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 June 30, 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 JUNE 30, 1998
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1998 (Unaudited)
and December 31, 1997 3
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited) for the Three Months
and Six Months Ended June 30, 1998 and 1997 5
Condensed Statements of Cash Flows (Unaudited)
for the Six Months Ended June 30, 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 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
JUNE 30 , 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
(dollars in thousands)
1998 1997
ASSETS (Unaudited)
ELECTRIC PLANT, AT ORIGINAL COST:
In service $4,901,207 $4,910,067
Less: Accumulated provision for depreciation (1,466,079) (1,412,287)
---------- ----------
3,435,128 3,497,780
Nuclear fuel, at amortized cost 85,400 90,423
Construction work in progress 15,425 13,578
---------- ----------
3,535,953 3,601,781
---------- ----------
INVESTMENTS AND FUNDS:
Decommissioning fund, at market 116,877 105,817
Deposit on Rocky Mountain transactions, at cost 53,936 52,176
Bond, reserve and construction funds, at market 32,728 33,160
Investment in associated organizations, at cost 15,668 15,940
Other, at cost 4,645 4,641
---------- ----------
223,854 211,734
---------- ----------
CURRENT ASSETS:
Cash and temporary cash investments, at cost 48,198 63,215
Other short-term investments, at market 100,493 97,022
Receivables 183,158 105,993
Inventories, at average cost 74,537 65,528
Prepayments and other current assets 14,725 12,530
---------- ----------
421,111 344,288
---------- ----------
DEFERRED CHARGES:
Premium and loss on reacquired debt, being amortized 215,551 196,583
Deferred amortization of Scherer leasehold 97,872 96,303
Deferred debt expense, being amortized 16,935 15,345
Other 40,535 43,823
---------- ----------
370,893 352,054
---------- ----------
$4,551,811 $4,509,857
---------- ----------
---------- ----------
The accompanying notes are an integral part of these condensed financial
statements.
3
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
JUNE 30, 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 $489 at June 30, 1998 and ($107) at
December 31, 1997 on available-for-sale securities) $ 340,322 $ 330,509
Long-term debt 3,203,490 3,258,046
Obligation under capital leases 285,518 288,638
Obligation under Rocky Mountain transactions 53,936 52,176
---------- ----------
3,883,266 3,929,369
---------- ----------
CURRENT LIABILITIES:
Long-term debt and capital leases due within one year 93,706 89,556
Accounts payable 124,883 51,103
Accrued interest 9,785 12,961
Accrued and withheld taxes 11,199 517
Other current liabilities 3,935 8,428
---------- ----------
243,508 162,565
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Gain on sale of plant, being amortized 59,519 60,756
Net benefit of Rocky Mountain transactions, being amortized 90,782 92,375
Net benefit of sale of income tax benefits, being amortized 30,035 34,039
Accumulated deferred income taxes 63,117 63,117
Decommissioning reserve 154,745 142,354
Other 26,839 25,282
---------- ----------
425,037 417,923
---------- ----------
$4,551,811 $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 AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
(dollars in thousands)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
OPERATING REVENUES:
Sales to Members $297,014 $230,180 $528,957 $487,211
Sales to non-Members 19,713 12,696 23,037 27,150
-------- -------- -------- --------
Total operating revenues 316,727 242,876 551,994 514,361
-------- -------- -------- --------
OPERATING EXPENSES:
Fuel 48,978 46,704 88,845 91,593
Production 48,486 42,195 95,417 91,049
Purchased power 130,141 62,321 184,705 120,311
Depreciation and amortization 31,077 30,142 62,199 66,381
Other operating expenses - 91 - 5,786
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 258,682 181,453 431,166 375,120
-------- -------- -------- --------
OPERATING MARGIN 58,045 61,423 120,828 139,241
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 8,273 6,320 16,113 13,754
Amortization of net benefit of sale of income tax benefits 2,799 2,799 5,596 5,596
Allowance for equity funds used during construction 9 (35) 31 49
Other 788 2,061 913 3,568
-------- -------- -------- --------
TOTAL OTHER INCOME 11,869 11,145 22,653 22,967
-------- -------- -------- --------
INTEREST CHARGES:
Interest on long-term-debt and other obligations 68,397 67,251 134,541 147,807
Allowance for debt funds used during construction (73) (193) (278) (545)
-------- -------- -------- --------
NET INTEREST CHARGES 68,324 67,058 134,263 147,262
-------- -------- -------- --------
NET MARGIN 1,590 5,510 9,218 14,946
Net change in unrealized gain (loss) on available-for sale
securities 367 489 596 (458)
-------- -------- -------- --------
COMPREHENSIVE MARGIN $1,957 $5,999 $9,814 $14,488
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of these condensed financial
statements.
5
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
- --------------------------------------------------------------------------------
(dollars in thousands)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin $ 9,218 $ 14,946
------------ ----------
ADJUSTMENTS TO RECONCILE NET MARGIN TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 88,771 99,558
Net benefit of Rocky Mountain transactions - 23,266
Deferred gain from Corporate Restructuring - 4,670
Allowance for equity funds used during construction (31) (49)
Amortization of deferred gains (1,237) (1,204)
Amortization of net benefit of sale of income tax benefits (5,596) (5,596)
Deferred income taxes - (1,660)
Other 8,501 1,307
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 (77,165) (6,815)
Inventories (9,009) (5,063)
Prepayments and other current assets (2,195 2,062
Accounts payable 73,780 7,495
Accrued interest (3,176) (7,816)
Accrued and withheld taxes 10,682 9,220
Other current liabilities (4,493) 2,869
------------ ----------
TOTAL ADJUSTMENTS 78,832 122,244
------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 88,050 137,190
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (15,786) (39,386)
Net proceeds from bond, reserve and construction funds 572 21,378
Decrease (increase) in investment in associated organizations 272 (16)
Increase in other short-term investments (3,015) (2,395)
Increase in decommissioning fund (7,631) (4,521)
Net cash received in Corporate Restructuring - 20,175
Other - 3,320
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES (25,588) (1,445)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds, net (27,491) 111,306
Debt payments (51,224) (286,397)
Retirement of patronage capital - (48,863)
Other 1,236 (3,042)
------------ ----------
NET CASH USED IN FINANCING ACTIVITIES (77,479) (226,996)
------------ ----------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (15,017) (91,251)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 63,215 132,783
------------ ----------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $ 48,198 $ 41,532
------------ ----------
------------ ----------
CASH PAID FOR:
Interest (net of amounts capitalized) $ 123,020 $ 145,392
Income taxes - 830
The accompanying notes are an integral part of these condensed financial
statements.
6
OGLETHORPE POWER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 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.
(B) In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The
standard requires that all derivative instruments be recognized as
assets or liabilities and be measured at fair value. Oglethorpe is
required to adopt SFAS No. 133 by January 1, 2000. Oglethorpe is
currently assessing the impact that adoption of SFAS No. 133 will
have on results of operations and financial condition and is
undecided as to the date the standard will be adopted.
(C) As discussed in Notes 1 and 2 of Notes to Financial Statements
included in Oglethorpe's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, Oglethorpe entered into long-term
lease transactions for its 74.6% undivided ownership interest in the
Rocky Mountain Pumped Storage Hydroelectric Project (Rocky
Mountain). Under the terms of these transactions, Oglethorpe leased
the facility to three institutional investors for the useful life of
the facility, who in turn leased it back to Oglethorpe for a term of
30 years, through a wholly owned subsidiary of Oglethorpe, Rocky
Mountain Leasing Corporation. The assets of Rocky Mountain Leasing
Corporation are not available to pay creditors of Oglethorpe or its
affiliates.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
LEM POWER MARKETER ARRANGEMENTS
As reported in Oglethorpe's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, Oglethorpe entered into long-term power marketer
arrangements effective January 1, 1997 for approximately 50% of the load
requirements of its 39 retail electric distribution cooperative members (the
Members) with LG&E Energy Marketing Inc. (LEM), an indirect, wholly owned
subsidiary of LG&E Power Inc., a Delaware corporation (LPI), and of LG&E
Energy Corp. (LG&E), which is a diversified energy services company
headquartered in Louisville, Kentucky. LG&E recently announced that it is
discontinuing its merchant energy trading and sales business and associated
gas gathering and processing business and, as a result, recorded an after-tax
loss on discontinued operations of $225 million in the second quarter of
1998. LG&E stated that the loss on discontinued operations results primarily
from several fixed-price energy marketing agreements, including the
agreements between LEM and Oglethorpe.
Oglethorpe has two agreements with LEM. One involves the load requirements of
37 of the 39 Members and has a term extending through 2011, with Oglethorpe
and LEM having the right to terminate the agreement beginning in 2002 and
2005, respectively. The other agreement involves the load requirements of the
other two Members and has a term extending through 1999. Under the
agreements, LEM is obligated to deliver, and Oglethorpe is obligated to take,
approximately 50% of the load requirements of the participating Members. LEM
has access to 50% of the output of Oglethorpe's existing generating
facilities and power purchase arrangements for its use.
At the request of LEM, the parties are in negotiations regarding the future
of these arrangements. LEM also has raised a dispute relating to load
projections provided by Oglethorpe to LEM in connection with the execution of
the agreements. Oglethorpe continues to receive power under the LEM
agreements and believes the agreements are enforceable against LEM and LG&E
(with respect to the agreement relating to the 37 Members) and LPI (with
respect to the agreement relating to the other two Members). Ultimately, LEM
could pay Oglethorpe an amount to terminate the agreements or assign the
agreements to another entity with the approval of Oglethorpe and the Rural
Utilities Service. Oglethorpe believes that LEM, LG&E and LPI have the
ability, financial and otherwise, to perform their obligations under these
agreements.
The current uncertainty relating to the LEM arrangements does not adversely
affect Oglethorpe's ability to meet its Members' load requirements but could,
in the future, affect the sources and prices for such power. If LEM, LG&E and
LPI cease to perform their obligations under the LEM agreements or the LEM
agreements are terminated, Oglethorpe expects to be able to serve its
Members' needs through its existing owned and purchased capacity,
supplemented by additional capacity either purchased in the wholesale market
or constructed or otherwise acquired. The absence of the LEM agreements would
however eliminate a source of power at contractually fixed prices and thus
would introduce additional uncertainty regarding future power costs and
Member rates. Oglethorpe's management does not expect the ultimate resolution
of the LEM arrangements will have a material adverse effect on its financial
condition or results of operations.
8
PEAKING POWER RESOURCES
Although the existing long-term power marketer arrangements with LEM and
Morgan Stanley Capital Group (Morgan Stanley) were designed to provide a
substantial portion of the Members' load requirements during their contract
terms, Oglethorpe has forecasted that peak requirements for the Members would
exceed purchases under these arrangements over the next several years and has
issued a request for proposals for an aggregate of 100 MW to 1,100 MW to
supply these additional requirements. This action was previously reported in
Oglethorpe's 1997 Annual Report of Form 10-K. Oglethorpe entered into
short-term contracts for the summer of 1998 and also has and is purchasing
additional power on the open market for this period. As widely reported, peak
demand and prices for power in the open market have recently hit
unprecedented highs. Oglethorpe has made and is making power purchases in the
open market which have significantly increased its purchased power costs, as
discussed below. Oglethorpe is continuing to evaluate alternatives for
meeting its peak requirements. It expects to sign additional contracts for
peaking power and may also construct or otherwise acquire additional capacity.
RESULTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 1998 and 1997
As reported in its 1997 Annual Report on Form 10-K, Oglethorpe and 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 and six
months ended June 30, 1998 reflects Oglethorpe's operations solely as a power
supply company, whereas the Condensed Statement of Revenues and Expenses for
the six months ended June 30, 1997 reflects Oglethorpe's operations as a
combined power supply, transmission and system operations company through
March 31, 1997, and operations solely as a power supply company thereafter.
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 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 and six months ended June
30, 1998 were 29.0%
9
and 8.6% higher compared to the same periods of 1997. While capacity revenues
from Members for the six months ended June 30, 1998 compared to the same
period of 1997 were reduced due to the removal of capacity revenues relating
to the transmission business, this effect was more than offset by a
significant increase in energy revenues from sales to Members. Such energy
revenues were 93.5% higher for the three months ended June 30, 1998 compared
to the same period of 1997 and 49.6% higher for the six-month period compared
to 1997. Megawatt-hour (MWh) sales to the Members were 28.5% and 18.0% higher
in the current three-month and six-month periods compared to the same periods
of 1997 due to unusually hot weather in late May and June 1998. Consequently,
Oglethorpe's average energy revenue per MWh from sales to Members for the
three-month and six-month periods were 50.5% and 26.7% higher in 1998
compared to 1997. This increase resulted primarily from higher purchased
power costs as 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 summarizes the amounts of non-Member
revenues from these sources for the three months and six months ended June
30, 1998 and 1997:
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
Sales to other utilities $11,189 $ 5,629 $13,414 $ 9,663
Sales to power marketers 8,524 2,304 9,623 2,736
GPC - Power supply arrangements 0 4,763 0 12,565
ITS transmission agreements 0 0 2,186 0
------- ------- ------- -------
Total $19,713 $12,696 $23,037 $27,150
------- ------- ------- -------
------- ------- ------- -------
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 that is not scheduled by Morgan
Stanley pursuant to its power marketer arrangement.
Under the 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.
10
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.
OPERATING EXPENSES
Operating expenses were 42.6% and 14.9% higher in the three months and six
months ended June 30, 1998 compared to the same periods of 1997. For the six
months ended June 30, 1998 depreciation and amortization and other operating
expenses were lower due to the elimination of these expenses relating to the
transmission business assumed by GTC in connection with the Corporate
Restructuring. However, the changes in fuel, production and purchased power
expenses did not result from the Corporate Restructuring.
Purchased power costs for the three months and six months ended June 30, 1998
were 108.8% and 53.5% higher compared to the same periods of 1997. Purchased
power capacity costs for the three months and six months ended June 30, 1998
were 10.4% and 10.6% lower than the same periods of 1997. This 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. Purchased power energy costs for the three-month
and six-month periods of 1998 were 275.1% and 143.0% higher compared to the
same periods of 1997 primarily as a result of significant price increases
experienced in the wholesale electricity markets combined with higher volume
of purchased MWhs. A total of 111.6% and 60.3% more MWhs were purchased in
three-month and six-month periods of 1998 compared to the same periods of
1997 due to unusually hot weather in late May and June 1998. The average cost
of purchased power energy per MWh for the three-month and six-month periods
were 77.2% and 51.6% higher in 1998 compared to 1997. The increased purchased
MWhs utilized to serve Member load not contractually provided by the power
marketers resulted in a significant increase in the average MWh cost of
energy to the Members.
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 and six months ended June 30, 1998 varied
slightly compared to the same periods of 1997. For the six months ended June
30, 1997, the caption "Other" reflected a margin of approximately $1.7
million related to Oglethorpe's marketing support services which was
subsequently transferred to EnerVision. For the six months ended June 30,
1998, EnerVision's margin was approximately $93,000. 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 six months ended June 30, 1998 decreased
compared to the same period of 1997 primarily due to the debt assumed by GTC
in connection with the Corporate Restructuring.
11
NET MARGIN AND COMPREHENSIVE MARGIN
Oglethorpe's net margin for the three months and six months ended June 30,
1998 was $1.6 million and $9.2 million, respectively, compared to $5.5
million and $14.9 million for the same periods 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 effective April 1, 1997. The net
margin achieved for the six months ended June 30, 1998 is consistent with the
1998 margin requirement. As of June 30, 1997, Oglethorpe's year-to-date net
margin was in excess of the Indenture requirements. Subsequently, the
Oglethorpe Board of Directors reduced capacity charges to the Members for
August 1997 by $4 million to return the excess.
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 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 June 30, 1998 were $4.5
billion which was $42 million more than the total at December 31, 1997 due
primarily to increase in receivables.
ASSETS
Property additions for the six months ended June 30, 1998 totaled $15.8
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 cash resulted primarily from $23.1 million in premiums paid
to the Federal Financing Bank (FFB) resulting from the refinancing of $430
million of debt.
The increase in receivables resulted from significantly higher energy costs
billed to Members at June 30, 1998 compared to the receivable balance from
the Members at December 31, 1997.
Inventories increased primarily as a result of the coal inventories for
Plants Scherer and Wansley returning to more normal levels at June 30, 1998
compared to lower 1997 year-end levels caused by problems associated with
rail transportation.
The increase in prepayments and other current assets is the result of $1.9
million in energy option contracts purchased for and being utilized to serve
load during the summer of 1998.
The increase in premium and loss on reacquired debt resulted from the
above-mentioned refinancing premiums paid to the FFB.
12
EQUITY AND LIABILITIES
Accounts payable increased due to the volume of purchased power activity in
June 1998 compared to December 1997.
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 improvement in negative book cash balances at June 30, 1998 compared
to 1997 year-end.
MISCELLANEOUS
YEAR 2000 ISSUE
Oglethorpe is heavily dependent upon complex computer systems for all phases
of operations. The Year 2000 issue, which is common to most corporations,
concerns the ability of certain software and databases to properly recognize
date sensitive information related to the Year 2000 and thereafter.
Oglethorpe has implemented a detailed strategy to prevent any material
disruption to operations and, to date, has examined most of its computer
systems. In 1997 and 1998, resources were committed, testing was performed
and corrective action was begun to modify the affected information systems.
It is anticipated that Oglethorpe may spend up to approximately $1 million to
upgrade those internal systems, including those relating to Rocky Mountain.
To date, Oglethorpe has spent approximately $300,000 on this effort.
Oglethorpe expects that by the year 2000 or before it will have modified its
systems, to the extent it considers necessary, to process years that begin
with "20".
GTC and GSOC have also implemented a detailed strategy to ensure Year 2000
compliance. Oglethorpe has recently initiated a program to determine the
status of Year 2000 readiness of other third parties with whom Oglethorpe has
material relationships. Oglethorpe has not initiated any program which
directly addresses this issue with the 39 Members, although such effort is
taking place through Georgia Electric Membership Corporation and
Intellisource Services Solutions.
The Southern Company (Southern) is performing Year 2000 due diligence efforts
on all generation plants which are operated by Southern's subsidiary, GPC.
All of Oglethorpe's co-owned generating plants, except Rocky Mountain, are
operated by GPC on behalf of itself as a co-owner and as agent for the other
co-owners. Total costs related to Southern's project on behalf of the GPC
operated plants are estimated to be approximately $33 million, of which
approximately $4 million is expected to be billed to Oglethorpe based on its
ownership share of the generation plants. To date, Oglethorpe has paid
approximately $1 million for this project. Remaining costs will be expensed
primarily in 1998 and 1999. Implementation is currently on schedule. Although
the degree of success of this Year 2000 project on these generation plants
cannot be determined at this time, GPC has stated that it believes there will
be no significant effect on the plants' operations.
Although Oglethorpe expects that its systems will be in compliance by the
year 2000, because of material relationships with third parties, it is too
early to fully assess the impact the Year 2000 issue will have on its
financial condition or results of operations.
13
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements,
including statements regarding, among other things, (i) anticipated trends in
Oglethorpe's business, (ii) Oglethorpe's future power supply resources and
arrangements and (iii) other management issues such as the Year 2000 issue.
These forward-looking statements are based largely on Oglethorpe's current
expectations and are subject to a number of risks and uncertainties, certain
of which are beyond Oglethorpe's control. For certain factors that could
cause actual results to differ materially from those anticipated by these
forward-looking statements, see Oglethorpe's 1997 Annual Report on Form 10-K
in "CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY INDUSTRY" in Item 1 and
"Competition" in Item 7. In light of these risks and uncertainties, there can
be no assurance that events anticipated by the forward-looking statements
contained in this Quarterly Report will in fact transpire.
14
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Jack L. King, age 58, was named as President and Chief Executive Officer and
a Director of Oglethorpe effective July 15, 1998. Mr. King replaces T. D.
Kilgore who announced his resignation on June 29, 1998, to take a Senior Vice
President position with Carolina Power and Light Company in Raleigh, North
Carolina.
Mr. King has a total of 29 years of utility experience in all phases of
utility operations. Until last year, he was President of the Control Systems
Division of Scientific-Atlanta, Inc. From 1987 to 1994, Mr. King was employed
by Entergy Corporation, as Executive Vice President-Operations and as
President of Entergy Enterprises. From 1966 to 1987, he held several
management positions with Arkansas Power & Light, including Executive Vice
President and Chief Operating Officer. Mr. King's previous Board
participation included GTC, Arkansas Power & Light, Mississippi Power &
Light, Louisiana Power & Light, New Orleans Public Service Inc., Entergy
Enterprises, System Fuels, Inc., First Pacific Networks, Entergy Systems and
Services, Entergy Power, Inc., Entergy Argentina S. A., Entergy Power
Development Corp. and Entergy S. A. Mr. King has a Bachelor of Science degree
and Master of Science degree in Electrical Engineering from the University of
Arkansas and has completed the Advanced Management Program at the Harvard
Graduate School of Business.
Mr. King is also serving as President and Chief Executive Officer and a
Director of both GTC and GSOC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Number Description
- ------ -----------
27.1 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
A report on Form 8-K regarding the resignation of T. D. Kilgore as President
and Chief Executive Officer and Director of Oglethorpe was filed by
Oglethorpe on June 30, 1998.
15
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: August 14, 1998 By: /s/ Jack L. King
------------------------------
Jack L. King
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 /s/ Mac F. Oglesby
------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: August 14, 1998 /s/ Thomas A. Smith
------------------------------
Thomas A. Smith
Senior Financial Officer
(Principal Financial Officer)
Date: August 14, 1998 /s/ Robert D. Steele
------------------------------
Robert D. Steele
Controller
(Chief Accounting Officer)
16