SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 MARCH 31, 1998
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
--------------------------
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.
OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
PAGE NO.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of March 31, 1998 (Unaudited)
and December 31, 1997 3
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited) for the Three Months
Ended March 31, 1998 and 1997 5
Condensed Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1998 and 1997 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 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 13
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 1998 and December 31, 1997
- ----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
Assets (Unaudited)
--------------------------
Electric plant, at original cost:
In service $ 4,909,129 $ 4,910,067
Less: Accumulated provision for depreciation (1,442,137) (1,412,287)
------------- ------------
3,466,992 3,497,780
Nuclear fuel, at amortized cost 87,879 90,423
Construction work in progress 13,968 13,578
------------- ------------
3,568,839 3,601,781
------------- ------------
Investments and funds:
Decommissioning fund, at market 114,081 105,817
Deposit on Rocky Mountain transactions, at cost 53,056 52,176
Bond, reserve and construction funds, at market 32,254 33,160
Investment in associated organizations, at cost 15,709 15,940
Other, at cost 4,645 4,641
------------- ------------
219,745 211,734
------------- ------------
Current assets:
Cash and temporary cash investments, at cost 58,515 63,215
Other short-term investments, at market 98,512 97,022
Receivables 94,775 105,993
Inventories, at average cost 76,377 65,528
Prepayments and other current assets 11,698 12,530
------------- ------------
339,877 344,288
------------- ------------
Deferred charges:
Premium and loss on reacquired debt, being
amortized 194,974 196,583
Deferred amortization of Scherer leasehold 97,088 96,303
Deferred debt expense, being amortized 16,362 15,345
Other 42,552 43,823
------------- ------------
350,976 352,054
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$ 4,479,437 $ 4,509,857
------------- ------------
------------- ------------
The accompanying notes are an integral part of these condensed financial
statements.
3
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 1998 and December 31, 1997
- ----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
Equity and Liabilities (Unaudited)
--------------------------
Capitalization:
Patronage capital and membership fees
(including unrealized(gain) loss of ($122)
at March 31, 1998 and $107 at December 31, 1997
on available-for-sale securities) $ 338,364 $ 330,509
Long-term debt 3,225,356 3,258,046
Obligations under capital leases 287,078 288,638
Obligation under Rocky Mountain transactions 53,056 52,176
------------ ------------
3,903,854 3,929,369
------------ ------------
Current liabilities:
Long-term debt and capital leases due within
one year 92,196 89,556
Notes payable -
Accounts payable 33,403 51,103
Accrued interest 14,332 12,961
Accrued and withheld taxes 5,308 517
Other current liabilities 6,137 8,428
------------ ------------
151,376 162,565
------------ ------------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized 60,137 60,756
Net benefit of Rocky Mountain transactions,
being amortized 91,578 92,375
Net benefit of sale of income tax benefits,
being amortized 32,037 34,039
Accumulated deferred income taxes 63,117 63,117
Decommissioning reserve 151,222 142,354
Other 26,116 25,282
------------ ------------
424,207 417,923
------------ ------------
$ 4,479,437 $ 4,509,857
------------ ------------
------------ ------------
The accompanying notes are an integral part of these condensed financial
statements.
4
Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited)
For the Three Months Ended March 31, 1998 and 1997
- ----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
---------------------
Operating revenues:
Sales to Members $ 231,943 $ 257,031
Sales to non-Members 3,324 14,454
----------- ----------
Total operating revenues 235,267 271,485
----------- ----------
Operating expenses:
Fuel 39,867 44,889
Production 46,932 48,853
Purchased power 54,564 57,991
Depreciation and amortization 31,123 36,239
Other operating expenses - 5,695
----------- ----------
Total operating expenses 172,486 193,667
----------- ----------
Operating margin 62,781 77,818
----------- ----------
Other income (expense):
Interest income 7,840 7,434
Amortization of net benefit of sale of
income tax benefits 2,798 2,798
Allowance for equity funds used during
construction 22 84
Other 125 1,507
----------- ----------
Total other income 10,785 11,823
----------- ----------
Interest charges:
Interest on long-term-debt and other obligations 66,145 80,557
Allowance for debt funds used during construction (205) (352)
----------- ----------
Net interest charges 65,940 80,205
----------- ----------
Net margin 7,626 9,436
Net change in unrealized gain (loss) on available
for sale securities 229 (947)
----------- ----------
Comprehensive margin $ 7,855 $ 8,489
----------- ----------
----------- ----------
The accompanying notes are an integral part of these condensed financial
statements.
5
Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 1998 and 1997
- ----------------------------------------------------------------------------
(dollars in thousands)
1998 1997
---------------------
Cash flows from operating activities:
Net margin $ 7,626 $ 9,436
----------- -----------
Adjustments to reconcile net margin to net cash
provided by operating activities:
Depreciation and amortization 43,554 56,911
Net benefit of Rocky Mountain transactions - 24,859
Deferred gain from Corporate Restructuring - 4,757
Allowance for equity funds used during construction (22) (84)
Amortization of deferred gains (619) (585)
Amortization of net benefit of sale of income
tax benefits (2,798) (2,798)
Deferred income taxes - (1,362)
Other 4,206 2,227
Change in net current assets, excluding long-term
debt due within one year, notes payable and deferred
margins to be refunded within one year:
Receivables 11,218 14,092
Inventories (10,849) (1,530)
Prepayments and other current assets 831 (2,413)
Accounts payable (17,700) (1,930)
Accrued interest 1,371 (1,568)
Accrued and withheld taxes 4,791 4,042
Other current liabilities (2,291) (3,356)
----------- -----------
Total adjustments 31,692 91,262
----------- -----------
Net cash provided by operating activities 39,318 100,698
----------- -----------
Cash flows from investing activities:
Property additions (8,085) (24,962)
Net proceeds from bond, reserve and construction
funds 938 21,793
(Decrease) Increase in investment in associated
organizations 231 (51)
Increase in other short-term investments (1,293) (1,766)
Increase in decommissioning fund (3,808) (2,423)
Net cash received in Corporate Restructuring - 20,175
Other - (4,168)
----------- -----------
Net cash (used in) provided by investing activities (12,017) 8,598
----------- -----------
Cash flows from financing activities:
Debt proceeds, net (2,198) 101,149
Debt payments (30,820) (239,805)
Retirement of patronage capital - (48,863)
Other 1,017 (2,159)
----------- -----------
Net cash used in financing activities (32,001) (189,678)
----------- -----------
Net decrease in cash and temporary cash
investments (4,700) (80,382)
Cash and temporary cash investments at beginning
of period 63,215 132,783
----------- -----------
Cash and temporary cash investments at end
of period $ 58,515 $ 52,401
----------- -----------
----------- -----------
Cash paid for:
Interest (net of amounts capitalized) $ 58,026 $ 76,871
Income taxes - 3,525
The accompanying notes are an integral part of these condensed financial
statements.
6
OGLETHORPE POWER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(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) and
estimates necessary to present fairly, in all material respects, the
results for the periods ended March 31, 1998 and 1997. 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 1997 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
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
As reported in its Annual Report on Form 10-K for the fiscal year ended December
31, 1997, 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. Oglethorpe now operates the power supply business, Georgia
Transmission Corporation (GTC) operates the transmission business and Georgia
System Operations Corporation (GSOC) operates the system operations business.
The Condensed Statement of Revenues and Expenses for the three months ended
March 31, 1998 reflects Oglethorpe's operations solely as a power supply
company, whereas the Condensed Statement of Revenues and Expenses for the three
months ended March 31, 1997 reflects Oglethorpe's operations as a combined power
supply, transmission and system operations company. Although the Corporate
Restructuring was completed on March 11, 1997, pursuant to the restructuring
agreement among Oglethorpe, GTC and GSOC, 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. Decreases in operating revenues, depreciation and amortization, other
operating expenses, operating margin, net interest charges and net margin from
1997 to 1998 are primarily attributable to the Corporate Restructuring.
See Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 for a pro forma presentation of the Statement of Revenues and Expenses
for the year ended December 31, 1997, reflecting the exclusion of the
transmission and system operations businesses, as though the Corporate
Restructuring had occurred at the beginning of 1997 (Note 11 of Notes to
Financial Statements).
OPERATING REVENUES
Revenues from sales to Members for the three months ended March 31, 1998 were
9.8% lower compared to the same period of 1997. Revenues from Members were
lower primarily due to the removal of capacity revenues relating to the
transmission business. Although Megawatt-hour (MWh) sales to Members increased
7.5%, energy revenues from Members increased only 5.3%. Consequently,
Oglethorpe's average energy revenue per MWh from sales to Members for the
three-month period was 2.1% lower in 1998 compared to 1997. This decrease
resulted from lower average fuel cost and lower average purchased power cost
discussed below under "Operating Expenses".
Sales to non-Members were primarily from energy sales to other utilities and
power marketers, and pursuant to contractual arrangements with Georgia Power
Company (GPC). The following table
8
summarizes the amounts of non-Member revenues from these sources for the three
months ended March 31, 1998 and 1997:
Three Months
Ended March 31,
-------------------
1998 1997
--------- --------
(dollars in thousands)
Sales to other utilities $ 2,225 $ 4,263
Sales to power marketers 1,099 432
GPC - Power supply arrangements 0 7,579
ITS transmission agreements 0 2,180
-------- --------
Total $ 3,324 $ 14,454
-------- --------
-------- --------
Sales to other utilities represent sales made directly by Oglethorpe.
Oglethorpe sells for its own account any energy in excess of the portion of its
resources dedicated to Morgan Stanley Capital Group Inc. (Morgan Stanley) that
is not scheduled by Morgan Stanley pursuant to its power marketer arrangement.
Under the LG&E Energy Marketing Inc. (LEM) and Morgan Stanley power marketer
arrangements, sales to the power marketers represented the net energy
transmitted on behalf of LEM and Morgan Stanley off-system on a daily basis from
Oglethorpe's total resources. Such energy was sold to LEM and Morgan Stanley at
Oglethorpe's cost, with certain limited adjustments set forth in the
arrangements. The volume of sales to power marketers depends primarily on the
power marketers' decisions for servicing their load requirements.
The revenues from power supply arrangements with GPC were derived in 1997 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 amended), Oglethorpe
was responsible for its share of fuel costs any time a unit operated. With the
commencement of the separate dispatch of Plant Wansley as of May 1, 1997, this
type of sale to GPC ended.
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 been GTC's revenues since April 1, 1997.
9
OPERATING EXPENSES
Operating expenses were 10.9% lower in the three months ended March 31, 1998
compared to the same period of 1997. Operating expenses were lower due to the
elimination of depreciation and amortization and other operating expenses
relating to the transmission business assumed by GTC in connection with the
Corporate Restructuring. However, the decreases in fuel expense and in
purchased power expense did not result from the Corporate Restructuring. Fuel
costs decreased 11.2% in the three months ended March 31, 1998 from the same
period of the prior year, while total MWhs of generation decreased only 2.8%.
Such savings in average fuel cost resulted from the difference in the mix of
generation, with a higher percentage of the generation from nuclear and less
from fossil than the comparable period for 1997. The shift in the mix of
generation resulted primarily from a decrease in fossil generation in 1998
resulting from maintenance outages at Plant Scherer Unit No. 2 and at Plant
Wansley Unit No. 2.
Purchased power cost for the three months ended March 31, 1998 was 5.9% lower
compared to the same period of 1997. A total of 8.6% more MWhs were purchased
in 1998 compared to 1997. Consequently, the average cost of purchased power per
MWh has decreased by 13.4%. The savings were primarily as a result of the
elimination, effective September 1, 1997, of another 250-megawatt component
block under the Block Power Sale Agreement between Oglethorpe and GPC.
Other operating expenses for 1997 reflect expenses for the power delivery
portion of the business which was subsequently transferred to GTC in connection
with the Corporate Restructuring.
OTHER INCOME
Other income for the three months ended March 31, 1998 decreased compared to the
same period of 1997. For 1997, the caption "Other" reflected a margin of
approximately $720,000 related to Oglethorpe's marketing support services which
was subsequently transferred to EnerVision. In 1998, EnerVision's margin was
approximately $100,000. See Oglethorpe's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 for further discussion of EnerVision.
INTEREST CHARGES
Net interest charges for the three months ended March 31, 1998 decreased
compared to the same period of 1997 primarily due to the debt assumed by GTC in
connection with the Corporate Restructuring.
NET MARGIN AND COMPREHENSIVE MARGIN
Oglethorpe's net margin for the three months ended March 31, 1998 was $7.6
million compared to $9.4 million for the same period of 1997. Since
Oglethorpe's margin requirement is based on a ratio applied to interest charges,
the reduction in interest charges resulting from the Corporate Restructuring
also reduced Oglethorpe's margin requirement.
Comprehensive margin is now reported on the Condensed Statement of Revenues and
Expenses, consistent with Statement No. 130, "Reporting Comprehensive Income",
issued by the Financial
10
Accounting Standards Board. This Statement requires the reporting of all
components of changes in equity on the Statement of Revenues and Expenses. For
Oglethorpe, the only additional item being reported is the net change in
unrealized gains (losses) on investments in available-for-sale securities.
FINANCIAL CONDITION
Total assets and total equity plus liabilities as of March 31, 1998 were $4.5
billion which was $30 million less than the total at December 31, 1997 due
primarily to depreciation of plant.
ASSETS
Property additions for the three months ended March 31, 1998 totaled $8.1
million primarily for purchases of nuclear fuel and for additions, replacements
and improvements to existing generation facilities.
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 decrease in receivables resulted from the normal seasonable variations in
the receivable balance from the Members at year-end 1997 compared to the balance
at March 31, 1998.
Inventories increased primarily as a result of the coal inventories for Plants
Scherer and Wansley returning to more normal levels at March 31, 1998 from lower
1997 year-end levels caused by problems associated with rail transportation.
EQUITY AND LIABILITIES
Accounts payable decreased 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.
The decrease in other current liabilities primarily resulted from $3.0 million
lower negative cash at March 31, 1998 than compared to negative cash at 1997
year-end.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
11
NUMBER DESCRIPTION
- --------- ------------
10.1.3(c) Second Amendment to Supporting Assets Lease No. 2, dated as of
October 3, 1989, together with a Schedule identifying three
substantially identical Second Amendments to Supporting Assets
Leases.
10.1.4(c) Second Amendment to Supporting Assets Sublease No. 2, dated as of
October 3, 1989, together with a Schedule identifying three
substantially identical Second Amendments to Supporting Assets
Subleases.
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 March 31,
1998.
12
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: May 14, 1998 By: /S/ T. D. KILGORE
-------------------------------------
T. D. Kilgore
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1998 /S/ MAC F. OGLESBY
-------------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: May 14, 1998 /S/ THOMAS A. SMITH
-------------------------------------
Thomas A. Smith
Senior Financial Officer
(Principal Financial Officer)
Date: May 14, 1998 /S/ ROBERT D. STEELE
-------------------------------------
Robert D. Steele
Controller
(Chief Accounting Officer)
13