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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File No. 33-7591
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Oglethorpe Power Corporation
(An Electric Membership Corporation)
(Exact name of registrant as specified in its charter)
Georgia 58-1211925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Post Office Box 1349
2100 East Exchange Place
Tucker, Georgia 30085-1349
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 270-7600
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
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. The Registrant is a
membership corporation and has no authorized or outstanding equity securities.
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OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
PAGE NO.
--------
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1997 (Unaudited)
and December 31, 1996........................................ 3
Condensed Statements of Revenues and Expenses (Unaudited)
for the Three Months and Nine Months Ended
September 30, 1997 and 1996.................................. 5
Condensed Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 30, 1997 and 1996............ 6
Notes to the Condensed Financial Statements.................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............... 8
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
SIGNATURES............................................................ 18
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 1997 and December 31, 1996
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(dollars in thousands)
1997 1996
ASSETS (UNAUDITED)
- -------------------------------------------------------------------------------------- ------------ ------------
Electric plant, at original cost:
In service.......................................................................... $ 4,906,315 $ 5,742,597
Less:Accumulated provision for depreciation......................................... (1,382,063) (1,488,272)
------------ ------------
3,524,252 4,254,325
Nuclear fuel, at amortized cost..................................................... 86,980 86,722
Plant acquisition adjustments, at amortized cost.................................... -- 4,153
Construction work in progress....................................................... 13,059 31,181
------------ ------------
3,624,291 4,376,381
------------ ------------
Investments and funds:
Bond, reserve and construction funds, at market..................................... 32,328 53,955
Decommissioning fund, at market..................................................... 101,821 86,269
Investment in associated organizations, at cost..................................... 15,407 15,379
Deposit on Rocky Mountain transactions, at cost..................................... 51,325 41,685
------------ ------------
200,881 197,288
------------ ------------
Current assets:
Cash and temporary cash investments, at cost........................................ 59,981 132,783
Other short-term investments, at market............................................. 96,145 91,499
Receivables......................................................................... 117,580 113,289
Inventories, at average cost........................................................ 70,872 89,825
Prepayments and other current assets................................................ 22,371 14,625
------------ ------------
366,949 442,021
------------ ------------
Deferred charges:
Premium and loss on reacquired debt, being amortized................................ 189,692 201,007
Deferred amortization of Scherer leasehold.......................................... 94,832 90,717
Deferred debt expense, being amortized.............................................. 13,641 21,703
Other............................................................................... 36,994 33,058
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335,159 346,485
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$ 4,527,280 $ 5,362,175
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------------ ------------
The accompanying notes are an integral part of these condensed statements.
3
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 1997 and December 31, 1996
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(dollars in thousands)
1997 1996
EQUITY AND LIABILITIES (UNAUDITED)
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CAPITALIZATION:
Patronage capital and membership fees (including unrealized loss of ($515)
at September 30, 1997 and($844) at December 31, 1996 on
available-for-sale securities).................................................... $ 321,771 $ 356,229
Long-term debt...................................................................... 3,263,731 4,052,470
Obligations under capital leases.................................................... 289,825 293,682
Obligation under Rocky Mountain transactions........................................ 51,325 41,685
------------ ------------
3,926,652 4,744,066
------------ ------------
Current liabilities:
Long-term debt and capital leases due within one year............................... 87,847 159,622
Accounts payable.................................................................... 53,641 42,891
Accrued interest.................................................................... 13,560 15,931
Accrued and withheld taxes.......................................................... 19,800 4,940
Other current liabilities........................................................... 4,891 9,540
------------ ------------
179,739 232,924
------------ ------------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized.............................................. 61,375 58,527
Net benefit of sale of income tax benefits, being amortized......................... 36,042 42,049
Net benefit of Rocky Mountain transactions, being amortized......................... 93,171 70,701
Accumulated deferred income taxes................................................... 60,325 61,985
Decommissioning reserve............................................................. 141,399 124,468
Other............................................................................... 28,577 27,455
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420,889 385,185
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$ 4,527,280 $ 5,362,175
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The accompanying notes are an integral part of these condensed statements.
4
Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses (Unaudited)
For the Three and Nine Months ended September 30, 1997 and 1996
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(dollars in thousands)
THREE MONTHS NINE MONTHS
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Operating revenues:
Sales to Members............................................... $ 280,503 $ 268,939 $ 767,714 $ 771,378
Sales to non-Members........................................... 6,076 17,709 33,226 61,187
---------- ---------- ---------- ----------
Total operating revenues......................................... 286,579 286,648 800,940 832,565
---------- ---------- ---------- ----------
Operating expenses:
Fuel........................................................... 61,206 54,807 152,799 158,465
Production..................................................... 34,216 31,296 103,760 93,293
Purchased power................................................ 95,038 67,217 215,350 189,443
Power delivery................................................. (10) 4,110 3,969 11,974
Depreciation and amortization.................................. 30,154 36,684 96,534 109,774
Taxes other than income taxes.................................. 5,593 7,035 18,808 21,761
Other operating expenses....................................... 3,629 10,490 13,728 26,764
---------- ---------- ---------- ----------
Total operating expenses......................................... 229,826 211,639 604,948 611,474
---------- ---------- ---------- ----------
Operating margin................................................. 56,753 75,009 195,992 221,091
---------- ---------- ---------- ----------
Other income (expense):
Interest income................................................ 7,247 8,698 21,002 17,438
Amortization of net benefit of sale of income tax benefits..... 2,799 2,008 8,396 6,023
Amortization of deferred margins............................... -- 6,966 -- 24,120
Allowance for equity funds used during construction............ 32 47 81 137
Other.......................................................... 457 761 4,025 1,782
---------- ---------- ---------- ----------
Total other income............................................... 10,535 18,480 33,504 49,500
---------- ---------- ---------- ----------
Interest charges:
Interest on long-term debt and other obligations............... 68,488 81,488 216,294 245,848
Allowance for debt funds used during construction.............. (328) (507) (873) (1,485)
---------- ---------- ---------- ----------
Net interest charges............................................. 68,160 80,981 215,421 244,363
---------- ---------- ---------- ----------
Net margin....................................................... ($ 872) $ 12,508 $ 14,075 $ 26,228
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these condensed statements.
5
Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
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(dollars in thousands)
1997 1996
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Cash flows from operating activities:
Net margin.............................................................................. $ 14,075 $ 26,228
Adjustments to reconcile net margin to net cash provided by operating activities:
Depreciation and amortization......................................................... 139,190 132,565
Net benefit of Rocky Mountain transactions............................................ 22,470 --
Deferred gain from Corporate Restructuring............................................ 4,670 --
Allowance for equity funds used during construction................................... (81) (137)
Amortization of deferred margins...................................................... -- (24,120)
Amortization of net benefit of sale of income tax benefits............................ (8,396) (6,023)
Other................................................................................. 1,445 3,025
Change in net current assets, excluding long-term debt due within one year and
deferred margins to be refunded within one year:
Receivables........................................................................... (4,290) (8,013)
Inventories........................................................................... 9,972 (9,858)
Prepayments and other current assets.................................................. (8,176) 37
Accounts payable...................................................................... 11,403 (4,897)
Accrued interest...................................................................... (2,251) (70,290)
Accrued and withheld taxes............................................................ 14,860 20,701
Other current liabilities............................................................. 1,683 (6,299)
---------- ----------
Total adjustments................................................................... 182,499 26,691
---------- ----------
Net cash provided by operating activities............................................. 196,574 52,919
---------- ----------
Cash flows from investing activities:
Property additions.................................................................... (49,942) (69,211)
Net proceeds from bond, reserve and construction funds................................ 21,616 3,060
(Decrease) Increase in investment in associated organizations......................... (28) 429
Increase in other short-term investments.............................................. (4,306) (14,629)
Increase in decommissioning fund...................................................... (7,709) (4,970)
Net assets sold in Corporate Restructuring............................................ 717,907 --
Net liabilities extinguished in Corporate Restructuring............................... (694,412) --
---------- ----------
Net cash used in investing activities............................................... (16,874) (85,321)
---------- ----------
Cash flows from financing activities:
Debt proceeds, net.................................................................... 100,404 3,092
Debt payments......................................................................... (302,617) (75,809)
Retirement of patronage capital....................................................... (48,863) --
Other................................................................................. (1,426) (168)
---------- ----------
Net cash used in financing activities............................................... (252,502) (72,885)
---------- ----------
Net decrease in cash and temporary cash investments..................................... (72,802) (105,287)
Cash and temporary cash investments at beginning of period.............................. 132,783 201,151
---------- ----------
Cash and temporary cash investments at end of period.................................... $ 59,981 $ 95,864
---------- ----------
---------- ----------
Cash paid for:
Interest (net of amounts capitalized)................................................. $ 202,400 $ 301,675
Income taxes.......................................................................... $ 830 $ --
The accompanying notes are an integral part of these condensed statements.
6
Oglethorpe Power Corporation
Notes to Condensed Financial Statements
September 30, 1997 and 1996
(A) The condensed financial statements included herein have been prepared by
Oglethorpe Power Corporation (Oglethorpe), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). In
the opinion of management, the information furnished herein reflects all
adjustments (which include only normal recurring adjustments) necessary
to present fairly, in all material respects, the results for the periods
ended September 30, 1997 and 1996. 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 such SEC rules and regulations, although
Oglethorpe believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in Oglethorpe's latest Annual
Report on Form 10-K, as filed with the SEC. Certain amounts for 1996 have
been reclassified to conform with the current period presentation.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Corporate Restructuring
As reported in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Oglethorpe and its 39 retail electric distribution
cooperative members (the Members) completed a corporate restructuring (the
Corporate Restructuring) on March 11, 1997, in which Oglethorpe was divided
into three specialized operating companies to respond to increasing
competition and regulatory changes in the electric industry. As part of the
Corporate Restructuring, Oglethorpe's transmission business was sold to and
is now owned and operated by Georgia Transmission Corporation (An Electric
Membership Corporation) (GTC), a recently formed Georgia electric membership
corporation. Oglethorpe's system operations business was sold to and is now
owned and operated by Georgia System Operations Corporation (GSOC), a
recently formed Georgia nonprofit corporation. Oglethorpe continues to
operate its power supply business. Oglethorpe retained all of its owned and
leased generation assets. Oglethorpe also continues to administer its power
purchase contracts and provide marketing support functions to the Members.
Immediately after the Corporate Restructuring, Oglethorpe's corporate name
was changed from "Oglethorpe Power Corporation (An Electric Membership
Generation & Transmission Corporation)" to "Oglethorpe Power Corporation (An
Electric Membership Corporation)".
Power Marketer Arrangements
Oglethorpe utilizes long-term power marketer arrangements to reduce the
cost of power to the Members. Oglethorpe has entered into power marketer
agreements with LG&E Energy Marketing Inc. (LEM) effective January 1, 1997,
for approximately 50% of the load requirements of the Members and with Morgan
Stanley Capital Group Inc. (Morgan Stanley) effective May 1, 1997, with
respect to 50% of the forecasted load requirements of the Members. The LEM
agreements are based on the actual requirements of the Members during the
contract term, whereas the Morgan Stanley agreement represents a fixed supply
obligation. Under these power marketer agreements, Oglethorpe purchases
energy at fixed prices covering a portion of the costs of energy to its
Members. LEM and Morgan Stanley, in turn, have certain rights to market
excess energy from the Oglethorpe system. All of Oglethorpe's existing
generating facilities and power purchase arrangements are available for use
by LEM and Morgan Stanley for the term of the respective agreements.
Oglethorpe continues to be responsible for all the costs of its system
resources but receives revenue from LEM and Morgan Stanley for the use of the
resources.
8
RESULTS OF OPERATIONS
Corporate Restructuring
Oglethorpe and the Members completed the Corporate Restructuring on March
11, 1997. However, the Boards of Directors of Oglethorpe, GTC and GSOC
determined that for ratemaking purposes all revenues and expenses related to
operations of GTC and GSOC would remain with Oglethorpe until April 1, 1997.
Pursuant to this approach, all transmission-related and systems
operations-related revenues were assigned to Oglethorpe, and all
transmission-related and systems operations-related costs were paid or
reimbursed by Oglethorpe during the period March 11, 1997 through March 31,
1997. As a result, the Condensed Statements of Revenues and Expenses for the
nine months ended September 30, 1997 reflect operations as a combined power
supply, transmission and system operations company through March 31, 1997,
and operations solely as a power supply company thereafter. Therefore,
decreases in operating revenues, power delivery expenses, depreciation and
amortization, taxes other than income taxes, operating margin and net
interest charges from 1996 to 1997 are primarily attributable to the
Corporate Restructuring. See Oglethorpe's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 for a pro forma presentation of the
Statement of Revenues and Expenses reflecting the exclusion of the
transmission and system operations businesses, as though the Corporate
Restructuring had occurred at the beginning of 1996, for the year ended
December 31, 1996 (Note 11 of Notes to Financial Statements).
For the Three Months and Nine Months Ended September 30, 1997 and 1996
Oglethorpe's net margin (loss) for the three months and nine months ended
September 30, 1997 was ($0.9) million and $14.1 million, respectively,
compared to $12.5 million and $26.2 million for the same periods of 1996. In
August 1997, due to achieving a year-to-date net margin higher than required
by its Indenture, the Oglethorpe Board of Directors adjusted the 1997 budget
thereby lowering the revenue requirement by a total of $4.0 million. Such
reduction in revenues was implemented by reducing the capacity charges for
August 1997. Year-to-date net margin for 1997, after this adjustment, is
sufficient to meet margin requirements. The higher net margin in 1996
resulted primarily from unbudgeted savings in interest and decommissioning
costs and from higher than expected interest income.
Operating Revenues
Revenues from sales to Members for the three months and nine months ended
September 30, 1997 were 4.3% higher for the three months and 0.5% lower
year-to-date compared to the same periods of 1996. While revenues from
Members have been reduced due to the removal of capacity revenues relating to
the transmission business, this decrease has been offset by an increase in
energy revenues from sales to Members. Such energy revenues were 65.1% higher
for the three months ended September 30, 1997 compared to the same period of
1996 and 33.7% higher for the nine-month period compared to 1996.
Megawatt-hour (MWh) sales to the Members were 11.4% and 2.2% higher in the
current three-month and nine-month periods compared to the same periods of
1996. Consequently, Oglethorpe's average energy revenue per MWh from sales to
Members for the three-month and nine-month periods were 48.3% and 30.8%
higher in 1997 compared to 1996, respectively. This increase was primarily
due to the expiration of the short-term power marketer arrangements with
Duke/Louis Dreyfus (DLD) and Enron Power Marketing Inc. (EPMI) that had
9
allowed Oglethorpe to passthrough significant savings in the first nine
months of 1996. During the first nine months of 1996, Oglethorpe had power
marketer arrangements with DLD and EPMI to supply 100% of the load
requirements of the Members. As noted under "GeneralPower Marketer
Arrangements" above, Oglethorpe has entered into power marketer arrangements
with LEM effective January 1, 1997 for approximately 50% of the load
requirements of the Members and with Morgan Stanley effective May 1, 1997
with respect to 50% of the forecasted load requirements of the Members.
Sales to non-Members were primarily made pursuant to contractual
arrangements with Georgia Power Company (GPC) and from energy sales to other
utilities and power marketers. The following table summarizes the amounts of
non-Member revenues from these sources for the three months and nine months
ended September 30, 1997 and 1996:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
GPC- Power supply arrangements......................................... $ 283 $ 2,947 $ 12,847 $ 10,872
Sales to other utilities............................................... 5,021 11,795 14,691 34,595
Sales to power marketers............................................... 772 1,150 3,508 8,846
ITS transmission agreements............................................ -- 1,817 2,180 6,874
--------- --------- --------- ---------
Total.............................................................. $ 6,076 $ 17,709 $ 33,226 $ 61,187
--------- --------- --------- ---------
--------- --------- --------- ---------
The revenues from power supply arrangements with GPC were primarily derived
from energy sales arising from dispatch situations whereby GPC caused Plant
Wansley to be operated when Oglethorpe's system did not require all of its
contractual entitlement to the generation. These revenues compensated Oglethorpe
for its costs because, under the operating agreement (before it was recently
amended), Oglethorpe was responsible for its share of fuel costs any time a unit
operated. Such sales to GPC were higher in the first nine months of 1997
compared to the same periods of 1996. With the commencement of the separate
dispatch of Plant Wansley as of May 1, 1997, this type of sale to GPC has ended.
Sales to other non-Member utilities in 1997 represent sales made directly by
Oglethorpe. Oglethorpe sells for its own account any energy available from the
portion of its resources dedicated to Morgan Stanley that is not scheduled by
Morgan Stanley pursuant to its power marketer arrangement. Such sales during the
first nine months of 1996 were initiated by DLD and EPMI. Where DLD or EPMI did
not have a contractual relationship with the purchaser and Oglethorpe did,
Oglethorpe recorded the sale and credited the revenues to DLD or EPMI in its
monthly billing.
Under the current LEM and Morgan Stanley power marketer arrangements, and
previously, under the DLD and EPMI power marketer arrangements, sales to the
power marketers represented the net energy transmitted on behalf of LEM, Morgan
Stanley, DLD and EPMI off-system on a daily basis
10
from Oglethorpe's total resources. Such energy was sold to LEM, Morgan
Stanley, DLD and EPMI at Oglethorpe's cost, subject to certain limitations.
The volume of sales to power marketers depends primarily on the power
marketers' decisions for servicing their load requirements.
Another source of non-Member revenues was payments received from GPC for use
of the Integrated Transmission System (ITS) and related transmission interfaces.
GPC compensated Oglethorpe to the extent that Oglethorpe's percentage of
investment in the ITS exceeded its percentage use of the system. In such case,
Oglethorpe was entitled to income as compensation for the use of its investment
by the other ITS participants. As a result of the Corporate Restructuring, all
of the revenues in this category have accrued to GTC since April 1, 1997.
Operating Expenses
Operating expenses were 8.6% higher in the current quarter and 1.1% lower
for the nine months ended September 30, 1997 compared to the same periods of
1996. Since April 1, 1997, certain operating expenses have been reduced due
to the elimination of expenses relating to the transmission business assumed
by GTC in connection with the Corporate Restructuring. However, the changes
in fuel expense and the increases in production operations and maintenance
costs were unaffected by the Corporate Restructuring. Fuel costs increased
11.7% in the third quarter and decreased 3.6% for the nine months ended
September 30, 1997 from the same periods of the prior year, respectively.
Total megawatt-hours (MWhs) of generation increased 7.4% in the current
quarter and decreased 1.0% year-to-date. For the current quarter, fossil
generation was 11.6% higher compared to the same period of 1996 due to a
maintenance outage at Scherer Unit No. 1 in July 1996 and due to higher
utilization of Plant Wansley in 1997. The higher fossil generation in the
third quarter resulted in higher average fuel costs. For the nine months
ended September 30, 1997 the mix of generation was more nuclear and less
fossil generation than in 1996 resulting in lower average fuel costs. The
decrease in fossil generation resulted primarily from a maintenance outage
during February and March 1997 at Plant Scherer Unit No. 1. Also, the higher
nuclear generation during 1997 compared to 1996 was achieved as a result of
having three refueling outages in the first nine months of 1996 compared to
two in 1997. Conversely, the increase in production operations and
maintenance costs was partly attributable to the 1997 maintenance outage at
Plant Scherer Unit No. 1. In addition, effective January 1, 1996, the costs
of nuclear refueling outages are deferred and amortized over the 18-month
period following the outage. Such change in accounting resulted in a $12.9
million deferral of maintenance costs in the first nine months of 1996.
Purchased power cost for the three months and nine months ended September
30, 1997 were 41.4% and 13.7% higher compared to the same periods of 1996,
respectively. A total of 11.6% more MWhs were purchased in the third quarter of
1997 compared to 1996. Year-to-date, 4.9% fewer MWhs were purchased than the
same period of the prior year. Consequently, the average cost of purchased power
per MWh has increased by 26.7% and 19.5%, respectively. As noted under
"Operating Revenues" above, significant energy cost savings were derived in the
first nine months of 1996 from the DLD and EPMI power supply arrangements.
The decrease in other operating expenses for 1997 compared to the same
periods of the prior year was due primarily to transfer of administrative and
general expenses relating to the transmission and system operations businesses
in connection with the Corporate Restructuring.
11
Other Income
Other income for the three months and nine months ended September 30,
1997 decreased compared to the same periods of 1996 primarily as a result of
Oglethorpe utilizing, as planned, all remaining amounts available under its
deferred margin rate mechanism during 1996. (For a discussion of deferred
margins, see Note 1 of Notes to Financial Statements in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.) Interest
income was higher for the nine months ended September 30, 1997 compared to
the same period of 1996 partly due to higher earnings from the
decommissioning fund and partly due to income from the deposits from the
Rocky Mountain transactions. The deposits were made in December 1996 and
January 1997.
FINANCIAL CONDITION
Corporate Restructuring
As of March 11, 1997, Oglethorpe sold its transmission business and
assets to GTC. Thereafter, the assets, liabilities and equity of GTC were no
longer a part of Oglethorpe. The purchase price for the transmission business
was based on an appraisal of the fair market value of such business, as
determined by an independent appraiser, and was approximately $709 million.
The purchase price was paid primarily by GTC's assumption of a portion
(approximately 16.86%) of Oglethorpe's long-term secured debt in an amount
equal to approximately $686 million. Approximately $541 million of this debt
(payable to RUS, Federal Financing Bank (FFB) and CoBank, ACB (CoBank))
became the sole obligation of GTC, and Oglethorpe was released from all
liability with regard to this indebtedness. The remaining debt assumed by GTC
in connection with the Corporate Restructuring, approximately $145 million,
relates to Oglethorpe's pollution control revenue bonds (PCBs). While GTC
assumed and agreed to pay this $145 million of debt, Oglethorpe is not
legally released from its liability for this debt. The remainder of the
purchase price was paid by GTC from cash obtained through a borrowing from
National Rural Utilities Cooperative Finance Corporation (CFC) and the
assumption of approximately $2 million of other Oglethorpe liabilities.
Oglethorpe also made a special patronage capital distribution of
approximately $49 million to the Members which was used by the Members to
establish equity in and to provide initial working capital to GTC.
On October 1, 1996, Oglethorpe sold to GSOC its system operations assets,
consisting of its system control center and related energy control and
revenue metering systems equipment. The purchase price of these assets
totaled approximately $9.4 million and was funded by GSOC's assumption of
Oglethorpe's obligations under an existing note held by the Rural Utilities
Service (RUS), by delivery of a purchase money note payable to Oglethorpe and
by the assumption of certain other liabilities of Oglethorpe. From October 1,
1996 to March 11, 1997, Oglethorpe was the sole member of GSOC; therefore,
the assets sold to GSOC remained in the consolidated balance sheet of
Oglethorpe. The Members and GTC became members of GSOC on March 11, 1997; and
thereafter the assets, liabilities and equity of GSOC were no longer a part
of Oglethorpe.
Most of the remaining comparisons of the balance sheets as of September 30,
1997 and December 31, 1996 are in addition to the effects of the Corporate
Restructuring described above. See
12
Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 for a pro forma presentation of the Balance Sheet of the
post-restructuring Oglethorpe as of December 31, 1996 (Note 11 of Notes to
Financial Statements).
Total assets and total equity plus liabilities as of September 30, 1997 were
$4.5 billion which, after adjustment for the Corporate Restructuring, was $102
million less than the comparable total at December 31, 1996 due to depreciation
of plant and due to the decrease in cash and temporary cash investments.
Assets
Property additions for the nine months ended September 30, 1997 totaled
$49.9 million and included additions, replacements and improvements to
transmission and distribution facilities (subsequently sold to GTC) for the
first three months of 1997 and existing generation facilities.
All plant acquisition adjustments were related to transmission plant. As a
result of the Corporate Restructuring discussed above, Oglethorpe no longer has
any plant acquisition adjustments.
The decrease in construction work in progress resulted from the projects
sold to GTC and GSOC in the Corporate Restructuring.
The decrease in the bond, reserve and construction funds was attributable to
the utilization of available excess debt service reserve funds for debt service
payments.
The increase in the decommissioning investment fund and the decommissioning
reserve resulted from earnings of the fund. An amount equal to the earnings of
the fund was accrued as an increase to the decommissioning reserve.
The increase in the deposit on, the obligation under and net benefit of the
Rocky Mountain transactions resulted from the completion of the lease
transactions for the remainder of Oglethorpe's interest in Rocky Mountain in
January 1997. For a discussion of the Rocky Mountain transactions, see Notes 1
and 2 of Notes to Financial Statements in Oglethorpe's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
The decrease in cash and temporary cash investments was partly due to the
payment of the $49 million special patronage capital distribution made in
connection with the Corporate Restructuring discussed above and partly due to a
prepayment in 1997 of Federal Financing Bank (FFB) debt made from the proceeds
of the December 1996 and January 1997 Rocky Mountain transactions.
Inventories decreased primarily due to lower coal inventories at Plant
Scherer resulting from problems associated with rail transportation in the
current quarter and due to the seasonal demands of summer. The rail
transportation providers expect operations to return to normal by the beginning
of next year.
Prepayments and other current assets increased due to a $9.9 million
increase in the estimated payment made to GPC for Plant Hatch operations and
maintenance costs for October 1997
13
compared to the estimate paid for January 1997. The increase in the estimate
paid related to planned refueling outage and uprate costs at Plant Hatch Unit
No. 2.
The change in premium and loss on reacquired debt resulted partly from
premiums paid in connection with FFB debt prepayment and the Pollution Control
Bond (PCB) refunding, excluding the effect of the portion of these costs assumed
by GTC in the Corporate Restructuring.
The decrease in deferred debt expense resulted partly from unamortized
issuance cost related to the PCB refunding being converted to premium and loss
on reacquired debt and partly from the portion of these costs assumed by GTC in
the Corporate Restructuring.
Equity and Liabilities
The decrease in patronage capital and membership fees is the result of
the $49 million special patronage capital distribution made in connection
with the Corporate Restructuring, discussed above.
The decrease in long-term debt due within one year resulted primarily from
the prepayment of FFB debt, discussed above. In addition, the balance reflects
the impact of the Corporate Restructuring.
Accounts payable increased due to normal variations in the timing of
payables activity.
Accrued and withheld taxes increased as a result of the normal monthly
accruals of property taxes, which are generally paid in the fourth quarter of
the year.
Other current liabilities decreased partly due to the year-end accrual for
employee incentive pay (subsequently paid in March 1997) and partly due to the
Corporate Restructuring.
COMPETITION
The electric utility industry in the United States is undergoing
fundamental change and is becoming increasingly competitive. See "BUSINESS OF
OGLETHORPE--Certain Factors Affecting the Utility Industry in General" In
Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
Several states are in the process of implementing varying forms of retail
wheeling and most others are in the various stages of considering retail
competition. Proposed federal legislation could mandate retail wheeling in
every state. No legislation related to retail wheeling has yet been enacted
in Georgia, and, currently, no bill is pending in the Georgia legislature
which would amend the Georgia Territorial Electric Service Act (Territorial
Act) or otherwise affect the exclusive right of the Members to supply power
to their current service territories. In 1997, the staff of the Georgia
Public Service Commission (GPSC)
14
conducted a series of workshops to solicit views from the various parties
impacted by electric industry restructuring and to discuss potential
resolutions of these issues. The GPSC staff anticipates presenting a report
to the GPSC that will identify electric industry restructuring issues,
potential resolutions and the views of the parties who participated in the
workshop. The GPSC does not have the authority under Georgia law to order
retail wheeling or amend the Territorial Act. Oglethorpe and the Members
participated in the GPSC staff workshops and are actively monitoring and
studying legislative initiatives in Congress and in other states to take
advantage of the experiences of cooperatives and other utilities in other
states to protect their interests in future legislative activities in Georgia.
Under current Georgia law, the Members have the exclusive right to
provide retail electric service in their respective territories. Since 1973,
however, Georgia has permitted limited competition among electric utilities
located in Georgia for sales of electricity to certain large commercial or
industrial customers. Pursuant to the Territorial Act, the owner of any new
facility may receive electric service from the power supplier of its choice
if the facility is located outside of municipal limits and has a connected
demand upon initial full operation of 900 kilowatts or more. See "THE
MEMBERS--Service Area and Competition" in Oglethorpe's Annual Report on Form
10-K for the fiscal year ended December 31, 1996. The Members, with
Oglethorpe's support, are actively engaged in competition with other retail
electric suppliers for these new commercial and industrial loads. While the
competition for 900 kilowatt loans represents only limited competition in
Georgia, this competition has given Oglethorpe and the Members the
opportunity to develop resources and strategies to operate in an increasingly
competitive market. In 1996, sales by the Members to commercial and
industrial customers, including both customers who had a choice of suppliers
and those who did not, accounted for 26% of Members' total sales.
Over the past years, Oglethorpe has taken several steps to prepare for and
adapt to the fundamental changes which have occurred or are likely to occur in
the electric utility industry and to reduce the possibility of incurring
stranded costs. Most importantly, Oglethorpe completed the Corporate
Restructuring and divided itself into generation, transmission and system
operations companies in order to better serve its Members in a deregulated and
competitive environment. See "General--Corporate Restructuring" herein. Since
1992, Oglethorpe also has pursued an interest cost reduction program. As a
result of this program, Oglethorpe has prepaid $222 million of FFB debt and
refinanced $1.1 billion of PCB debt and $1.2 billion of FFB debt. These steps
have reduced Oglethorpe's interest costs significantly. See "Financial
Condition--Refinancing Transactions" in Oglethorpe's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
Oglethorpe and the Members also amended the Wholesale Power Contracts in
connection with the Corporate Restructuring. The Wholesale Power Contracts
provide that the Members are jointly and severally responsible for all costs and
expenses of all of the generation and purchased power resources of Oglethorpe
existing on March 11, 1997, as well as certain future power resources. See
"BUSINESS OF OGLETHORPE--New Wholesale Power Contracts" in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. Each Wholesale
Power Contract specifically provides that the Member must make payments whether
or not power has been delivered and whether or not a plant has been sold or is
otherwise unavailable. The formulary rate
15
established by Oglethorpe in the rate schedule to the Wholesale Power
Contracts employs a rate methodology under which all categories of costs are
specifically separated as components of a formula to determine Oglethorpe's
revenue requirements. The rate schedule also allocated to the Members the
responsibility for all of Oglethorpe's fixed costs. Oglethorpe's charges
under the Wholesale Power Contracts may be adjusted by the Board of
Directors. With respect to Oglethorpe, the RUS has retained certain approval
rights over the changes to the Wholesale Power Contracts, including the rate
schedule. See "BUSINESS OF OGLETHORPE--Electric Rates" in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. As a result
of these contractual agreements, the Members ultimately are liable for the
existing power resources of Oglethorpe.
Oglethorpe has also entered into arrangements with power marketers to
obtain the value that can be brought by power marketers and to provide for
future load requirements without taking all the risk associated with
traditional suppliers. See "MEMBER REQUIREMENTS AND POWER SUPPLY
RESOURCES--Power Purchase and Sale Arrangements--POWER MARKETER ARRANGEMENTS"
in Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 and "General--POWER SUPPLY SWAP ARRANGEMENTS" in Item 2 in
Oglethorpe's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
Oglethorpe and the Members continue to consider and evaluate a wide array
of other potential actions to reduce costs and to maintain their
competitiveness in anticipation of future competition. These activities on
the part of Oglethorpe and the Members are in various stages of study or
preliminary consideration. Many Members are now providing or considering
proposals to provide non-traditional products and services such as
telecommunications and other services. Depending on the nature of future
competition in Georgia, there could be reasons for the Members to separate
their physical distribution business from their energy business, or otherwise
restructure their current businesses to operate effectively under retail
competition. Oglethorpe continues to seek to identify and evaluate
opportunities to reduce the cost of wholesale power to the Members.
Oglethorpe currently defers certain costs of providing services to the
Members pursuant to Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation." Note 1 of
Notes to Financial Statements in Oglethorpe's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, sets forth the regulatory assets and
liabilities reflected on Oglethorpe's balance sheet as of December 31, 1996.
Regulatory assets represent probable future revenues to Oglethorpe associated
with certain costs which will be recovered from Members through the
rate-making process. Regulatory liabilities represent probably future
reduction in revenues associated with amounts that are to be credited to
Members through the rate-making process. In the event that Oglethorpe is no
longer subject to the provisions of SFAS No. 71, Oglethorpe would be required
to write off regulatory assets and liabilities. In addition, Oglethorpe would
be required to determine any impairment to other assets, including plant, and
write down the assets, if impaired, to their fair value.
Year 2000 Issue
Many information systems have been designed to function based on years that
begin with "19". Oglethorpe expects that by the year 2000 it will have adapted
its systems, to the extent it considers necessary, to process years that begin
with "20", and does not expect that the year 2000 issue will have a material
adverse effect on its financial condition or results of operations.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Oglethorpe's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 reported on an action by PECO Energy CompanyPower Team filed on June 17,
1997 with the Federal Energy Regulatory Commission relating to Oglethorpe and
GTC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
NUMBER DESCRIPTION
- --------- -----------
4.8.1(b) First Supplemental Indenture, dated as of October 1, 1997, made by
Oglethorpe to SunTrust Bank, Atlanta, as trustee, relating to the
Series 1997B (Burke) Note
27.1 Financial Data Schedule (for SEC use only).
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended
September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Oglethorpe Power Corporation
(An Electric Membership Corporation)
Date: November 14, 1997 By: /s/ T. D. Kilgore
---------------------------------
T. D. Kilgore
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 /s/ Mac F. Oglesby
---------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: November 14, 1997 /s/ Robert D. Steele
---------------------------------
Robert D. Steele
Controller
(Chief Accounting Officer)
18