SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
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THE RIDGEWOOD POWER GROWTH FUND
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RIDGEWOOD POWER LLC
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Robert E. Swanson, President
TO: All Ridgewood Power Shareholders September 27, 2001
RE: Status Report After September 11, 2001
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The tragic events of September 11 deeply sadden and anger each of us.
We add our prayers for the victims and their families.
Ridgewood Power is continuing to prepare for the merger of the various
Ridgewood Power Trusts and related entities. It is a lengthy process. We cannot
wait for events to settle down before we begin. There will always be new,
unforeseen events. Hopefully none will be as devastating as September 11. Just
as we had the California power crisis (i) emerge and (ii) suddenly "disappear"
in the past year, new developments will challenge us in the future. Ridgewood
Power will continue to improve our assets and work towards the consolidation of
the Ridgewood Power Trusts and a subsequent financing transaction which may
include public offering.
The Ridgewood companies have dealt with many challenges in our nearly
20 years of operation. Our guiding principles have been (i) plan carefully for
the predictable, (ii) adapt quickly to the unpredictable, and (iii) don't borrow
money. We will work towards our goal of a consolidation of the funds which we
firmly believe will maximize the value of your Ridgewood investment.
PROPOSED CHANGE IN LEGAL STATUS OF THREE POWER TRUSTS
We plan to file preliminary proxy statements with the SEC shortly so
that we can ask you to consider changes to the legal status of our Power Trusts.
We also must file with the SEC my proposed cover letter that will go out with
the final Proxy Statements. Once that letter and the Proxy Statement clear the
SEC we will send them to you for your consideration. Hopefully this will take
place by early November.
After the vote on the legal status questions, we intend to proceed with
the proposal to merge of the Power Trusts and a subsequent financing transaction
as discussed on the first page of my August 16 letter.
RIDGEWOOD/EGYPT AND RIDGEWOOD/U.K. PROJECTS
Under separate cover we will send out reports on Ridgewood/Egypt and
Ridgewood/U.K. The Ridgewood/Egypt report will discuss the probable impact of
September 11 on this investment. (Our assets have not been threatened and we
have the advantage of a friendly government. Because we are unleveraged we can
weather a temporary decline in tourist volume at the hotels we serve.) The
Ridgewood/U.K. report will describe the pending merger of our Ridgewood/U.K.
business with the unaffiliated development company in London which develops and
constructs these projects and which has contracts for many additional projects
in the U.K. and elsewhere in Europe. Ridgewood Trust V and The Growth Fund will
own about 75% of the merged company, and Ridgewood will control the board of
directors. We anticipate closing this merger in October.
Having a project development company in London and a project
development company in Cairo will provide two sources for future growth.
/s/ Robert E. Swanson
RIDGEWOOD POWER LLC
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Robert E. Swanson, President
TO: Ridgewood Power Fund Shareholders August 16, 2001
RE: IPO Update
California Update
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As we have previously informed you, Ridgewood Power is proceeding with
its proposal to combine the Ridgewood Power Funds and Ridgewood Power LLC (the
Management Company) into a combined entity which I will refer to as New
Ridgewood Power Corporation. Once we get through the SEC and assuming a majority
of Ridgewood Fund Shareholders approve the transaction, New Ridgewood Power
Corporation will be traded on a national securities exchange. As part of the
proposal, New Ridgewood Power Corporation also intends to raise capital through
an initial public offering or other funding transaction simultaneously with or
shortly after the closing of
the consolidation of the Ridgewood Power entities. Ridgewood Power has retained
counsel which specializes in this type of transaction to represent New Ridgewood
Power Corporation.
Shareholders should recognize that the proposal is still in the early
stages and Ridgewood Power can make no assurances that the plan will be
consummated.
THE PROCESS
A document called a Consent Solicitation Statement/Prospectus will be
prepared and filed with the SEC. This document solicits the consent of the
Shareholders of the existing Ridgewood Power Funds to consolidate the entities
into New Ridgewood Power Corporation. The Consent Solicitation
Statement/Prospectus will be the key legal document in our consolidation and IPO
process. Often there are several rounds of comments by the SEC before the SEC
declares the Consent Solicitation Statement/Prospectus "effective".
The Ridgewood Power Fund Shareholders will vote once the SEC declares
the Consent Solicitation Statement/Prospectus effective.
CHANGE IN BUSINESS DEVELOPMENT COMPANIES STATUS
A simplifying step in connection with the operation of the Trusts is a
change in the regulatory status of Power Trust I, II, and III. These three
Trusts are presently Business Development Companies (BDC) under the 1940
Securities Act. Power Trusts IV and V, The Growth Fund, and the Ridgewood/Egypt
Fund are not BDC's. There is no longer any need for any Ridgewood Power Trust to
be a BDC. So that all seven Ridgewood Power Trusts will be subject to the same
requirements and reviewed by the same division of the SEC, we will ask
Shareholders of Trust I, II, and III to approve electing out of BDC status. We
expect that vote to take place this fall. This change in status will also
simplify the consolidation process.
Power Trust IV had originally been a BDC, and the Shareholders elected
out of BDC status in 1996. For technical reasons Trust IV has some vestiges of
having been a BDC, even though it no longer is regulated by the 1940 Act as a
BDC. At the time the first three Power Trusts opt out of BDC status we will
probably have Trust IV eliminate the BDC vestiges. That way, all the seven Power
Trusts will have identical status with SEC regulators.
We need to be very careful about what we say about these proposed
transactions prior to distribution of the documents filed with the SEC to comply
with applicable legal requirements. Please understand that I am not being rude
when I decline meetings or telephone conferences to discuss these potential
transactions. Judging by your inquiries, there are many questions about the
potential transaction that this letter has not addressed, and which we cannot
discuss at this time.
All Shareholders are strongly urged to read the relevant documents
relating to the consolidation and the change in business development company
status as they are filed with the Securities and Exchange Commission in
connection with the above described transactions. These documents will contain
important information and you may obtain them free of charge on the Securities
and Exchange Commission's website at www.sec.gov.
CALIFORNIA UPDATE
The California electric power situation is remarkable in the extremity
of its swings. Six months ago California had an extremely short energy supply
with periodic rolling blackouts during the winter. California has 20% less
average demand in the winter than during the summer. The assumption on the part
of everyone, from private producers like Ridgewood Power, to billion dollar
power marketers like Enron, Entergy and Mirant, to California Governor Davis, to
the Federal Energy Regulatory Commission (FERC) was that the summer of 2001
would see an extreme crisis of supply accompanied by spot market prices
potentially higher than winter prices. Just the opposite happened.
Today there is a surplus of electric power in California. Spot market
wholesale prices are back down to about 3 cents per kilowatt hour (KW) compared
to average wholesale prices in December and January of 30 cents KW. In May,
June, and July Californians consumed about 12% less power than a year earlier,
as opposed to an expected 3% to 4% annual increase. Part of it is "conservation"
(a response to higher prices awarded last winter) and part of it is
comparatively mild weather. California has peak demand when the entire state has
a heat wave at the same time. A heat wave in one section does not stress the
system that much.
Whatever the cause, the short-term small surplus of electric supply has
caused a collapse in wholesale prices. The ironies in this situation abound:
I. PG&E and Southern California Edison have extraordinary high
cash flows for May, June, and July (and probably for some
number of future months) because the utilities received rate
increases last winter and now wholesale prices are 90% less
than they were last winter. PG&E has bankruptcy court
protection from its huge winter debts, enjoys higher current
rates from consumers, and has low wholesale prices.
II. The California State Treasury is still being hammered
financially. In the winter the state was subsidizing prices by
over $1 billion per month, and reselling to the utilities.
This spring the state entered into long-term contracts with
some major producers to buy electricity for 13 cents per KW,
and resell it at a loss to the utilities. Now that wholesale
prices are 3 cents per KW, some commentators are criticizing
Governor Davis for the 13 cent long-term contracts, even
though they were negotiated when prices were 25 cents or 30
cents. Even I feel sympathy for Governor Davis on this one.
California taxpayers suffered last winter when prices were
high, and taxpayers are suffering this summer when prices are
low.
III. The apparent easing of the short-term energy crisis may hurt
the long-term power supply situation in California. A return
to 3 cent wholesale prices in the summer of 2001 may have a
chilling effect on potential new power plants. New natural
gas-fired plants will be built only by people with an economic
model with substantially higher prices. The power price
respite this summer could hurt California in the future.
RIDGEWOOD POWER FUNDS' CALIFORNIA PLANTS
After eight months of financial turmoil our California power plants
have come out remarkably well. We are frustrated by the recent dramatic collapse
in wholesale prices which means that our California power plants are not, on
current assumptions, enjoying the extraordinary increase in value that seemed
likely only a few months ago. Still, we are still viable, we are currently
operating at a profit, and we have a long-term strategy.
The four California power plants most affected by the power crisis make
up about 11% of the Ridgewood Power generating capacity, and have taken up about
50% of management time in the past nine months. I am very proud of the Ridgewood
Power team which has been extremely proactive during this crisis. The crisis is
not over; we are merely in a half-time recess. Where we stand at the first week
in August is:
I. Three Natural Gas Plants (Monterey, San Joaquin, and Byron
(Trusts II and III)) resumed power production August 1st. We
will continue to operate under our old power purchase
agreement at the old rates (which now are high compared to
current spot electric prices). These rates are viable due to
lower natural gas costs.
II. The Landfill Methane Gas plant near Los Angeles (Olinda owned
by Trust I) was Ridgewood's highest yielding asset before the
California power crisis, and today is even stronger. This was
accomplished even though we did not get paid for five months
worth of electric sales to Southern California Edison
(November through March). Olinda remained profitable even when
we sold our Southern California Edison receivables at 58 cents
on the dollar because landfill methane gas is so inexpensive.
(Other landfill methane plants with low fuel costs are
Providence owned by Trusts IV and V and the Ridgewood/U.K.
portfolio of ten methane plants owned by Trust V and The
Growth Fund.)
Olinda is a 5.5 megawatt (MW) plant with a favorable long-term contract
with Southern California Edison. Since April we have been paid currently by
Southern California Edison, and we sold our November through March receivables.
In January we took the bold move (considering that we were not being paid for
electricity) of expanding Olinda by 2.5 MW. That expanded capacity is ready to
go on production and we are negotiating a power sales contract. Assuming the 2.5
MW expansion works as expected, we have an additional 6 MW expansion planned at
Olinda. Ridgewood's bold move to expand in January now looks astute.
Although we are frustrated that the natural gas plants are not
presently enjoying a "California Bonanza" that they would have had without the
incredible price collapse, I still feel very good about where we are. Those
three natural gas plants began operating August 1st at roughly the pre-crisis
level of expected profitability. We have the potential for more profit due to a
longer-term strategy that I expect to discuss in a few weeks.
Even with the collapse in spot electric prices, Olinda today is a much
more valuable asset. Olinda has added growth potential of 6 MW more.
The greatest accomplishment is that we have kept all four of these
California plants economically viable through tumultuous times. Olinda did not
get paid for five months' production. The three natural gas plants have gone
seven months without a revenue check.
Thanks go to Dan Gulino our General Counsel, Bill Short our Power
Marketer, Chris Naunton our Chief Financial Officer, and Randy Holmes our
outside attorney. Special thanks go to Marty Quinn our Chief Operating Officer
who has done a remarkable job. It is fun for me to be a co-strategist with this
group, and a referee for their competing ideas.
/s/ Robert E. Swanson