Mohawk and PG&E Energy
Trading was sold at negotiated market prices. Amortized deferred revenues of
approximately $0.5 million are also included in revenues from Niagara Mohawk for
each of the nine months ended September 30, 2000 and 1999.
Unit 2 revenues increased approximately $5.0 million and $14.6 million for the
quarter and nine months ended September 30, 2000 as compared to the
corresponding periods in the prior year. During the quarter and nine months
ended September 30, 2000 all of the Unit 2 revenues were from Consolidated
Edison Company of New York, Inc. ("Con Edison"). During the quarter and nine
months ended September 30, 1999, revenues from Con Edison were $33.3 million and
$91.6 million, respectively, and revenues from PG&E Energy Trading were
approximately $0.0 million and $0.3 million, respectively. The increase in Unit
2 revenues for the quarter and nine months ended September 30, 2000 was
primarily due to the increase in the Con Edison contract price for delivered
energy resulting from higher index fuel prices. During the nine months ended
September 30, 1999, revenues from PG&E Energy Trading resulted from the sale of
other energy-related products.
9
Steam revenues for the quarter and nine months ended September 30, 2000 of
approximately $0.2 million and $1.8 million were reduced by a reserve of
approximately $1.3 thousand and $47.6 thousand, respectively. Steam revenues for
the quarter and nine months ended September 30, 1999 of approximately $0.0
million and $0.6 million were reduced by a reserve of approximately $0.1 million
and $0.2 million to reflect the estimated annual true-up. The reserves were
recorded to reflect the estimated annual true-up so that General Electric would
be charged a nominal amount which is the annual equivalent of 160,000 lbs/hr.
Delivered steam for the quarter and nine months ended September 30, 2000 was
approximately 382.8 million pounds and 1,343.1 million pounds as compared to
approximately 313.6 million pounds and 1,126.8 million pounds for the
corresponding periods in the prior year. The increase in steam revenues for the
quarter and nine months ended September 30, 2000 was primarily due to the
increase in the General Electric contract price for delivered steam resulting
from higher index fuel prices.
Gas resale revenues for the quarter ended September 30, 2000 were approximately
$1.1 million on sales of approximately 0.2 million MMBtu's as compared to
approximately $0.9 million on sales of approximately 0.3 million MMBtu's for the
corresponding period in the prior year. Gas resale revenues for the nine months
ended September 30, 2000 were approximately $9.1 million on sales of
approximately 2.4 million MMBtu's as compared to approximately $5.3 million on
sales of approximately 2.3 million MMBtu's for the corresponding period in the
prior year. The increase in gas resale revenues for the quarter and nine months
ended September 30, 2000 was primarily due to higher natural gas resale prices.
The increase in natural gas resale prices during the nine months ended September
30, 2000 generally resulted from higher market pricing for both gas and oil as
well as increased demand for electric generation. Gas resales occurred during
periods when Units 1 and 2 were not operating at full capacity.
Cost of revenues for the quarter ended September 30, 2000 were approximately
$37.1 million on gas purchases of approximately 7.1 million MMBtu's as compared
to $29.3 million on gas purchases of approximately the same number of units for
the corresponding period in the prior year. Cost of revenues for the nine months
ended September 30, 2000 were approximately $103.8 million on gas purchases of
approximately 21.3 million MMBtu's as compared to $84.2 million on gas purchases
of approximately 21.0 million MMBtu's for the corresponding period in the prior
year. The largest component of the increase for the quarter and nine months
ended September 30, 2000 was fuel costs, which increased approximately $8.2
million and $21.5 million from the corresponding periods in the prior year,
respectively. The increase in the cost of fuel was primarily due to the higher
price of gas under the firm fuel supply agreements, higher demand costs under
the firm fuel transportation agreements and the recording of a reserve in the
amount of approximately $1.0 million during the quarter to recognize the tax
associated with the settlement of a gas import tax audit (see Note 4 to the
unaudited financial statements). The increase in fuel costs was partially offset
by lower operating and maintenance expenses. The decrease in operating and
maintenance expenses was primarily due to differences in the scheduling of
planned maintenance and the elimination of the accrual for major maintenance and
overhaul costs. The
10
Partnership has foreign currency swap agreements to hedge against future
exchange rate fluctuations under fuel transportation agreements which are
denominated in Canadian dollars. During the nine months ended September 30, 2000
and 1999, fuel costs were increased by approximately $1.8 million as a result of
the currency swap agreements.
Total other operating expenses for the quarter and nine months ended September
30, 2000 were approximately $1.2 million and $4.2 million as compared to
approximately $1.2 million and $3.4 million for the corresponding periods in the
prior year. The increase in other operating expenses for the nine months ended
September 30, 2000 was primarily due to higher affiliate administrative services
and higher other general and administrative expenses. Additionally, affiliate
administrative services during the quarter ended March 31, 1999, were reduced by
the write-off of a reserve of approximately $0.2 million for amounts no longer
claimed by an affiliate.
Net interest expense for the quarter and nine months ended September 30, 2000
was approximately $8.1 million and $23.5 million as compared to approximately
$7.9 million and $23.9 million for the corresponding periods in the prior year.
The increase in net interest expense for the quarter ended September 30, 2000
was due to the recording of a reserve in the amount of approximately $0.5
million to recognize the interest associated with the settlement of a gas import
tax audit (see Note 4 to unaudited financial statements). The decrease in net
interest expense for the nine months ended September 30, 2000 was due to higher
interest income partially offset by higher interest expense associated with the
settlement of a gas import tax audit (see Note 4 to the unaudited financial
statements).
Liquidity and Capital Resources
Net cash provided by operating activities for the quarter ended September 30,
2000 was approximately $23.3 million as compared to approximately $20.4 million
for the corresponding period in the prior year. Net cash flows provided by
operating activities for the nine months ended September 30, 2000 was
approximately $45.6 million as compared to approximately $35.8 million for the
corresponding period in the prior year. Net cash provided by operating
activities primarily represents net income plus the net effect of recurring
changes in cash receipts and disbursements within the Partnership's operating
assets and liability accounts.
Net cash used in investing activities for the quarter ended September 30, 2000
was approximately $57.0 thousand as compared to approximately $0.0 thousand for
the corresponding period in the prior year. Net cash used in investing
activities for the nine months ended September 30, 2000 was approximately $714.0
thousand as compared to approximately $310.0 thousand for the corresponding
period in the prior year. Net cash used in investing activities primarily
represents additions to plant and equipment.
Net cash used in financing activities for the quarter ended September 30, 2000
was approximately $22.9 million as compared to approximately $20.9 million for
the
11
corresponding period in the prior year. Net cash used in financing activities
for the nine months ended September 30, 2000 was approximately $44.9 million as
compared to approximately $36.1 million for the corresponding period in the
prior year. The increase in net cash used in financing activities for the
quarter and nine months ended September 30, 2000 was primarily due to more cash
becoming available to deposit into restricted funds, more cash becoming
available to distribute to the Partners and the increase in the semi-annual
payment of principal on long-term debt.
In 1994 and 1995 Con Edison claimed the right to acquire that portion of Unit
2's firm natural gas supply not used in operating Unit 2, when Unit 2 is
dispatched off-line or at less than full capability ("non-plant gas"), or
alternatively to be compensated for 100% of the margins derived from non-plant
gas sales. The Con Edison Power Purchase Agreement contains no express language
granting Con Edison any rights with respect to such excess natural gas.
Nevertheless, Con Edison argued that, since payments under the contract include
fixed fuel charges which are payable whether or not Unit 2 is dispatched
on-line, Con Edison is entitled to exercise such rights. The Partnership
vigorously disputes the position adopted by Con Edison, and since the
commencement of Unit 2's operation in 1994, the Partnership has made and
continues to make, from time to time, non-plant gas sales from Unit 2's gas
supply. Although representatives of Con Edison have expressly reserved all
rights that Con Edison may have to pursue its asserted claim with respect to
non-plant gas sales, the Partnership has received no further formal
communication from Con Edison on this subject since 1995. In the event Con
Edison were to pursue its asserted claim, the Partnership would expect to pursue
all available legal remedies, but there can be no certainty that the outcome of
such remedial action would be favorable to the Partnership or, if favorable,
would provide for the Partnership's full recovery of its damages. The
Partnership's cash flows from the sale of electric output would be materially
and adversely affected if Con Edison were to prevail in its claim to Unit 2's
excess natural gas volumes and the related margins.
On July 21, 1998, the New York Public Service Commission ("NYPSC") approved a
plan submitted by Con Edison for the divestiture of certain of its generating
assets (the "Con Edison Divestiture Plan"). Although the Con Edison Divestiture
Plan does not include any proposal by Con Edison for the sale or other
disposition of its contractual obligations for purchasing power from non-utility
generators, like the Partnership, the NYPSC has ordered Con Edison to submit a
report regarding the feasibility of divesting its non-utility generator
entitlements. At this time, the Partnership has insufficient information to
determine whether, in the course of these proceedings at the NYPSC, Con Edison
may seek to assign its rights and obligations under the Con Edison Power
Purchase Agreement with the Partnership to a third party or to take some other
action for the purpose of divesting itself of the power purchase obligations
under such contract; nor can the Partnership evaluate the impact which any such
assignment or other action, if proposed, may ultimately have on the Con Edison
Power Purchase Agreement.
Future operating results and cash flows from operations are also dependent on,
among other things, the performance of equipment; levels of dispatch; the
receipt of certain capacity and other fixed payments; electricity prices;
natural gas resale prices; and fuel
12
deliveries and prices. A significant change in any of these factors could have a
material adverse effect on the results of operations for the Partnership.
The Partnership believes, based on current conditions and circumstances, it will
have sufficient cash flows from operations to fund existing debt obligations and
operating costs.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements included herein are forward-looking statements concerning the
Partnership's operations, economic performance and financial condition. Such
statements are subject to various risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors,
including general business and economic conditions; the performance of
equipment; levels of dispatch; the receipt of certain capacity and other fixed
payments; electricity prices; natural gas resale prices; fuel deliveries and
prices and whether Con Edison were to prevail in its claim to Unit 2's excess
natural gas volumes, and the related margins.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is exposed to market risk from changes in interest rates and
foreign currency exchange rates, which could affect its future results of
operations and financial condition. The Partnership manages its exposure to
these risks through its regular operating and financing activities.
Interest Rates
- --------------
The Partnership's cash and restricted cash are sensitive to changes in interest
rates. Interest rate changes would result in a change in interest income due to
the difference between the current interest rates on cash and restricted cash
and the variable rate that these financial instruments may adjust to in the
future. A 10% decrease in interest rates for the quarter and nine months ended
September 30, 2000 would have resulted in a negative impact of approximately
$75.5 thousand and $222.3 thousand, respectively on the Partnership's net income
for that period.
The Partnership's long-term bonds have fixed interest rates. Changes in the
current market rates for the bonds would not result in a change in interest
expense due to the fixed coupon rate of the bonds.
Foreign Currency Exchange Rates
- -------------------------------
The Partnership's currency swap agreements hedge against future exchange rate
fluctuations which could result in additional costs incurred under fuel
transportation agreements which are denominated in a foreign currency. In the
event a counterparty
13
fails to meet the terms of the agreements, the Partnership's exposure is limited
to the currency exchange rate differential. During the quarter and nine months
ended September 30, 2000, the currency exchange rate differential resulted in a
negative impact of approximately $0.6 million and $1.8 million, respectively on
the Partnership's net income.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(For electronic filing purposes only)
(B) Reports on Form 8-K
Not applicable.
Omitted from this Part II are items which are not applicable or to which the
answer is negative for the periods covered.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SELKIRK COGEN PARTNERS, L.P.
JMC SELKIRK, INC.
General Partner
Date: November 14, 2000 /s/ JOHN R. COOPER
----------------------------
Name: John R. Cooper
Title: Senior Vice President and
Chief Financial Officer
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SELKIRK COGEN FUNDING
CORPORATION
Date: November 14, 2000 /s/ JOHN R. COOPER
---------------------------------
Name: John R. Cooper
Title: Senior Vice President and
and Chief Financial Officer
17