SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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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: Ridgewood Power Shareholders February 14, 2002
RE: Timing of a Merger Delayed
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The management of Ridgewood Power continues to firmly believe that
merging the various Ridgewood Power Trusts into a single entity is the best way
to maximize value for Shareholders of the various Ridgewood Trusts. Having the
collective assets in a single entity (rather than seven separate Trusts) makes
the whole (i) more attractive to potential new equity investors, (ii) more
creditworthy to potential lenders, and (iii) less expensive to administer.
Having said that, current circumstances force us to delay our efforts to seek
Shareholder approval for a merger. To pursue a merger on a "fastest possible
timetable" at this time (still a lengthy process) would not be, in our opinion,
in your best economic interest. As will be discussed below, the reasons are both
macro (the general market after Enron and Calpine for our sector) and micro
(specific short-term issues relating to certain plants that would affect certain
Trusts).
After careful deliberation we have determined not to seek approval of a
merger of the Ridgewood Power Trusts in 2002. The management of Ridgewood Power
plans to propose a merger of the Ridgewood Power Trusts as soon after 2002 as
conditions of the Trusts and general market conditions permit. It is too early
to predict an exact date. Based on calls we have received, many investors hoped
the merger process would follow on the heels of the proxy approval. We know that
you want liquidity. We also want liquidity. We will propose a merger as soon as
it makes economic sense.
At the beginning of last year we had an aggressive schedule to seek a
possible merger. It appeared that revenue and operating cash flow would benefit
from high prices in California which, combined with high fuel costs for natural
gas, had raised electric prices in New England as well. In the spring we engaged
special legal counsel to advise us on the process.
As explained in the nine page letter of February 6, 2002, last year
played out very negatively in our industry, and for many of the Ridgewood Power
projects. Hard facts have forced a delay in proposing a merger. We have already
stated in past letters what the facts are. This letter confirms what many of you
have surmised.
ISSUES AFFECTING THE MERGER OF THE POWER TRUSTS
A merger of the various Ridgewood Power Trusts involves a decision by
Shareholders as to whether to exchange shares in one of the Ridgewood Trusts for
shares in merged Ridgewood Power Co. ("Merged Ridgewood"). Independent
appraisers or investment bankers would evaluate the assets of the respective
Ridgewood Trusts, and those appraisals would be the basis of the "exchange
values" at the time of a proposed merger of the Ridgewood Trusts. The merger
proposal would be submitted to the Ridgewood Power Shareholders pursuant to a
"prospectus/consent solicitation statement" which is included in a Form S-4
which is first filed with the SEC. The material contained in the
prospectus/consent solicitation statement would be similar to information in a
prospectus used if there were an equity offering following a merger. The value
of the assets in each Ridgewood Power Trust will determine the number of shares
received in Merged Ridgewood.
IMPROVING CASH FLOW
At the end of this letter I talk about our goals. The overriding
objective is to increase revenue and net operating cash flow. The other benefits
flow from there. As discussed in the February 6 letter, we are working on many
areas where we expect improvement in 2002. Some highlights are:
I. Power Trust I: The Olinda Plant (5.5 megawatt (MW) landfill
methane powered plant) has just completed a 2.5 MW expansion.
Olinda is waiting to receive a power purchase agreement from
the California Power Authority. Application is also being made
for a power contract for an additional 7.5 MW expansion.
Olinda has a very strong cash flow on its 5.5 MW operating
plant. An additional 10 MW from the two expansions could
greatly increase the cash flow at Olinda.
II. Power Trust II: Monterey Plant; Trust III: San Joaquin and
Byron Plants. These three power plants in PG&E territory had
extremely difficult economic conditions from December 2000
through August 2001. These plants are operating as of
mid-August having (i) obtained five years of fixed priced
natural gas supplies from Shell Oil, and (ii) entered into a
five-year fixed price power agreement with PG&E. In December
the Monterey Plant won a major PG&E litigation before the
Federal Energy Regulatory Commission, and the San Joaquin
plant favorably resolved another issue with PG&E. A number of
months of peaceful, positive cash flow should help these three
power plants. (A separate detailed memo on these points will
be sent in March.)
III. Power Trust IV and Trust V jointly own the Penobscot and
Eastport Plants. These are the two largest plants owned by any
Ridgewood Power Trust. They total 52 MW. These plants are
fueled by renewable resources (waste wood from the paper
industry in Maine) and thus are expected to benefit from the
"green power premium" that has been enacted by three New
England states. The most important renewables regulations are
expected this summer. If the regulations come in as
anticipated, the green power premium has the potential to add
millions of dollars per year in net operating profits.
IV. Power Trust V, The Growth Fund, and Ridgewood/Egypt Fund:
Tourism has been devastated worldwide as a result of September
11. Ridgewood/Egypt serves as a water and electric utility for
Red Sea mega-resorts where tourism is off dramatically this
winter. We believe the business to be very solid because we
remain cash flow positive even in this business environment.
The peak tourist season is in the summer when Europeans
vacation. If there is a summer recovery, cash flow should
increase significantly.
Clearly I have selected examples affecting all seven Ridgewood Power
Trusts. There are additional matters such as potentially valuable expansion of
the Providence landfill methane plant (Trust III and IV). These will be
discussed in separate letters.
NEGATIVE MACRO ENVIRONMENT
The tragic events of September 11 are not the primary problem. The
stock market recovered from September 11, and the IPO market could revive in
2002. The greater blow which may have a more sustained impact on the Independent
Power sector through 2002 is Enron, and the Enron fall-out on companies like
Calpine.
The two leading public Independent Power Companies are AES and Calpine.
AES fell earlier in 2001 for issues unrelated to Enron. Calpine got clobbered in
the Enron fall-out. Calpine was fueling its earnings growth with profits
reported by its energy trading operation. Enron called these kinds of profits
into question. Unlike Enron, Calpine also owns very substantial power producing
assets. Unfortunately there are a large number of Calpine's plants in
California, and Calpine may have more issues with them.
Not only Calpine, but the entire sector (Mirant, Dynegy, Williams,
etc.) is in current disfavor. There could be some additional severely bad news
regarding one or more of these companies, particularly if accounting
irregularities exist. As I wrote in the December 14, 2001 letter, Ridgewood
Power Trusts are not Enron or Calpine: (i) we derive no income from trading,
(ii) we have little debt, and (iii) we engage in no accounting games. Even so, a
Ridgewood offering would be analyzed by the same people who are down on Calpine.
The macro issues discussed above necessitate a delay. While the macro
issues are being resolved, we will continue to work diligently to improve the
cash flow and earnings of each Ridgewood Power Trust.
The staff of Ridgewood Power worked through 2001 to improve projects
and obtain rights to expand certain projects. As we have said, 2002 is a
rebuilding year. We will keep you fully apprised of facts, both negative and
positive, as they impact your investment.
I find the current need for a delay very frustrating. Substantial
achievement is attained only by setting high goals. An entrepreneur, when
thwarted, keeps re-setting goals until they are achieved. Ridgewood Power
continues to have the goals of (i) increasing the value of your assets, (ii)
increasing (or re-commencing in some cases) dividends for the respective Trusts,
and (iii) providing liquidity. Last year was frustrating. This year we are
rebuilding and improving. Although many of the 2001 events were completely out
of our control, please accept my apology for the delay in achieving our goals.
/s/ Robert E. Swanson
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NOTICE REGARDING FORWARD-LOOKING STATEMENTS
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This letter contains forward-looking statements. These statements discuss
business trends and other matters relating to the Ridgewood Power companies'
future results, the electricity industry, the securities markets and the
business climate. In order to make these statements the companies and Ridgewood
Power have had to make assumptions as to the future and to accept information
and assumptions from other companies. The companies and Ridgewood Power have
also had to make estimates in some cases about events that have already
happened, and to rely on data that may be found to be inaccurate at a later
time. Because these forward-looking statements are based on assumptions,
estimates, and changeable data, and because any attempt to predict the future is
subject to other errors, what happens to any or all of the companies in the
future may be materially different from the statements here.
The Ridgewood Power companies and Ridgewood Power therefore warn readers of this
document that they should not rely on these forward-looking statements without
considering all of the things that could make them inaccurate. This memorandum
discusses many (but not all) of these risks and uncertainties that might affect
these forward-looking statements. By making these statements now, we are not
making any commitment to revise these forward-looking statements to reflect
events that happen after the date of this document or to reflect unanticipated
future events.
Each Trust's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q
contains more information concerning your Trust's business and risks of your
investment.
All shareholders are strongly urged to read the relevant documents relating to
the consolidation which will be filed with the Securities and Exchange
Commission in connection with the transaction at the time that it is proposed.
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.
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