1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File No. 0-24143
RIDGEWOOD ELECTRIC POWER TRUST V
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3437351
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
1314 King Street
Wilmington, DE 19801
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (302) 888-7444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Investor Shares of
Beneficial Interest
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
Indicate by check mark whether registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ___ No X
There is no market for the Shares. The aggregate capital contributions made
for the Registrant's voting Shares held by non-affiliates of the Registrant at
March 30, 2002 was $93,288,750.
Exhibit Index is located on page 35.
PART I
Item 1. Business.
Forward-looking statement advisory
This Annual Report on Form 10-K, as with some other statements made by
Ridgewood Electric Power Trust V (the "Trust") from time to time, includes
forward-looking statements. These statements discuss business trends and other
matters relating to the Trust's future results and business. In order to make
these statements, the Trust has had to make assumptions as to the future. It has
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 the Trust in the future may be
materially different from the Trust's statements here.
The Trust therefore warns 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. The Trust's other filings with the Securities
and Exchange Commission and its offering materials discuss many (but not all) of
the risks and uncertainties that might affect these forward-looking statements.
Some of these are changes in political and economic conditions, federal or
state regulatory structures, government taxation, spending and budgetary
policies, government mandates, demand for electricity and thermal energy, the
ability of customers to pay for energy received, supplies and prices of fuels,
operational status of plant, mechanical breakdowns, availability of labor and
the willingness of electric utilities to perform existing power purchase
agreements in good faith.
By making these statements now, the Trust is 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.
(a) General Development of Business.
The Trust was organized as a Delaware business trust on March 12, 1996 to
participate in the development, construction and operation of independent power
generating facilities and similar capital projects ("Projects"). Ridgewood
Energy Holding Corporation ("Ridgewood Holding"), a Delaware corporation, is the
Corporate Trustee of the Trust.
The Trust sold whole and fractional shares of beneficial interest in the Trust
("Investor Shares") at $100,000 per Investor Share, and terminated its private
placement offering on April 15, 1998. It raised approximately $93,000,000. Net
of offering fees, commissions and expenses, the offering provided approximately
$76,000,000 for investments in the development and acquisition of Independent
Power Projects and operating expenses. The Trust has approximately 1,620 holders
of Investor Shares (the "Investors").
The Trust is organized to be similar to a limited partnership. Ridgewood
Renewable Power LLC (the "Managing Shareholder"), a Delaware limited liability
company, is the Managing Shareholder of the Trust. In general, the Managing
Shareholder has the powers of a general partner of a limited partnership. It has
complete control of the day-to-day operation of the Trust. The Trust has a
Corporate Trustee, Ridgewood Energy Holding Corporation. The Corporate Trustee
acts on the instructions of the Managing Shareholder and is not authorized to
take independent discretionary action on behalf of the Trust.
In addition, the Trust is affiliated with the following trusts organized by
the Managing Shareholder (collectively the "Other Power Trusts"):
o Ridgewood Electric Power Trust I ("Power I");
o Ridgewood Electric Power Trust II ("Power II");
o Ridgewood Electric Power Trust III ("Power III");
o Ridgewood Electric Power Trust IV ("Power IV");
o The Ridgewood Power Growth Fund (the "Growth Fund");
o Ridgewood/Egypt Fund ("Egypt Fund"); and
o The Ridgewood Power B Fund/Providence Expansion ("B Fund").
In addition, the Trust is affiliated with the following Delaware limited
liability companies ("Ridgewood LLCs"), which have been organized by the
Managing Shareholder:
o Ridgewood Renewable PowerBank LLC
o Ridgewood Renewable PowerBank II LLC
With respect to the Ridgewood LLCs, the Managing Shareholder acts as the
LLCs' Manager.
On November 5, 2001, the Trust sent to Investors a "Notice of Solicitation
of Consents" in which the Trust sought the Investor's consent to amend the
Amended Declaration of Trust ("Declaration") to, among other things, eliminate
provisions that require the Trust to have an independent review panel, whose
purpose was to review certain affiliated transactions. The Consents were
tabulated at the close of business on December 31, 2001. Based on such
tabulation, a majority of Investor Shares consented to such withdrawal and
amendments.
(b) Financial Information about Industry Segments.
The Trust operates in only one industry segment: independent power
generation and similar projects.
(c) Narrative Description of Business.
(1) General Description.
The Trust was formed to participate in the development, construction and
operation of Projects that generate electricity for sale to utilities and other
users, and that might provide heat energy to users, as well as other capital
projects that, although not specifically power related, have similar risk-return
characteristics, such as water desalinization facilities and environmental
beneficial projects.
(2) The Trust's Investments.
(i) Maine Hydro Projects
On December 23, 1996, the Trust purchased from Consolidated Hydro, Inc. a
50% interest in 14 small hydroelectric projects located in Maine. In order to
increase diversification of the Trust's investments, Power IV purchased the
remaining 50% interest. Each Trust paid approximately $6,700,000 for its
interest. The jointly owned partnership that acquired the Project also assumed a
lease obligation in the amount of $1,005,000.
The 14 hydroelectric projects have an aggregate rated capacity of 11.3
megawatts. All electricity generated by the projects over and above their own
requirements is sold to either Central Maine Power Company ("Central Maine") or
Bangor Hydro-Electric Company ("Bangor Hydro") under long-term power purchase
contracts. Eleven of the contracts expire at the end of 2008 and the remaining
three expire in 2007, 2014 and 2017. The power contracts contain a provision
that enabled the price paid by Central Maine and Bangor to be re-determined by
the Maine Public Utilities Commission ("Maine PUC"). In 2001, the Maine PUC
reviewed the prices paid by Central Maine and Bangor and such prices were
lowered. However, the Trust believes that the overall impact of the lowered
price to the Maine Hydro Projects' revenue will not have a material impact on
the Trust. The Maine Hydro Projects are "run-of-river" facilities, which means
that the amount of water passing through the turbines is directly dependent upon
the fluctuating level of flow of the river or stream. Therefore, the amount of
the flow of the river or stream, along with other intangibles, has a much
greater impact on revenues.
The Maine Hydro Projects entered into a five year operating and maintenance
agreement with CHI Energy, Inc. under which a subsidiary of CHI Energy manages
and administers the projects for a fixed annual fee of $307,500 (adjusted
upwards for inflation), plus an annual incentive fee equal to 50% of the excess
of aggregate net cash flow over a target amount of $1.875 million per year. The
maximum incentive fee is $112,500 per year; to the extent the annual net cash
flow exceeds $2.1 million, the excess will be carried forward to future years;
to the extent that the annual net cash flow is less than $1.875 million, the
deficit will be carried forward to future years. In addition, the operator will
be reimbursed for certain operating and maintenance expenses. The agreement had
an initial five-year term, which was extended for another five-year term on June
30, 2001. The agreement can be extended for one more additional five-year term
by mutual consent of the parties thereto.
One Maine Hydro Project, the Pittsfield Hydro Project, is a signatory to
the Kennebec Hydro Developers Group Agreement ("KHDG Agreement"), which was an
agreement among many diverse parties with similarly diverse interests regarding
development on the Kennebec and Sebasticook Rivers in the State of Maine.
Signatories include not only hydro-electric developers, such as the Pittsfield
Project, but also sate and federal government agencies as well as environmental
groups. According to the KHDG Agreement, several owners of hydro-electric
facilities, including the Pittsfield Project, are required by a certain date to
install a "fish passage", which would allow a given number of certain species of
fish adequate passage on the river and which must be approved by certain federal
and state agencies and other organizations. Fish passages take several forms
with varying degrees of expense to construct and maintain. Alternatives include
fish pumps, fish ladders and fish elevators. Notwithstanding the methodology
used, no alternative is cost effective for the Pittsfield Project and, in fact,
the projected costs any available "fish passage" alternative would be
significantly more than the projected cash flows for the Pittsfield Project. RPM
is working with CHI Energy to develop an alternative to the suggested fish
passage (such as opening up the dams deep gates during migratory season) that
will satisfy both the KHDG Agreement and the economics of the Pittsfield
Project. However, there is no guarantee that any such alternative will be
approved and the Pittsfield Project may have not other alternative than to
breach the dam.
(ii) Maine Biomass Projects
On July 1, 1997, the Trust and Power IV purchased a preferred membership
interest in Indeck Maine Energy, L.L.C. ("Indeck Maine"), an Illinois limited
liability company that owns two electric power generating stations fueled by
waste wood at West Enfield and Jonesboro, Maine. The Trust and Power IV
purchased the interest through a limited liability company owned equally by
each. The Trust's share of the purchase price was $7,298,000 and Power IV
provided an equal amount of the total purchase price.
Indeck Energy Services, Inc. ("Indeck"), an entity unaffiliated with the
Trust, Power IV or any of their affiliates, owns the junior membership interest
in Indeck Maine. The preferred membership interest entitles the Trust and Power
IV to receive all net cash flow from operations each year until they receive an
18% annual cumulative return on their capital contributions to Indeck Maine. Any
additional net operating cash flow in that year is paid to Indeck until the
total paid to it equals the amount of the 18% preferred return to the Trust and
Power IV for that year, without cumulation. Any remaining net operating cash
flow for the year is payable 25% to the Trust and Power IV together and 75% to
Indeck, unless the Trust and Power IV have recovered their capital contributions
from proceeds of a capital event. Thereafter, these percentages change to 50%
each. All non-operating cash flow, such as proceeds of capital events, is
divided equally between (a) the Trust and Power IV and (b) Indeck. RPM operates
the Projects and charges its expenses to Indeck Maine at its cost.
Each of the Projects has a 24.5 megawatt rated capacity and uses steam
turbines to generate electricity. The fuel is wood chips, bark, sawmill residue
and other forest related biomass. Both projects are QFs under PURPA. The Maine
Biomass Projects are members of the New England Power Pool ("NEPOOL"), an
association of New England generators, transmission utilities, distribution
utilities, power marketers and others. NEPOOL's control and market regulation
responsibilities are managed by ISO-New England, Inc. ("ISO"), an independent,
non-profit organization company.
Due to the high costs associated with their operation, if the Maine Biomass
Projects are not operating pursuant to a bilateral agreement with another party,
they are generally operated, if at all, as peak load plants on those few days
per year (typically during summer heat waves) when there are power and reserve
shortages in New England. During the rest of the year, the Maine Biomass
Projects are shut down but are capable of being restarted on several days'
advance notice. Because the Projects are capable of providing electricity, they
are entitled to sell their "installed capability," or "ICAP," a measurement of
the rated ability of a generating plant to produce electric power. Power plants
are credited with installed capability whether or not they run. A member of
NEPOOL that serves load (i.e., electric consumers) must own or purchase
installed capability on a monthly basis that at least equals its expected load
for the month (the maximum amount of power that its customers may demand) plus
mandated reserves. Generating facilities may enter into contracts to sell
installed capability or were able to purchase it through ISO auction.
During 2002, Indeck Maine's West Enfield facility operated and sold its
electricity to various power purchasers. Indeck Maine's Jonesboro facility,
however, did not operate during 2002 except during ICAP tests.
In 1997, the State of Massachusetts passed the Electric Restructuring Act,
which, among other things, required that the State encourage the development and
construction of renewable resources. The Act requires entities that sell
electricity to end-use retail customers in Massachusetts to have in their
electric portfolio a certain percentage of renewable resources. Such resources
are termed RPS Attributes. Failure to have the required amount of renewable
energy results in a payment to the state equal to $.005/kwh for every kwh of the
deficiency. The Massachusetts Division of Energy Resources ("DOER") recently
issued final regulations regarding the RPS Attributes ("RPS Regulations"). The
RPS Regulations require that renewable electric generation facilities, such as
the Maine Biomass Plants, qualify as such pursuant to and as required by the RPS
Regulations. Both Maine Biomass Plants have qualified under the RPS Regulations
As a result of such qualification, the energy generated by West Enfield during
much of 2002 also enabled West Enfield to sell its RPS Attributes related to
such energy generation. West Enfield was able to sell its 2002 RPS Attributes to
several power marketers, one of whom is in current negotiations with RPM, on
behalf of Indeck Maine and several other related facilities, to purchase RPS
Attributes and options to purchase future RPS Attributes. Such negotiations are
nearly completion and if and when definitive documents are completed and
executed, the Trust will provide an update on Form 8-k.
(iii) Santee River Rubber Company
The Trust and Power IV purchased preferred membership interests in Santee
River Rubber Company, LLC, a South Carolina limited liability company ("Santee
River"). Santee River built a waste tire and rubber processing facility (the
"Facility") located in Berkeley County, South Carolina. The Trust and Power IV
purchased the interest through a limited liability company owned two-thirds by
the Trust and one-thirds by Power IV. The Trust's share of the $13,470,000
purchase price for the membership interest in Santee River was $8,980,000 and
Power IV provided the remaining $4,490,000. The remaining equity interest in
Santee River was owned by a wholly owned subsidiary of Environmental Processing
Systems, Inc. ("EPS") of Garden City, New York. EPS was the developer of the
Facility. EPS provided administrative services to Santee River during the
construction of the Facility at its cost (including direct and indirect costs
and allocable overhead). At the same time as it sold the Trust and Power V their
membership interest, Santee River borrowed $16,000,000 through tax-exempt
revenue bonds sold to institutional investors and another $16,000,000 through
taxable convertible bonds sold to qualified institutional purchasers
(collectively the "Debt"). It also obtained $4,500,000 of subordinated financing
from the general contractor for the Facility, which is only repayable if the
Facility meets specified construction and performance criteria.
The Facility was constructed by Bateman Engineering, Inc. (the
"Contractor") pursuant to a turnkey construction agreement between the
Contractor and Santee River for a fixed price of $30.5 million. The Facility was
designed to receive and process waste tires and other waste rubber products and
produce fine crumb rubber of various sizes. Due to a variety or reasons
including, the Trust believes, wasteful and possibly fraudulent practices of
EPS, as well as design and other technical problems, the Facility was unable to
perform as represented and never achieved commercial operation. On October 26,
2000, EPS, on behalf of Santee River, filed a Chapter 11 bankruptcy proceeding
in U.S. Bankruptcy Court for the District of South Carolina. In the third
quarter of 2000, the Trust wrote down its entire investment in Santee River to
zero. As previously reported, the Trust instituted litigation against EPS
alleging fraud, breach of contract and other claims. This litigation was
effectively stayed, then ultimately dismissed, as a result of the bankruptcy
proceeding.
The Santee River Facility was sold in bankruptcy for approximately
$3,500,000; $2,400,000 in cash and $1,000,000 in a note. A large part of the
cash to be received from the sale transaction will go to pay the administrative
expenses of the bankruptcy proceeding. The Trust believes that it was entitled
to the first $457,000 of the remaining cash to repay some earlier and additional
loans provided by the Trust to Santee River in order to fund the testing of the
facility. Ultimately, the Trust received only $200,000 of this amount.
(iv) Quantum Conveyor Systems, LLC
Quantum Conveyor Systems, LLC ("Quantum"), a company located in Northvale,
New Jersey, had developed a process of integrating control technology, software
and conveying equipment into a modular, cost-effective conveying system. In the
first quarter of 2000, Quantum ceased all material operations and the Trust
wrote off the entire investment for a loss of $2.8 million. There has been no
material change in Quantum's activities of financial position since the
cessation of operations. Further information on Quantum's business and the
structure of the Trust's investment is found in the Trust's previous Annual
Reports on Form 10-K.
(v) MetaSound Systems, Inc.
MetaSound Systems, Inc. ("MetaSound") was organized to develop "digital
audio marketing" systems tied into the Internet. The systems were designed to
provide digital-quality messages, music and sound information to telephone
callers on hold or in a call-center queue while they wait or to shoppers,
visitors and others in retail stores and waiting areas. MetaSound was unable to
attract sufficient business to become profitable and the Managing Shareholder
concluded that additional funding from the Trust was not appropriate. MetaSound
unsuccessfully continued to seek additional equity financing until its capital
was exhausted in January 2000. On December 31, 2000, the Trust wrote off the
entire investment in MetaSound. Further information on MetaSound's business and
the structure of the Trust's investment is found in the Trust's previous Annual
Reports on Form 10-K.
(vi) Ridgewood Waterpure
Ridgewood Waterpure Corporation ("Waterpure") is a 54% owned subsidiary of
the Trust. Waterpure was to develop an advanced water distillation system that
was previously developed by Superstill Corporation ("Superstill"). Superstill,
located in California, became a debtor under Chapter 11 of the Bankruptcy Code
in 1997. In December 1998, Waterpure acquired substantially all of the assets of
Superstill (consisting primarily of patents, intellectual property rights and
in-process research and development) under a plan of reorganization approved by
the U.S. Bankruptcy Court for the Northern District of California and
Superstill's creditors.
The Trust invested $3,500,000 and acquired 54% of Waterpure's common stock.
Creditors and licensors of intellectual property to Superstill received the
remaining 46% of the common stock in exchange for their claims against
Superstill. The Trust's invested funds were used by Waterpure to design, develop
and commercialize water distillation and purification systems using the
Superstill technology.
Waterpure, however, was unable to produce a unit with a commercially
acceptable price and operating characteristics. Although the Waterpure
technology produces very pure water, it is more expensive to build, more
expensive to power and more difficult to maintain than other technologies that
produce acceptable drinking water. In addition, the minority shareholder of
Waterpure brought a legal action challenging Waterpure's rights to license and
sell its projects. Such litigation proved to be quite time consuming and
expensive to defend. Waterpure used its available cash to develop and market its
products, as well as defend against the litigation. In 2001, the available cash
ran out and the shareholders of Waterpure were all unwilling to provide
additional funds. Therefore, in October 2001, Waterpure filed under Chapter 7 of
the U.S. Bankruptcy Code to liquidate its assets. Such filing was made in the
Northern District of Ohio, but has since been transferred to the U.S. Bankruptcy
Court for the Northern District of California and essentially is being handled
in conjunction with the Superstill bankruptcy proceeding. The bankruptcy
proceeding continued through 2002 and is still not complete. The Trust has not
taken an active role in the bankruptcy proceeding.
(vii) United Kingdom Landfill Projects
In 1999, Ridgewood Electric Power Trust V ("Power Trust V") organized
Ridgewood U.K. LLC, a Delaware, limited liability company ("UK LLC"). UK LLC
subsequently formed Ridgewood UK Ltd ("UK LTD") to acquire certain operating
landfill methane gas power generation projects located in England and Scotland
(the "UK Projects"). Later, The Ridgewood Power Growth Fund (the "Growth Fund")
was admitted as a member of UK LLC and contributed capital to allow UK LTD to
acquire more UK Projects. Power Trust V and the Growth Fund own an interest in
UK LLC in proportion to the capital each has contributed, net of distributions
and allocated profits and losses. UK LLC is owned 70% by Power Trust V and 30%
by the Growth Fund. Prior to October 16, 2001, UK LLC owned 100% of the
outstanding shares of UK LTD, which had acquired 10 UK Projects with total
capacity of 19.9 MW.
On October 16, 2001, UK LTD issued additional shares as part of a
transaction (the "UK Merger") to acquire various landfill gas projects in
operation and under development, the assets of the management company that
managed the UK Projects and the assets of the development company. All of the
assets acquired were part of an affiliated group of companies that had developed
and operated the first 10 UK Projects. Subsequent to the UK Merger, UK LTD
changed its name to CLPE Holdings, LTD ("Envirogas"). As a result of the UK
Merger, UK LLC's ownership interest in UK LTD decreased from 100% to 76.3%. The
remaining 23.7% interest in UK LTD was owned by The Arbutus Group ("Arbutus").
In 2003, Ridgewood UK, through a transaction with Arbutus, increased its
ownership (and thereby reduced Arbutus' ownership) by 12%. As a result,
Envirogas is now 88% owned by Power Trust V and the Growth Fund, and 12% owned
by Arbutus.
Envirogas currently has 15 projects (with aggregate generating capacity of
25.5 MW) operating under Non-Fossil Fuel Obligation ("NFFO") contracts
("Envirogas Projects"). Envirogas Projects have been financed, in part, by bank
financing provided by the Bank of Scotland. Outstanding debt under this bank
facility was (pound)13.0 million as of December 31, 2002. NFFO began in 1990 and
is a program supported by a small broad-based tax on electricity consumption
that required companies supplying end-use customers to use the power supplied
under NFFO contracts, including power produced at generating facilities using
wind, water and waste materials, including landfill gas. The Envirogas Projects
enjoy a guaranteed price and market under a long-term contracts for their output
and have thus been relatively unaffected by developments in the United Kingdom
electricity markets, which included the introduction in 2001 of the New
Electricity Trading Arrangements ("NETA"). NETA replaced the Electricity Pool
with a competitive wholesale energy market, resulting in a reduction of around
40% in the wholesale electricity price. While NETA has not impacted the income
stream for the Envirogas Projects, it has caused problems for generators selling
to the wholesale market that do not have the benefit of NFFO contracts.
In addition to its developed and operational projects, Envirogas had a
portfolio of approximately 17 MW of undeveloped landfill methane power projects
that would qualify under the new Renewables Obligation ("RO") subsidy that was
enacted in the United Kingdom in April 2002. The RO was adopted and implemented
as a successor to NFFO, which had become outmoded by changes in the regulatory
structure of the U.K.'s electricity supply industry as a successful stimulus to
increasing renewable energy capacity. While this development portfolio was
potentially very profitable as a result of the new subsidy being granted to
qualifying renewable power producers under the RO, Envirogas was unable to
obtain debt financing necessary to develop these projects.
Under the RO program, electricity suppliers serving retail customers in the
U.K. are required to demonstrate that a certain mandated percentage of their
electricity supply portfolio was generated by RO Qualified Producers in order to
avoid incurring penalty charges. The RO program mandated percentage of the total
electricity supply that must come from RO Qualified Producers is 3.0% in 2002/3,
4.3% in 2003/4 and increases annually until 2010, when it reaches 10.4%.
Electricity suppliers demonstrate their compliance with the RO through ROCs.
Electricity suppliers obtain ROCs either (i) by owning RO-qualified generating
facilities for which they receive ROCs from Ofgem or (ii) by purchasing them
from independent RO Qualified Producers. At the NFPA auction in February 2003,
the output of landfill methane gas-fired RO Projects sold for an average price
of approximately 6.6 p/kwh. These auctions demonstrate a price for power plus
ROCs of approximately 10.5 cents/kwh to 10.7 cents/kwh. The value of the ROC
portion of this price has been estimated at between 4.5 p/kwh and 4.9 p/kwh (or
7.2 cents/kwh and 7.8 cents/kwh)
Incremental profits resulting from a combined power plus ROC price greater
than 7.0 p/kwh will be divided between PowerBank I and the UK LLC investors
(Ridgewood's 88% share of Envirogas held by Power Trust V and The Growth Fund),
with two-thirds of the incremental profit going to PowerBank I and one-third of
the incremental profit going to the UK LLC as a compensation for UK LLC's, and
its officers' and staff's, participation in and facilitation of PowerBank II
transaction. This payment, should it be made, is specifically allocated to U.K
LLC, not to CLP Envirogas Holdings, Ltd. UK LLC will receive its distribution in
the form of a cash allocation.
(viii) Egyptian Projects
In late 1998, the Trust and the Growth Fund began investigating Egyptian
opportunities. The two Trusts organized Ridgewood Near East Holdings, LLC, a New
Jersey limited liability company ("Holdings") as a holding company for their
Egyptian investments. In 2001, the Egypt Fund became a member of Holdings. The
three Trusts to date have contributed approximately $39.1 million to Holdings.
Each Trust owns equity in Holdings in proportion to the capital it has
contributed, net of distributions and allocated profits and losses. Holdings, in
turn, owns all of the equity in the Egyptian operating subsidiaries, including
Ridgewood Egypt For Infrastructure LTD ("REI"), which is the entity through
which Egyptian investments are made. REI has developed projects to supply
electricity and potable water to the tourist industry on the Red Sea in Egypt.
REI has 13 water plants constructed, with a total capacity of 17,000 cubic
meters per day of potable water production (one cubic meter equals 264.2 U.S.
gallons) and 5 electric generation plants with a total capacity of 18,000
kilowatts.
REI's projects generally sell their electricity and drinking water output
under contracts governed by Egyptian law. There is no formal regulatory
authority that reviews those prices or which has authority to set them.
Long-term electricity and water contracts generally include an annual price
escalation clause as well as a fuel price adjustment clause to insulate REI from
fuel price increases. Most contracts are denominated in Egyptian pounds.
Although the buyer is therefore allowed to pay in local currency, those
long-term contracts generally contain a currency adjustment clause that is
intended to keep REI whole if the Egyptian currency depreciates against the U.S.
dollar. Most contracts contain minimum annual purchase requirements. Where REI
supplies the electricity to the customer, REI also provides the electricity for
the water desalination equipment and includes that electricity cost in the
amount billed for water. Otherwise, the customer has the responsibility for
providing electric power and bears the risk of electricity price changes.
REI produces electric power with diesel engine driven generators only.
Although Egypt is a producer of natural gas, the isolated tourist areas where
the Egyptian Projects are located do not have natural gas available in required
quantities. Diesel fuel is readily available throughout Egypt and is supplied at
a fixed price through government agencies. Diesel engine driven generators are a
well-proven technology over eighty years old. There are many qualified suppliers
throughout the world.
All of REI's water desalination plants employ reverse osmosis equipment
("R/O"). This is a process where seawater or brackish water (water with less
salt than seawater but which is not drinkable or palatable) is pumped at high
pressure (1,000 pounds per square inch) through thin, porous membranes. The
pressurized water passes through but the salt and other large molecules remain
behind and thus are separated from the purified water. This process has been in
existence for over thirty years and is widely used throughout the world. There
are many suppliers of the R/O equipment and the membranes. REI primarily
purchases R/O equipment from a U.S. company named Waterlink, because it believes
Waterlink offers the best combination of price, service and quality. However REI
is not dependent on Waterlink and can build plants using other manufacturers'
equipment.
REI's operating expenses, which are charged against the Egyptian Projects'
cash flow, include, development and administrative, operation and maintenance
activities for all of its Egyptian Projects. Electric generation costs that are
dependent on production volume include diesel fuel, consumables, maintenance and
major repairs. All of REI's electricity sales contracts provide for a 100% cost
pass-through as the price of diesel fuel changes.
As a result of the September 11, 2001 terrorist attacks against the United
States, tourism in Egypt plummeted. Despite the continued violence in the Middle
East and the continued volatility of the region, recently the number of bookings
at the resorts serves by REI have increased, although they are still less than
normal or expected. The Trust anticipates that the effects of the September 11th
attacks and the current unrest in the Middle East will have a short-term effect
on Egyptian tourism.
(ix) Mediterranean Fiber Optic Project
In September 1999, the Trust and the Growth Fund organized Ridgewood
MedFiber LLC and each of them contributed $1.5 million to the joint venture on
equal terms. Ridgewood MedFiber then invested the $3 million in a 25% equity
interest in Global Fiber Group, a developer that was exploring a proposal to
construct a 3,600 kilometer (2,200 mile) long underwater fiber optic cable among
Spain, Southern France and Italy via the Mediterranean Sea. In February 2000 the
original management, which had been unable to obtain additional equity financing
for the Project, agreed to withdraw from the venture. Ridgewood MedFiber was
unable to find other equity investors for the venture and the venture ceased
activity in the second quarter of 2000. Accordingly, the Trust wrote off its
entire investment in the Project effective March 31, 2000.
(x) Synergics, Inc.
Beginning in late 1999, the Trust and The Growth Fund began negotiations
with Synergics, Inc. ("Synergics") to buy nine existing hydroelectric generating
plants (the "Synergics Projects"). In the course of negotiations and due
diligence, the Trust and the Growth Fund learned that one of Synergics' lenders
had declared a payment default against Synergics and that the lender had agreed
to discharge the debt at a substantial discount from the face amount if payment
were made by the end of April 2000. In order to preserve the benefit of the
lender's offer and to allow completion of the acquisition on favorable terms,
the Trust and the Growth Fund, through a joint venture, acquired the debt from
the lender on April 28, 2000 for a payment of $17 million to the lender. The
Trust supplied $5 million of the capital used by the joint venture to acquire
the debt and the Growth Fund supplied the remaining $12 million. The Trust and
the Growth Fund own the joint venture in proportion to the capital each supplied
and neither will have preferred rights over the other.
On November 22, 2002, through another joint venture owned in the same
proportion as the joint venture that acquired the debt of Synergics, the Trust
and Growth Fund acquired 100% of the outstanding stock of Synergics. The former
shareholders of Synergics Inc. received 100% of the outstanding shares of a
subsidiary of Synergics in exchange for selling the stock of Synergics to the
Trust and Growth Fund.
(3) Project Operation.
The Maine Hydro Projects are QFs and have entered into long-term power
purchase agreements ("Power Contracts") with their local distribution utilities.
Under the Power Contracts for the Maine Hydro Projects, the local utilities are
obligated to purchase the contractual output of the Projects at formula prices.
No separate payments are made for capacity or capability and all payments under
the Power Contracts are made for energy supplied. The Maine Hydro Projects are
licensed or operated as "run-of-river" facilities, which means that the amount
of water passing through the turbines is directly dependent upon the fluctuating
level of flow of the river or stream. The Maine Hydro Projects have a very
limited ability to store water during high flows for use at low flow periods.
Therefore, they produce electric energy and sell it as generated at the fixed
rates provided in the Power Contracts. The Maine Hydro Projects are not subject
to fuel price changes or supply interruptions. Because the Maine Hydro Projects
are "run-of-river" hydroelectric plants, their output is dependent upon rainfall
and snowfall in the areas above the dams. Output is generally lowest in the
summer and highest in the spring and fall.
The Maine Biomass Projects burn whole-tree wood chips, as well as wood from
processing of raw wood at paper mills or sawmills. The price of wood waste
fluctuates from time to time and is a primary determinant of whether the
Projects can run profitably or not. The major causes of the fluctuation are
changes in woodcutting or wood processing volumes caused by general economic
conditions, increases in the use of wood waste by paper mills for their own
cogeneration plants, changes in demand from competing generating plants using
wood waste or paper mill refuse and weather conditions. The cost of wood waste
is currently significantly in excess of that anticipated at the time the Maine
Biomass Projects were purchased.
Although the Maine Biomass Projects are QFs, they do not have long-term
Power Contracts and sell their capacity and electric energy through bilateral
contracts with utilities and other entities that distribute electricity, such as
the contracts with Constellation and Select as described above. Generators may
sell directly to such entities on a bilateral basis, or they may sell to the
ISO. The ISO dispatches generating plants and takes their power in accordance
with offers and its estimate of the most economical means of providing
sufficient reliable electricity. It computes the clearing price for each
electrical product on an hourly basis, bills loads for their shares of the
products and is to pay generators in accordance with the generators' offers and
the market rules.
The Maine Biomass Projects are "renewable power" projects. "Renewable
power" (often called "green power") is a catchphrase that includes Projects
(such as solar, wind, small hydroelectric, biomass, geothermal and landfill-gas)
that do not use fossil fuels or nuclear fuels. Renewable power plants typically
have high capital costs and often have total costs that are well above current
total costs for new gas-turbine production. As described above, in
Massachusetts, RPS Attributes are required to be purchased by entities serving
end-use retail electric customers. RPS Attributes are obtained from renewable
resources, such as the Maine Biomass Projects. As a result of the RPS Attribute
program in Massachusetts, and similar programs in other states that have not yet
been finalized, the Maine Biomass Projects have been and may in the future be
able to sell their electric output and the renewable or "green" credits
associated with such electric power at a premium over current wholesale electric
rates.
In order to operate, most Projects require a variety of permits, including
zoning and environmental permits. Inability to obtain such permits will likely
mean that a Project will not be able to commence operations, and even if
obtained, such permits must usually be kept in force in order for the Project to
continue its operations. Compliance with environmental laws is also a material
factor in the independent power industry. The Trust believes that capital
expenditures for and other costs of environmental protection have not materially
disadvantaged its activities relative to other competitors and will not do so in
the future.
The electricity markets in the United Kingdom were fully deregulated
several years before deregulation began in the U.S. Accordingly, the Trust has
invested in a niche area, landfill gas power plants. The UK Landfill Projects
enjoy a status similar to QFs in the U.S. with long-term Power Contracts. They
enjoy a guaranteed price and market for their output and are not subject to
price fluctuations for their fuel. The major business risks and considerations
are keeping operating costs at a minimum through good design, preventative
maintenance and attention to fuel quality, governmental policy changes and
exchange rate fluctuations affecting the pound-denominated revenues from the
Projects. Thus the Trust believes that these investments in a stable Western
European country with a guaranteed market for the output have the potential for
long-term, stable income.
The Egyptian projects are substantially riskier. Generally, these Projects
are being developed at remote resort hotel sites on the Red Sea, which are
distant from other electric and water sources. REI is developing the Projects
itself using local engineering personnel and contractors. Environmental,
construction, legal, and labor requirements are often unclear and can change
unpredictably at any time and without warning. REI may find it difficult to
enforce contracts and other legal obligations against local suppliers or
customers. There are no backup facilities to provide electricity or water if the
Projects fail or are unusable for any period of time. Specifications for
Projects have changed suddenly and unpredictably and in some cases it has been
necessary for REI to construct additional infrastructure. Cultural, language and
political differences between Egypt and the U.S. may impair communication with
personnel, cause errors and possibly cause hostile action against the Projects
by employees, residents or governmental agencies. There have been occasional
terrorist incidents in Egypt directed against Western tourists and tourist
facilities. In addition, terrorist attacks such as those against the United
States on September 11, 2001, as well as the War in Iraq and other turmoil in
the Middle East, although somewhat removed from Egypt, can have a devastating
effect on tourism. Further such incidents might deter tourism and make the host
hotel resorts unprofitable or might even be directed against the Egyptian
Projects or their personnel.
The Projects burn light fuel oil in diesel engines, which is brought in by
tanker truck. Supply interruptions, oil spills or fires are possible. Although
the Projects are exposed to world oil price variations, this risk is mitigated
because many of the Power Contracts contain price adjustments tied to fuel oil
prices that should substantially transfer the risk to the customers.
The customers of most of the Egyptian Projects are single hotels. It is
possible that adverse events in the tourist industry, such as labor disputes,
airline problems, shortages of personnel, changes in customer taste,
environmental problems, overbuilding and international political or cultural
developments could depress tourist trade to the point that the hotels would be
unable to pay. Other risks include currency conversion and repatriation risks,
exchange rate fluctuations, taxation disputes, international hostilities,
arbitrary governmental action, religious tensions, anti-foreign sentiments and
legal changes.
(4) Trends in the Independent Power and Other Industries
(i) U.S. Electric Industry
The Trust is somewhat insulated from recent deregulatory trends in the
electric industry because the Maine Hydro Projects are QFs with long-term
formula-price Power Contracts and a majority of the Trust's investments are
outside the United States.
The Trust is somewhat insulated from the recent turmoil that has enveloped
the electric energy industry during the past several years because the
Providence and Maine Hydro Projects are QFs with long-term formula-price Power
Contracts. Each Power Contract now provides for rates in excess of current
short-term rates for purchased power. There has been much speculation that in
the course of deregulating the electric power industry, federal or state
regulators or utilities would attempt to invalidate these power purchase
contracts as a means of throwing some of the costs of deregulation on the owners
of independent power plants. However, the Trust Maine Biomass Plants are totally
at the mercy of the energy market, but have been provided some substantial
support as a result of the adopting of renewable portfolio regulations in
Massachusetts.
The adoption of the RPS Regulations in Massachusetts is indicative of the
significant activity and movement in the industry, as well as at state and
federal government, to increase the amount of renewable power that is supplied
to utilities and distribution companies that serve retail end-use customers in
various states. For example, and as described above, in Massachusetts,
legislation and regulations have been passed requiring such retail electric
suppliers to have in their electric portfolio one (1%) "new renewable power" for
2003. This renewable generation percentage requirement increases each year until
the renewable generation amount equals nine (9%) percent. In addition to
Massachusetts, New Jersey, Nevada, and California have passed similar renewable
portfolio standards ("RPS") and Connecticut is considering an RPS of its own.
Notwithstanding the development of a renewable energy market in many
states, the general trends in the electric power industry have continued to
reflect an attitude of caution and restraint. Throughout the United States,
memories of the California energy crises, Enron Corp.s bankruptcy, proceedings
before the Federal Energy Regulatory Commission ("FERC") regarding certain
questionable practices of other energy producers and marketers, as well as the
generally poor U.S. and world economy, have led many to call for a more
regulated electric industry, with strict reporting requirements and cost of
service regulation. However, many legislators, regulators and market
participants have not disavowed deregulation.
(ii) Foreign operations.
The UK Projects operate under long-term contracts with the Non-Fossil Fuels
Purchasing Agency, a quasi-governmental agency. They enjoy a guaranteed price
and market for their output and are not subject to price fluctuations for their
fuel. The UK Projects are relatively unaffected by developments in the United
Kingdom electricity markets, which included the introduction in 2001 of the New
Electricity Trading Arrangements ("NETA"). NETA replaced the Electricity Pool
with a competitive wholesale energy market. This has resulted in a reduction of
around 40% in the wholesale electricity price. Whilst NETA has not impacted the
income stream for the UK Projects, it has caused problems for small generators.
The industry regulator, OFGEM, is looking at resolving these issues.
The Egyptian Projects are developed at remote resort hotel sites on the Red
Sea, which are distant from other electric and water sources. As a result, REI
is relatively unaffected by trends in the Egyptian water and power industry,
which is concentrated along the Nile River and Mediterranean Coast. Prices for
power and water delivered to the Egyptian Projects hotels are based on
contracted rates. Some contracts are short-term and in other cases, hotels may
attempt to renegotiate the terms of their contracts. The market price for water
not under contract varies depending on many factors, including fuel cost,
availability of other sources of supply (primarily other desalination plants or
the Nile River), demand (which is heavily dependant on temperature) and
availability of transportation (primarily trucks and pipelines).
(5) Competition
There are a large number of participants in the independent power industry.
Several large corporations specialize in developing, building and operating
independent power plants. Equipment manufacturers, including many of the largest
corporations in the world, provide equipment and planning services and provide
capital through finance affiliates. Many regulated utilities are preparing for a
competitive market, and a significant number of them already have organized
subsidiaries or affiliates to participate in unregulated activities such as
planning, development, construction and operating services or in owning exempt
wholesale generators or up to 50% of independent power plants. In addition,
there are many smaller firms whose businesses are conducted primarily on a
regional or local basis. Many of these companies focus on limited segments of
the cogeneration and independent power industry and do not provide a wide range
of products and services. There is significant competition among non-utility
producers, subsidiaries of utilities and utilities themselves in developing and
operating energy-producing projects and in marketing the power produced by such
projects.
The UK Projects sell their output to a government agency and are not
subject to competition. Currently, the Egyptian Projects are located in remote
coastal areas that are not linked to the national electric power network and
thus are not subject to substantial competition for providing electricity. The
water Projects do not face substantial competition except from trucked-in water.
This also means that there is no substantial backup for the Projects if they
cannot operate for any reason. It is possible that in future years the national
network may extend to some or all of the Project sites, in which case there
might be competition.
(6) Regulatory Matters.
United States Regulation.
(i) Energy Regulation
The Projects located in the United States are Independent Power Projects
that are subject to a variety of law, including: (A) PURPA, which, pursuant to
regulations issued by FERC, provide incentives for the development of QFs and
generally provides an exemption from the provisions of the Public Utility
Holding Company Act of 1935, as amended (the "Holding Company Act"), the Federal
Power Act, as amended (the "FPA"), and, except under certain limited
circumstances, from state laws regarding rate or financial regulation. (B) The
Federal Power Act, which gives FERC exclusive rate-making jurisdiction over
wholesale sales of electricity in interstate commerce. While QFs under PURPA are
exempt from the rate-making and certain other provisions of the FPA, non-QFs are
subject to the FPA and to FERC rate-making jurisdiction. If any of the Trust's
electric power Projects failed to be a QF, it would have to comply with the FPA,
unless it filed for exempt-wholesale generator status under the Energy Policy
Act. (C) State Regulation. State public utility regulatory commissions have
broad jurisdiction over Independent Power Projects which are not QFs under
PURPA, and which are considered public utilities in many states. In states where
the wholesale or retail electricity market remains regulated, Projects that are
not QFs may be subject to state requirements to obtain certificates of public
convenience and necessity to construct a facility and could have their
organizational, accounting, financial and other corporate matters regulated on
an ongoing basis.
(ii) Environmental Regulation.
The construction and operation of Projects and the exploitation of natural
resource properties are subject to extensive federal, state, local and foreign
laws and regulations adopted for the protection of human health and the
environment and to regulate land use. The laws and regulations applicable to the
Trust and Projects in which it invests primarily involve the discharge of
emissions into the water and air and the disposal of waste, but can also include
wetlands preservation and noise regulation. These laws and regulations in many
cases require a lengthy and complex process of renewing licenses, permits and
approvals from federal, state local and foreign agencies. Obtaining necessary
approvals regarding the discharge of emissions into the air is critical to the
development of a Project and can be time-consuming and difficult. Each Project
requires technology and facilities that comply with federal, state local and
foreign requirements, which sometimes result in extensive negotiations with
regulatory agencies. Meeting the requirements of each jurisdiction with
authority over a Project may require extensive modifications to existing
Projects.
Environmental, construction, legal, and labor requirements are often
unclear and can change unpredictably at any time and without warning.
(d) Financial Information about Geographic Areas
For 2002 and 2001, all revenues recorded by the Trust were from the United
Kingdom. The financial statements of the Maine Hydro Projects, the Maine Biomass
Projects, the Synergic Projects, Quantum, MetaSound and the Egyptian Projects
are not consolidated with those of the Trust and, accordingly, their revenues
are not considered to be operating revenues. As of and for the year ended
December 31, 2002, income (loss) from sources inside and outside the United
States and asset locations were as follows:
Geographic
Location Income (loss) Assets
United States $(2,725,000) $ 16,101,000
United Kingdom (1,972,000) 47,627,000
Egypt (294,000) 3,503,000
(e) Employees.
The Trust has no employees. The persons described below at Item 10 -
Directors and Executive Officers of the Registrant serve as executive officers
of the Trust and have the duties and powers usually applicable to similar
officers of a Delaware corporation in carrying out the Trust business.
REI has approximately 103 employees located in Egypt. UK LTD has
approximately 49 employees located in the United Kingdom.
Item 2. Properties.
Pursuant to the Management Agreement between the Trust and the Managing
Shareholder (described at Item 10(c)), the Managing Shareholder provides the
Trust with office space at the Managing Shareholder's principal office at The
Ridgewood Commons, 947 Linwood Avenue, Ridgewood, New Jersey 07450.
The following table shows the material properties (relating to Projects)
owned or leased by the Trust's subsidiaries or partnerships or limited liability
companies in which the Trust has an interest.
Approximate
Square
Ownership Ground Approximate Footage of Description
Interests Lease Acreage Project of
Projects Location in Land Expiration of Land (Actual Project
or Projected)
Maine Hydro 14 sites Owned n/a 24 n/a Hydro-
in Maine by joint electric
venture* facilities
UK Projects 15 sites in Leased or 2014- less than n/a Landfill gas
England, licensed 2015 10 acres fueled gene-
Scotland and by UK LTD ration plants
Spain
Egyptian 18 sites Leased n/a less than n/a Electric gen-
in Egypt by REI *** 10 acres erating or
water desali-
nation facil-
ties
Maine West Enfield Owned n/a less 18,000 Wood waste-
Bio- and Jonesboro, by joint than fired genera-
mass Maine venture** 25 tion facility
Synergics 8 sites
in U.S. Leased n/a less than n/a Hydro-
by Synergics**** 15 acres facilities
* Joint venture equally owned by Trust and Power IV.
** Joint venture owned by Indeck, the Trust and Power IV.
*** Joint venture owned by Trust, Growth Fund and Egypt Fund
**** Joint venture owned by the Fund and Power V.
Item 3. Legal Proceedings.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Trust sold 932.887 Investor Shares of beneficial interest in the Trust
in its private placement offering, which concluded on April 15, 1998. There is
currently no established public trading market for the Investor Shares and the
Trust does not intend to allow a public trading market to develop. As of the
date of this Annual Report on Form 10-K, all such Investor Shares have been
issued and are outstanding. There are no outstanding options or warrants to
purchase, or securities convertible into, Investor Shares.
Investor Shares are restricted as to transferability under the Declaration.
In addition, under federal laws regulating securities the Investor Shares have
restrictions on transferability when persons in a control relationship with the
Trust hold the Investor Shares. Investors wishing to transfer Shares should also
consider the applicability of state securities laws. The Investor Shares have
not been and are not expected to be registered under the Securities Act of 1933,
as amended (the "1933 Act"), or under any other similar law of any state (except
for certain registrations that do not permit free resale) in reliance upon what
the Trust believes to be exemptions from the registration requirements contained
therein. Because the Investor Shares have not been registered, they are
"restricted securities" as defined in Rule 144 under the 1933 Act.
The Managing Shareholder has investigated the possibility and feasibility
of a combination of the Trust and the Other Power Trusts into a publicly traded
entity. This would require the approval of the Investors in the Trust and the
other programs after proxy solicitations, complying with requirements of the
Securities and Exchange Commission, and a change in the federal income tax
status of the Trust from a partnership (which is not subject to tax) to a
corporation. The process of considering and effecting a combination, if the
decision is made to do so, will be very lengthy. There is no assurance that the
Managing Shareholder will recommend a combination, that the Investors of the
Trust or other programs will approve it, that economic conditions or the
business results of the participants will be favorable for a combination, that
the combination will be effected or that the economic results of a combination,
if effected, will be favorable to the Investors of the Trust or other programs.
After conducting investigations, the Managing Shareholder concluded, and
informed the Investors, that given current market conditions caused by, among
other things, the general U.S. economic down turn, the September 11th terrorist
attacks, the Enron bankruptcy and general volatility in the independent power
business, it is preferable to delay significant expenditures pursuing any such
combination until market conditions, as described above, improve.
(b) Holders
As of the date of this Annual Report on Form 10-K, there are 1,620 record
holders of Investor Shares.
(c) Dividends
The Trust made distributions as follows for the years ended December 31,
2002 and 2001:
Year ended December 31,
2002 2001
Total distributions to Investors $ -- $ --
Distributions per Investor Share -- --
Distributions to Managing Shareholder -- --
The Managing Shareholder discontinued quarterly distributions effective
January 1, 2001. The Trust's decision whether to make future distributions to
Investors and their timing will depend on, among other things, the net cash flow
of the Trust and retention of reasonable reserves as determined by the Trust to
cover its anticipated expenses. See Item 7, Management's Discussion and
Analysis.
Occasionally, distributions may include funds derived from the release of
cash from operating or debt services reserves. Further, the Declaration
authorizes distributions to be made from cash flows rather than income, or from
cash reserves in some instances. For purposes of generally accepted accounting
principles, amounts of distributions in excess of accounting income may be
considered to be capital in nature. Investors should be aware that the Trust is
organized to return net cash flow rather than accounting income to Investors.
Item 6 Selected Financial Data.
The following data is qualified in its entirety by the financial statements
presented elsewhere in this Annual Report on Form 10-K.
As of and for the Years Ended December 31,
2002 2001 2000 1999 1998
Sales 9,120,088 6,233,030 -- -- --
Net loss (4,991,461) (4,239,670) (16,805,021) (4,975,059) (2,643,662)
Net assets
(shareholders'
equity) 28,243,731 32,050,290 37,739,340 60,433,793 69,216,738
Investments in
Plant and
Equipment (net
of depreciation) 21,215,872 17,752,929 11,906,363 -- --
Investment
in Power
Contract(net
of
amortization) 18,148,831 17,915,749 9,721,949 -- --
Total assets 67,231,004 61,605,609 50,365,065 62,395,597 71,735,025
Long-term
obligations 20,838,730 14,959,385 9,980,679 -- --
Per Share of Trust:
Revenues (loss) 9,776 6,681 -- -- --
Net loss (5,351) (4,545) (18,013) (5,333) (2,834)
Net asset value 30,276 34,356 40,454 64,983 74,303
Distributions to
Investors -- -- 4,205 4,186 4,383
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
The following discussion and analysis should be read in conjunction with
the Trust's consolidated financial statements and the notes thereto presented
below. Dollar amounts in this discussion are generally rounded to the nearest
$1,000.
The consolidated financial statements include the accounts of the Trust and
Waterpure Corporation. The Trust uses the equity method of accounting for its
investments in the Maine Hydro Projects, Maine Biomass Projects, Santee River,
Quantum, MetaSound, the Egypt Projects and GFG. In 2001 and 2000, the Trust's
investment in the Synergics Hydro projects was in the form of a note receivable
and, accordingly, the Trust's earnings were in the form of interest income. In
2002, the Trust and the Growth Fund completed its acquisition of the Synergics
Hydro projects and as a result, the Trust uses the equity method of accounting
for its investment.
Through December 31, 2000, the Trust used the equity method of accounting
for its investment in the UK Projects because its ability to exercise control
over these projects was expected to be temporary due to the anticipated
investment in these projects by the Growth Fund. Due to delays in construction
of the additional landfill gas plants, the Growth Fund elected to invest some of
its funds in unrelated projects. As a result, the Trust expects to maintain
control over the projects. As a result, effective on December 31, 2000, the
Trust began to account for these projects using the consolidation method of
accounting.
Outlook
The U.S. electricity markets are being restructured and there is a trend
away from regulated electricity systems towards deregulated, competitive market
structures. The states that the Trust's Projects operate in have passed or are
considering new legislation that would permit utility customers to choose their
electricity supplier in a competitive electricity market. The Maine Hydro
Projects are "Qualified Facilities" as defined under the Public Utility
Regulatory Policies Act of 1978 and currently sell their electric output to
utilities under long-term contracts. Eleven of the Maine Hydro Projects'
contracts expire in 2008 and the remaining three expire in 2007, 2014 and 2017.
During the term of the contracts, the utilities may or may not attempt to buy
out the contracts prior to expiration. At the end of the contracts, the Projects
will become merchant plants and may be able to sell the electric output at then
current market prices. There can be no assurance that future market prices will
be sufficient to allow the Trust's Projects to operate profitably.
The Maine Hydro Projects have a limited ability to store water.
Accordingly, the amount of revenue from electricity generation from these
Projects is directly related to river water flows, which have fluctuated as much
as 30% from the average over the past ten years. It is not possible to
accurately predict revenues from the Maine Hydro Projects.
The Maine Biomass Projects sold electricity under short-term contracts
during 1997. The Projects were shutdown and had minimal operations in 1998, 1999
and 2000. One project resumed full time operations on June 1, 2001 and sold
electricity to Constellation Power Source, Inc. under a nine-month contract that
expired on February 28, 2001. It now sells electricity to Select Energy on a
month-to-month basis. The other project is currently shutdown and will not be
operated (except for required tests) unless sales arrangements are obtained
which would provide sufficient revenue to allow the Project to operate
profitably.
Except for the Egyptian Projects, all power generation projects currently
owned by the Trust produce electricity from renewable energy sources, such as
hydropower and biomass ("renewable power," and sometimes called "green power").
In the State of Maine, as a condition of licensing, competitive generation
providers and power marketers will have to demonstrate that at least 30% of
their generation portfolio is from renewable power sources. Other states in the
New England Power Pool have or are expected to have similar renewable power
licensing requirements, although the percentage of renewable power generation
may differ from state to state. These renewable power licensing requirements
should have a beneficial effect on the future profitability of the Trust's
Projects.
In Egypt, the Trust, Growth Fund and Egypt Fund have constructed 13 water
desalination plants and 5 electric generation plants. The total capacity of the
water and power plants is approximately 4,500,000 U.S. gallons per day and 18
megawatts, respectively. Each plant has a contract with a hotel or group of
hotels for the sale of the water or electricity produced from the plant. These
contracts have terms of up to thirty years.
The Trust, through a United Kindgdom subsidiary, has purchased fifteen
landfill gas fired plants in the United Kingdom with a capacity of 25.5
megawatts. The Trust has a net ownership interest of 53% in the subsidiary. The
plants sell the electricity to a quasi-autonomous non-governmental organization
an inflation adjusted price for 15 years. The subsidiary is developing 10
additional projects in the United Kingdom.
The Trust and the Growth Fund also purchased a note receivable from
Synergics for approximately $17 million. The joint venture intends to acquire
nine hydroelectric dams owned by Synergics by forgiving the $17 million of
outstanding debt and $774,114 of accrued interest, and paying an additional $1
million to the shareholders of Synergics and paying up to an additional $1.7
million of Synergics' tax liabilities that might be incurred as a result of the
sale of its assets. The president of Synergics agreed to vote the stock of
Synergics beneficially owned by him (approximately 69% of the voting stock) in
favor of a merger or other corporate reorganization as specified by the Trust
and the Growth Fund that materially complies with the provisions outlined above.
On November 22, 2002, through another joint venture owned in the same proportion
as the joint venture that acquired the debt of Synergics, the trust and the
Growth Fund acquired 100% of the outstanding stock of Synergics. The former
shareholders of Synergics Inc. received 100% of the outstanding shares of a
subsidiary of Synergics in exchange for selling the stock of Synergics to the
Trust and the Growth Fund.
Additional trends affecting the independent power industry generally are
described at Item 1 - Business.
Significant Accounting Policies
The Trust's plant and equipment is recorded at cost and is depreciated over
its estimated useful life. The estimate useful lives of the Trust's plant and
equipment range from 3 to 15 years. A significant decrease in the estimated
useful life of a material amount of plant and equipment could have a material
adverse impact on the Trust's operating results in the period in which the
estimate is revised and subsequent periods. The Trust evaluates the impairment
of its long-lived assets based on projections of undiscounted cash flows
whenever events or changes in circumstances indicate that the carrying amounts
of such assets may not be recoverable. Estimates of future cash flows used to
test the recoverability of specific long-lived assets are based on expected cash
flows from the use and eventual disposition of the assets. A significant
reduction in actual cash flows and estimated cash flows may have a material
adverse impact on the Trust's operating results and financial condition.
Results of Operations
The year ended December 31, 2002 compared to the year ended December 31, 2001.
Revenues increased by $2,887,000, to $9,120,000 in 2002, as compared to
$6,233,000 in 2001. The increase is attributable to the increase in the capacity
and number of completed facilities.
Gross margin decreased from $639,000 in 2001, to a loss of $871,000 in
2002. The decrease is primarily attributed to the increase in maintenance and
depreciation expense incurred as a result of the completion of facilities and
their operation, as compared to the prior year when some facilities were still
under construction.
General and administrative expenses increased $289,000, or 63%, to $750,000
in 2002 from $461,000 in 2001. The increase is primarily a result of the
expansion of the UK Projects.
The management fee paid to the Managing Shareholder decreased $1,166,000,
or 50%, to $1,166,000 in 2002 from $2,332,000 in 2001. The decrease reflects the
Managing Shareholder waiving the third and fourth quarter fees, whereas in 2001
the Trust was charged for a full year of management fees.
In 2002, the Trust recorded a writedown of $854,000 for two UK sites, which
it received as part of the 2001 merger agreement, which will not be developed.
The Trust did not record any writedowns of projects in 2001.
The Trust recorded a loss from operations of $3,642,000 in 2002 compared to
a loss from operations of $2,439,000 in 2001, a change of $1,203,000. The
increase reflects the higher general and administrative charges, the writedown
of investments and lower gross margin, partially offset by the decrease in the
management fee in 2002.
The Trust recorded interest income from the note related to the Synergics
Projects of $410,000 in 2001. During the second half of 2001, drought conditions
affected many of the Synergics Projects, reducing revenues and cash flows
recorded by Synergics. As a result of these reduced cash flows experienced by
Synergics, the Trust ceased accruing interest effective as of October 1, 2001.
Interest expense increased $787,000, or 80%, to $1,766,000 in 2002, as
compared to $979,000 in 2001. The increase is a result of the increase in
outstanding borrowings under the UK Projects bank loan.
Interest income, excluding interest related to the Synergics Projects note,
decreased by $79,000 or 49% to $83,000 in 2002 from $162,000 in 2001 reflecting
lower average cash balances on hand.
The Trust recorded an equity loss of $124,000 from the Maine Hydro Projects
in 2002, a decrease of $239,000 from the equity loss of $363,000 recorded in
2001. Although the Maine Hydro Projects experienced drought conditions
throughout much of 2002, resulting in the current year loss, rainfall and river
flows were greater than in 2001.
The Trust's equity loss from the Maine Biomass Projects in 2002 was
$1,259,000 compared $904,000 in 2001. The equity loss recognized in 2002 is
primarily due to the higher maintenance fees incurred as a result of the West
Enfield plant operating under a normal full time schedule, as well as lower
capacity revenues received by the West Enfield and Jonesboro plants. As an
offset to the higher maintenance fees and lower capacity revenues, the West
Enfield plant recorded $2,008,000 of renewable energy attributes revenue based
on its recent qualification under the RPS Regulations.
The Trust recorded $33,000 of equity income related to the Egypt projects
in 2001 compared to $294,000 of losses in 2002. The loss in 2002 is attributed
to the increase in maintenance and depreciation expense as a result of the
completion of facilities and their operation, as compared to 2001 when some
facilities were still under construction.
The Trust received $147,000 of other operating income in 2002. The proceeds
are from the liquidation of the Santee River Rubber Company, which filed for
bankruptcy in 2000.
The Trust recorded a provision for United Kingdom income taxes of $307,235
for the year ended December 31, 2001 on a foreign loss of $548,830. For the year
ended December 31, 2002, the Trust recorded an income tax benefit of $168,847 on
foreign loss of $2,817,152. The income tax benefit/provision recorded is 30%,
the statutory corporate tax rate of the United Kingdom, of the net increase in
the current years temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and amounts used for income tax
purposes.
The Trust's net loss increased $752,000, or 18%, from a loss of $4,240,000
in 2001 to a loss of $4,991,000 in 2002. The increase in net loss is primarily
the result of the increase in loss from operations and the increase in interest
expense.
The year ended December 31, 2001 compared to the year ended December 31, 2000.
Total revenues and cost of sales of $6,233,000 and $5,594,000,
respectively, in 2001 were generated by the UK Projects. As indicated above,
prior to 2001 the results of operations of the UK Projects were accounted for
using the equity method of accounting. As a result, the Trust did not report any
revenues or cost of sales in 2000.
General and administrative expenses increased $223,000, or 94%, to $461,000
in 2001 from $238,000 in 2000. The increase reflects the general and
administrative costs of the UK Projects, whose results of operations are
consolidated with those of the Trust effective on December 31, 2000.
Research and development expense decreased $1,721,000, or 86%, to $285,000
in 2001 from $2,006,000 in 2000. The decrease reflects the reduction in spending
by Waterpure, which ran out of funds for additional spending and declared
bankruptcy in 2001.
The management fee paid to the Managing Shareholder was relatively
unchanged at $2,332,000 in 2001 compared to $2,257,000 in 2000.
The Trust recorded a loss from operations of $2,439,000 in 2001 compared to
a loss from operations of $4,501,000 in 2000, a change of $1,472,000. The change
primarily reflects the decrease in research and development expense from the
Trust's Waterpure subsidiary.
The Trust recorded interest income from the note related to the Synergics
Projects of $410,000 in 2001, an increase of $46,000 or 13%, from the $364,000
recorded in 2000. The Trust acquired the note in April 2000.
Interest expense of $979,000 in 2001 relates to the UK Projects whose
operations were not consolidated with those of the Trust in 2000.
Interest income, excluding interest related to the Synergics Projects note,
decreased by $191,000 or 54% to $162,000 in 2001 from $353,000 in 2000
reflecting lower average cash balances on hand.
The Trust recorded an equity loss of $363,000 from the Maine Hydro Projects
in 2001, a change of $615,000 from the equity income of $252,000 recorded in
2000. This decrease is due to extremely low rainfall and river flows which
caused a significant drop in revenue in 2001 compared to 2000.
The Trust's equity loss from the Maine Biomass Project increased $264,000
or 41%, to $904,000 in 2001 from $640,000 as a result of the cost of starting up
one of the facilities in 2001 and reduced revenue from installed capacity in
2001 compared to 2000.
In 2000, the Trust recorded equity income (losses) of $(361,000),
$(717,000) and $(57,000) and $79,000 from Santee River, MetaSound, GFG and
Quantum, respectively. These projects were written off by the Trust in 2000,
resulting in a charge of $12,714,000.
As a result of consolidating the UK Projects, the Trust recorded an income
tax provision for United Kingdom taxes of $307,000 in 2001.
In 2001, the minority interest in loss of consolidated income of $335,000
relates to the UK Projects. In 2000, the minority interest in loss of
consolidated income of $865,000 relates to the Waterpure subsidiary.
The Trust's net loss decreased $12,565,000 or 75% from a loss of
$16,805,000 in 2000 to $4,240,000 in 2001, primarily reflecting the absence of
charges for the writedown of investments in 2001.
Liquidity and Capital Resources
In 2002 and 2001, the Trust's operating activities used cash of $730,000
and $1,591,000, respectively.
In 2002, the Trust's investing activities used $3,772,000, primarily
related to capital expenditures related to the UK Projects. In 2001, the Trust's
investing activities used $9,173,000, primarily related to capital expenditures
and acquisitions related to the UK Projects.
In 2002, the Trust's financing activities provided cash of $4,642,000,
primarily related to the borrowings from the Bank of Scotland to develop UK
Projects. The source of cash from financing activities of $8,315,000 in 2001
primarily represents contributions from the Growth Fund to UK LLC and borrowings
from the Bank of Scotland to acquire UK Projects.
During the fourth quarter of 1997, the Trust and its principal bank
executed a revolving line of credit agreement, whereby the bank provided a three
year committed line of credit facility of $750,000. The credit facility was
extended until July 31, 2002. During the third quarter of 2002, the Trust
extended its revolving line of credit agreement with its principal bank through
August 31, 2002 and subsequently finalized a further extension until July 31,
2003. The extension provides the Trust with a committed line of credit of
$593,000. Outstanding borrowings bear interest at LIBOR plus 2.5% (3.882% and
4.376% at December 31, 2002 and 2001, respectively). The credit agreement
requires the Trust to provide 100% cash collateral for any borrowings after
December 31, 2002. There were no outstanding borrowings at December 31, 2002 and
2001.
Obligations of the Trust are generally limited to payment of a management
fee to the Managing Shareholder and payments for certain administrative,
accounting and legal services to third persons. Accordingly, the Trust has not
found it necessary to retain a material amount of working capital.
The UK Projects have collateralized long-term debt, without recourse to the
Fund, with scheduled principal payments as follows:
2003 $1,118,000
2004 1,286,000
2005 1,463,000
2006 1,649,000
2007 1,794,000
Thereafter 13,651,000
The long-term debt is repayable in semi annual installments each March 31st
and September 30th through September 30, 2014. $10,305,507 of the outstanding
debt bears interest at 7.17%, while $10,655,772 of the outstanding debt bears
interest at 7.82%. The notes are collateralized by substantially all of the
assets of the projects and the credit agreement requires that a debt service
coverage ratio of 1.4 to 1 be maintained. At December 31, 2002, the UK Projects
outstanding debt was current and in good standing with its bank.
The Trust is exposed to foreign currency risk primarily through its
investments in the United Kingdom and Egypt.
The Maine Hydro Projects, Egyptian Projects and UK Projects have certain
long-term agreements that require delivery of unspecified volumes of energy and
water at fixed prices. These long-term contracts are not guaranteed by the
Trust. The Trust and its subsidiaries anticipate that during 2003 their cash
flow from operations will be sufficient to meet their obligations.
In the fourth quarter of 2002, the Trust's Managing Shareholder formed
Ridgewood Renewable PowerBank LLC ("PowerBank") and began offering shares.
PowerBank raised approximately $12 million and discontinued its offering in
April 2003. The proceeds from this fund raising will finance the expansion of
the United Kingdom Landfill Gas Projects.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Qualitative Information About Market Risk.
The Trust's investments in financial instruments are short-term investments
of working capital or excess cash. Those short-term investments are limited by
its Declaration of Trust to investments in United States government and agency
securities or to obligations of banks having at least $5 billion in assets.
Because the Trust invests only in short-term instruments for cash management,
its exposure to interest rate changes is low. The Trust has limited exposure to
trade accounts receivable and believes that their carrying amounts approximate
fair value.
The Trust's consolidated United Kingdom Landfill Gas Projects investments
in financial instruments are short-term pound denominated obligations of large
banks and trade accounts receivable and payable.
The Trust's primary market risk exposure is limited interest rate risk
caused by fluctuations in short-term interest rates. The Trust's primary market
risk exposure related to its consolidated United Kingdom Landfill Gas Projects
is to fluctuations in the foreign currency exchange rates. The Trust does not
anticipate any changes in its primary market risk exposure or how it intends to
manage it. The Trust does not trade in market risk sensitive instruments.
Quantitative Information About Market Risk
This table provides information about the Trust's financial instruments
that are defined by the Securities and Exchange Commission as market risk
sensitive instruments. These include only short-term U.S. government and agency
securities and bank obligations. The table includes principal cash balances and
related weighted average interest rates by contractual maturity dates.
December 31, 2002
Expected Maturity Date
2003
(U.S. $)
Bank Deposits and Certificates of Deposit $ 5,000
Average interest rate 1.04%
(U.S. $)
Bank Deposits denominated in United Kingdom Pounds $ 2,925,000
Average interest rate 2.75%
Item 8. Financial Statements and Supplementary Data.
A. Index to Consolidated Financial Statements
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
2002 and 2001 F-3
Consolidated Statements of Operations for the
three years ended December 31, 2002 F-4
Consolidated Statements of Comprehensive Loss for
the three years ended December 31, 2002 F-5
Consolidated Statements of Changes in Shareholders'
Equity for the three years ended December 31, 2002 F-5
Consolidated Statements of Cash Flows for the three
years ended December 31, 2002 F-6
Notes to Consolidated Financial Statements F-8 to F-26
Financial Statements for Maine Biomass Projects
B. Supplementary Financial Information
Selected Quarterly Financial Data for the years ended December 31, 2002 and 2001
(Unaudited)
2002
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ------------ -----------
Revenue ............ $ 1,683,000 $ 2,081,000 $ 2,046,000 $ 3,310,000
Loss from operations (1,116,000) (872,000) (717,000) (937,000)
Net loss ........... (1,588,000) (978,000) (269,000) (2,156,000)
2001
----------- ----------- ----------- -----------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Revenue ............ $ 1,991,000 $ 911,000 $ 1,514,000 $ 1,817,000
Loss from operations (337,000) (887,000) (117,000) (1,099,000)
Net loss ........... (680,000) (714,000) (519,000) (2,327,000)
Report of Independent Accountants
To the Shareholders of
Ridgewood Electric Power Trust V:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive loss, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the financial position of Ridgewood Electric Power Trust V and its subsidiaries
(the "Trust") at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Florham Park, NJ
May 29, 2003
Ridgewood Electric Power Trust V
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
Assets: 2002 2001
------------ ------------
Cash and cash equivalents ...................... $ 2,930,224 $ 2,519,330
Accounts receivable, trade ..................... 3,615,902 2,464,557
Due from affiliates ............................ 1,796,530 435,823
Other current assets ........................... 461,019 334,859
------------ ------------
Total current assets .................... 8,803,675 5,754,569
------------ ------------
Plant and equipment ............................ 25,420,611 20,040,217
Less - Accumulated depreciation ................ (4,204,739) (2,287,288)
------------ ------------
Plant and equipment, net ................. 21,215,872 17,752,929
------------ ------------
Electric power sales contracts
and other intangibles .......................... 21,865,668 19,891,901
Less - Accumulated amortization ................ (3,716,837) (1,976,152)
------------ ------------
Electric power sales contracts
and other intangibles, net .............. 18,148,831 17,915,749
------------ ------------
Investments:
Maine Hydro Projects ....................... 4,405,278 4,879,015
Maine Biomass Projects ..................... 3,896,576 4,830,991
Egypt Projects ............................. 3,502,819 3,836,912
Synergics Projects ......................... 5,887,389 5,869,109
CLP Spanish Landfill Projects .............. 1,370,564 766,335
------------ ------------
Total assets .......................... $ 67,231,004 $ 61,605,609
------------ ------------
Liabilities and shareholders' equity:
Liabilities:
Current portion of long-term debt .............. $ 1,118,497 $ 609,550
Accounts payable and accrued expenses .......... 3,263,091 3,234,486
Due to affiliates .............................. 3,182,056 343,057
------------ ------------
Total current liabilities ............. 7,563,644 4,187,093
------------ ------------
Long-term debt, less current portion ........... 19,842,782 13,878,183
Deferred income taxes .......................... 918,249 1,081,202
Other non-current liabilities .................. 77,699 --
Minority interest .............................. 10,584,899 10,408,841
Commitments and contingencies
Shareholders' equity:
Shareholders' equity (932.8875
investor shares issued and
outstanding) .............................. 28,753,490 32,521,983
Managing shareholder's
accumulated deficit (1 management
share issued and outstanding) ............. (509,759) (471,693)
------------ ------------
Total shareholders' equity ............ 28,243,731 32,050,290
------------ ------------
Total liabilities and
shareholders' equity ................. $ 67,231,004 $ 61,605,609
------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust V
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------------------
2002 2001 2000
-------------- ------------- --------------
Power generation
revenue ....................... $ 9,120,088 $ 6,233,030 $ --
Cost of sales,
including depreciation
and amortization of
$2,978,809 and
$2,042,387 in
2002 and 2001 ................. 9,991,516 5,594,142 --
------------ ------------ ------------
Gross margin ................... (871,428) 638,888 --
General and
administrative expenses ....... 750,240 461,138 238,161
Management fee paid
to managing shareholder ....... 1,166,112 2,332,224 2,257,357
Research and development ....... -- 285,429 2,005,494
Write down of
investments in
power generation
projects ...................... 854,367 -- --
------------ ------------ ------------
Total other
operating expenses ............ 2,770,719 3,078,791 4,501,012
Loss from operations ........... (3,642,147) (2,439,903) (4,501,012)
Other income (expense):
Interest income .............. 82,691 162,250 352,638
Interest income
from Synergics Projects ...... -- 409,825 364,289
Interest expense ............. (1,765,644) (978,407) --
Equity interest
in income (loss) of:
Maine Hydro Projects ....... (124,495) (362,509) 252,250
Maine Biomass Projects ..... (1,259,415) (904,297) (639,984)
MetaSound Systems .......... -- -- (717,135)
Quantum Conveyor ........... -- -- 79,280
Santee River Rubber ........ -- -- (361,042)
Synergics Projects ......... (23,499) -- --
Egypt Projects ............. (294,442) 32,959 5,008
CLP Spanish
Landfill Projects ......... 94,781 18,336 --
GFG ........................ -- -- (57,379)
United Kingdom
Landfill Projects ......... -- -- 551,520
Other income (expenses) ...... 147,096 (206,167) (283,874)
Write down
of investments .............. -- -- (12,714,090)
------------ ------------ ------------
Other expense, net ..... (3,142,927) (1,828,010) (13,168,519)
------------ ------------ ------------
Loss before taxes .............. (6,785,074) (4,267,913) (17,669,531)
Income tax
(benefit) expense .............. (168,847) 307,235 --
------------ ------------ ------------
Loss before
minority interest ............. (6,616,227) (4,575,148) (17,669,531)
Minority interest
in loss of consolidated
subsidiaries ................ 1,624,766 335,478 864,510
------------ ------------ ------------
Net loss ....................... $ (4,991,461) $ (4,239,670) $(16,805,021)
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust V
Consolidated Statements of Changes In Shareholders' Equity
For The Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------
Subscription Managing
Shareholders Receivable Shareholder Total
------------- -------------- ------------- ------------
Shareholders'
equity,
January 1,2000 . $ 60,644,421 $ (23,000) $ (187,628) $ 60,433,793
Capital
contributions,
net ............ -- 23,000 -- 23,000
Cash
distributions .. (3,922,376) -- (39,620) (3,961,996)
Net loss
for
the year ....... (16,636,971) -- (168,050) (16,805,021)
Cumulative
translation
adjustment ..... (1,930,932) -- (19,504) (1,950,436)
------------ ------------ ------------ ------------
Shareholders'
equity,
December 31,2000 38,154,142 -- (414,802) 37,739,340
Net loss
for
the year ....... (4,197,273) -- (42,397) (4,239,670)
Cumulative
translation
adjustment ..... (1,434,886) -- (14,494) (1,449,380)
------------ ------------ ------------ ------------
Shareholders'
equity,
December 31,2001 32,521,983 -- (471,693) 32,050,290
Net loss
for
the year ....... (4,941,546) -- (49,915) (4,991,461)
Cumulative
translation
adjustment ..... 1,173,053 -- 11,849 1,184,902
------------ ------------ ------------ ------------
Shareholders'
equity,
December 31,2002 $ 28,753,490 $ -- $ (509,759) $ 28,243,731
------------ ------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust V
Consolidated Statements of Comprehensive Loss
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
Net loss ............. $ (4,991,461) $ (4,239,670) $(16,805,021)
Cumulative translation
adjustment ........... 1,184,902 (1,449,380) (1,950,436)
------------ ------------ ------------
Comprehensive loss ... $ (3,806,559) $ (5,689,050) $(18,755,457)
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust V
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Year Ended December 31,
2002 2001 2000
------------- ------------- ------------
Cash flows from
operating activities:
Net loss .................... $ (4,991,461) $ (4,239,670) $(16,805,021)
Adjustments to
reconcile net loss
to net cash used
in operating
activities, net
of acquired businesses:
Depreciation and
amortization ............... 2,978,809 2,042,387 --
Vesting of
employee
stock options .............. 309,217 -- --
Minority
interest in
loss of
subsidiaries ............... (1,624,766) (335,478) (864,510)
Interest income
from Synergics
Projects ................... -- (409,825) (364,289)
Write down
of investments ............. 854,367 -- 12,714,090
Equity interest
in (income) loss of:
Maine Hydro
Projects ............... 124,495 362,509 (252,250)
Maine Biomass
Projects ............... 1,259,415 904,297 639,984
MetaSound
Systems ................ -- -- 717,135
Quantum
Conveyor ............... -- -- (79,280)
Santee River
Rubber ................. -- -- 361,042
Synergics
Projects ............... 23,499 -- --
Egypt
Projects ............... 294,442 (32,959) (5,008)
CLP Spanish
Landfill
Projects ............... (94,781) (18,336) --
GFG ..................... -- -- 57,379
United Kingdom
Landfill Projects ...... -- -- (551,520)
Changes in assets
and liabilities, net of
acquired businesses:
Increase in
accounts
receivable, trade .......... (835,800) (1,334,833) --
(Increase) decrease
in other
current assets ............. (126,160) 763,395 (20,661)
(Decrease) increase
in accounts payable
and accrued expenses ....... (192,517) 947,640 376,019
Increase in other
non-current
liabilities ................ 72,826 -- --
(Decrease) increase
in deferred
income taxes ............... (259,482) 333,812 --
Increase (decrease)
in due to/from
affiliate, net ............. 1,043,182 (574,351) 707,592
------------ ------------ ------------
Total
adjustments ................ 3,826,746 2,648,258 13,435,723
------------ ------------ ------------
Net cash used in
operating
activities ......... (1,164,715) (1,591,412) (3,369,298)
------------ ------------ ------------
Cash flows from
investing activities:
Capital
expenditures ............... (3,358,550) (6,800,747) --
Cash paid for
acquired business,
net of cash
received ................... -- (3,627,867) --
Investment in
Maine Biomass
Projects ................... (325,000) (250,000) (300,000)
Investment
in Santee River
Rubber ..................... -- -- (354,667)
Investment in
Synergics
Projects ................... (41,779) -- (5,094,995)
Investment in
Egypt Projects ............. -- -- (2,208,896)
Investment in CLP
Spanish Landfill
Projects ................... (395,887) -- --
Distributions from
Maine Hydro
Projects ................... 349,242 105,424 568,807
Distributions
from United Kingdom
Landfill Projects .......... -- -- 1,517,760
Distributions
from
Egypt Projects ............. -- 1,399,982 --
Cash acquired
by consolidation
of United Kingdom
Landfill Projects .......... -- -- 3,404,243
------------ ------------ ------------
Net cash used
in investing
activities ......... (3,771,974) (9,173,208) (2,467,748)
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust V
Consolidated Statements of Cash Flows (continued)
- --------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------
2002 2001 2000
--------------- ------------ --------------
Cash flows
from financing
activities:
Borrowings under
line of credit
facility ...................... 5,504,004 3,438,589 --
Repayments under
line of credit
facility ...................... (866,895) (600,803) --
Short term advances
from affiliates ............... 435,110 -- --
Contributions
to United Kingdom
Landfill Projects by
minority member ............... 4,491 5,817,006 --
Proceeds from
shareholders'
contributions ................. -- -- 23,000
Cash distributions
to shareholders ............... -- -- (3,961,996)
------------ ------------ ------------
Net cash provided
by (used in)
financing activities .. 5,076,710 8,654,792 (3,938,996)
------------ ------------ ------------
Effect of exchange
rate on cash and
cash equivalents .............. 270,873 (101,923) (252,061)
Net increase (decrease)
in cash and cash
equivalents ................... 410,894 (2,211,751) (10,028,103)
Cash and cash
equivalents,
beginning of year ............. 2,519,330 4,731,081 14,759,184
------------ ------------ ------------
Cash and cash
equivalents,
end of year ................... $ 2,930,224 $ 2,519,330 $ 4,731,081
------------ ------------ ------------
See accompanying notes to the consolidated financial statements.
Ridgewood Electric Power Trust V
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Purpose
Nature of Business
Ridgewood Electric Power Trust V (the "Trust") was formed as a Delaware business
trust in March 1996, by Ridgewood Energy Holding Corporation acting as the
Corporate Trustee. The managing shareholder of the Trust is Ridgewood Renewable
Power LLC (the "Managing Shareholder"). The Trust began offering shares on April
12, 1996 and discontinued its offering on April 15, 1998. The Trust had no
operations prior to the commencement of the share offering.
The Trust has been organized to invest primarily in independent power generation
facilities, in the development of these facilities and in other projects. These
independent power generation facilities will include cogeneration facilities,
which produce both electricity and heat energy and other power plants that use
various fuel sources (except nuclear). In the past, the Trust has invested in
opportunities outside of independent power generation facilities.
Ridgewood Energy Holding Corporation, a Delaware corporation, is the Corporate
Trustee of the Trust. The Corporate Trustee acts on the instructions of the
Managing Shareholder and is not authorized to take independent discretionary
action on behalf of the Trust.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the Trust and its
controlled subsidiaries. All material intercompany transactions have been
eliminated.
The Trust uses the equity method of accounting for its investments in affiliates
which are 50% or less owned if the Trust has the ability to exercise significant
influence over the operating and financial policies of the affiliates but does
not control the affiliate. The Trust's share of the earnings of the affiliates
is included in the Consolidated Statements of Operations.
Critical accounting policies and estimates
The preparation of consolidated financial statements requires the Trust to make
estimates and judgements that affect the reported amounts of assets,
liabilities, sales and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Trust evaluates its estimates, including
provision for bad debts, carrying value of investments,
amortization/depreciation of plant and equipment and intangible assets, and
recordable liabilities for litigation and other contingencies. The Trust bases
its estimates on historical experience, current and expected conditions and
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgements about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
New Accounting Standards and Disclosures
SFAS 141
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 141, Business Combinations, which
eliminates the pooling-of-interest method of accounting for business
combinations and requires the use of the purchase method. In addition, SFAS 141
requires the reassessment of intangible assets to determine if they are
appropriately classified either separately or within goodwill. SFAS 141 is
effective for business combinations initiated after June 30, 2001. The Trust
adopted SFAS 141 on July 1, 2001, with no material impact on the consolidated
financial statements.
SFAS 142
In June 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets,
which eliminates the amortization of goodwill and other acquired intangible
assets with indefinite economic useful lives. SFAS 142 requires an annual
impairment test of goodwill and other intangible assets that are not subject to
amortization. Other intangible assets with definite economic lives will continue
to be amortized over their useful lives. The Trust adopted SFAS 142 effective
January 1, 2002, with no material impact on the consolidated financial
statements.
SFAS 143
In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, on the accounting for obligations associated with the retirement of
long-lived assets. SFAS 143 requires a liability to be recognized in the
consolidated financial statements for retirement obligations meeting specific
criteria. Measurement of the initial obligation is to approximate fair value,
with an equivalent amount recorded as an increase in the value of the
capitalized asset. The asset will be depreciated in accordance with normal
depreciation policy and the liability will be increased for the time value of
money, with a charge to the income statement, until the obligation is settled.
SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Trust
will adopt SFAS 143 effective January 1, 2003 and has assessed that this
standard will not have a material impact on the Trust.
SFAS 144
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which replaces SFAS 121, Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed Of. For
long-lived assets to be held and used, SFAS 144 retains the requirements of SFAS
121 to (a) recognize an impairment loss only if the carrying amount is not
recoverable from undiscounted cash flows and (b) measure an impairment loss as
the difference between the carrying amount and fair value of the asset. For
long-lived assets to be disposed of, SFAS 144 establishes a single accounting
model based on the framework established in SFAS 121. The accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations and replaces the provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, for the disposal of segments of a business. SFAS 144
also broadens the reporting of discontinued operations. The Trust adopted SFAS
144 effective January 1, 2002, with no material impact on the consolidated
financial statements.
SFAS 145
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Correction.
SFAS No. 145 eliminates extraordinary accounting treatment for reporting gain or
loss on debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Trust will adopt SFAS
145 effective January 1, 2003 and has determined that this standard will not
have a material impact on the Trust.
SFAS 146
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires recording costs associated
with exit or disposal activities at their fair values when a liability has been
incurred. The Trust will adopt SFAS 146 effective January 1, 2003 and has
determined that this standard will not have a material impact on the Trust.
FIN 45
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees and Indebtedness of Others." FIN 45 elaborates on the
disclosures to be made by the guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002; while the provisions of the disclosure
requirements are effective for financial statements of interim or annual reports
ending after December 15, 2002. The Trust adopted the disclosure provisions of
FIN 45 during the fourth quarter of 2002 with no material impact to the
consolidated financial statements.
FIN 46
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46") which changes the criteria by which one
company includes another entity in its consolidated financial statements. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003, and apply in the
first fiscal period beginning after June 15, 2003, for variable interest
entities created prior to February 1, 2003. The Trust will adopt the disclosure
provisions of FIN 46 effective June 15, 2003 and has determined that the
adoption will not have a material impact on the Trust's consolidated financial
statements.
Cash and cash equivalents
The Trust considers all highly liquid investments with maturities when purchased
of three months or less to be cash and cash equivalents. Cash and cash
equivalents consist of commercial paper and funds deposited in bank accounts.
Impairment of Long-Lived Assets and Intangibles
In accordance with the provisions of SFAS No. 144, the Trust evaluates
long-lived assets, such as fixed assets and specifically identifiable
intangibles, when events or changes in circumstances indicate that the carrying
value of such assets may not be recoverable. The determination of whether an
impairment has occurred is made by comparing the carrying value of an asset to
the estimated undiscounted cash flows attributable to that asset. If an
impairment has occurred, the impairment loss recognized is the amount by which
the carrying value exceeds the discounted cash flows attributable to the asset
or the estimated fair value of the asset.
Plant and equipment
Plant and equipment, consisting principally of electrical generating equipment,
is stated at cost. Major renewals and betterments that increase the useful lives
of the assets are capitalized. Repair and maintenance expenditures that increase
the efficiency of the assets are expensed as incurred. The Trust periodically
assesses the recoverability of plant and equipment, and other long-term assets,
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
Depreciation is recorded using the straight-line method over the estimated
useful life of the assets, which ranges from 4 to 20 years with a weighted
average of 15 years at December 31, 2002 and 2001. During the years ended
December 31, 2002 and 2001, the Trust recorded depreciation expense of
$1,555,486 and $1,105,191, respectively.
Electric power sales contracts and other intangibles
A portion of the purchase price of the United Kingdom Landfill Projects was
assigned to the Electric Power Sales Contracts and is being amortized over the
life on the contracts (15 years) on a straight-line basis. The electric power
sales contracts are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. During the years ended December 31, 2002 and 2001, the Trust
recorded amortization expense of $1,423,320 and $937,196, respectively. The
Trust expects to record amortization expense during the next five years as
follows:
Year Ended
December 31, Amortization
------------- ------------
2003 $1,423,320
2004 1,423,320
2005 1,423,320
2006 1,423,320
2007 1,423,320
Revenue recognition
Power generation revenue is recorded in the month of delivery, based on the
estimated volumes sold to customers at rates stipulated in the power sales
contracts. Adjustments are made to reflect actual volumes delivered when the
actual information subsequently becomes available. Billings to customers for
power generation generally occurs during the month following delivery. Final
billings do not vary significantly from estimates. Interest income is recorded
when earned and dividend income is recorded when declared.
Foreign currency translation
The consolidated financial statements of the Trust's non-United States
subsidiaries utilize local currency as their functional currency and are
translated into United States dollars using current rates of exchange, with
gains or losses included in the cumulative translation adjustment account in the
shareholders' equity section of the Consolidated Balance Sheets.
Significant Customers
The Trust sells all of the electricity it produces to quasi-autonomous
non-governmental organizations that purchase electricity generated by renewable
sources (such as landfill gas power plants) on behalf of all British utilities
in order to meet British environmental protection goals. The Trust did not
record revenues in 2000 since the Trust did not consolidate the United Kingdom
Landfill Projects during this year (see Note 3, United Kingdom Landfill
Projects).
Stock-Based Compensation
A subsidiary of the Trust has a plan which allows for the granting of stock
options. The Trust applies FASB No. 123, Accounting for Stock-Based
Compensation, in accounting for its stock option grants. Accordingly,
compensation expense is recognized for fixed stock options as if the fair value
of all stock options as of the grant date were recognized as expense over the
vesting period in accordance with SFAS No. 123. The outstanding stock option
grants vest over a three year period and have an exercise life of ten years from
the date of grant. For the year ended December 31, 2002, the Trust recorded
compensation expense of $309,217.
Supplemental cash flow information
Total interest paid during the years ended December 31, 2002 and 2001 was
$1,765,644 and $961,246, respectively.
For the year ended December 31, 2001 the Trust paid income taxes of $27,385.
In connection with the acquisition, (see Note 3, United Kingdom Landfill
Projects) on October 16, 2001 a subsidiary of the Trust issued 3,500,000 shares,
to a minority shareholder.
Income taxes
The Trust recorded a provision for United Kingdom income taxes of $307,235 for
the year ended December 31, 2001 on a foreign loss of $548,830. For the year
ended December 31, 2002, the Trust recorded an income tax benefit of $168,847 on
foreign loss of $2,817,152. The income tax benefit/provision recorded is 30%,
the statutory corporate tax rate of the United Kingdom. At December 31, 2002 and
2001, the Trust had a deferred tax liability of $918,249 and $1,081,202,
respectively. The significant component of the Trust's deferred tax liability is
attributable to the accelerated depreciation on its plant and equipment.
The Trust does not pay or record United States income taxes on the undistributed
earnings of its foreign subsidiaries, where management has determined that the
earnings are permanently reinvested in the entities that produced them. The
cumulative undistributed earnings are included in "Shareholders' Equity" on the
Consolidated Balance Sheets. No provision is made for United States income taxes
in the accompanying consolidated financial statements as the income or losses of
the Trust are passed through and included in the tax returns of the individual
shareholders of the Trust. At December 31, 2002 and 2001, the Trust's net assets
had a tax basis of $50,538,258 and $53,243,633, respectively.
The following is a reconciliation of the income tax benefit computed using the
statutory foreign income tax rate to the actual income tax (benefit) expense and
its effective income tax rate.
As of December 31,
2002 2001
---------------------------------------------------
Amount Percent of Amount Percent of
pretax pretax
income income
----------------------- -------------------------
Income tax
benefit at
foreign statutory
rate .................. $(2,035,522) (30.0%) $(1,280,374) (30.0%)
U.S. pass
thru expenses ......... 905,842 13.4% 1,156,619 27.1%
Amortization
of foreign
intangibles ........... 524,528 7.7% 281,159 6.6%
Other .................. 436,305 6.4% 149,831 3.5%
----------- ---- ----------- ----
Income tax
(benefit) expense ...... (168,847) (2.5%) 307,235 7.2%
----------- ---- ----------- ----
Reclassification
Certain items in previously issued financial statements have been reclassified
for comparative purposes.
3. Projects
Consolidated Investments
United Kingdom Landfill Projects
In 1999, the Trust formed Ridgewood UK LLC ("UK LLC"), which in turn formed a
subsidiary Ridgewood UK Ltd ("Ridgewood UK"). On June 30, 1999, Ridgewood UK
purchased 100% of the equity in six landfill gas power plants located in Great
Britain. The total purchase price was $16,667,567, including $617,567 of
acquisition costs. Ridgewood UK had the right to acquire other landfill gas
plants under development in Great Britain. During 2001, the Growth Fund
contributed $5,817,006 to UK LLC in return for an equity share of approximately
30%. Bank financing and approximately $3,400,000 of the invested funds were used
to acquire four landfill gas power plants with a capacity of 5.3 megawatts. The
total purchase price of the acquired plants was approximately $5,800,000, of
which $2,100,000 was assigned to the electric power sales contracts acquired,
which will be amortized over the life of the contract (15 years). The remaining
invested funds of $2,000,000 were used in the October 16, 2001 merger described
below.
The Trust accounted for these projects using the equity method because its
ability to exercise control over the projects was expected to be temporary
because the Growth Fund was originally expected to ultimately contribute more
capital to Ridgewood UK than the Trust. Due to delays in construction of the
additional landfill gas plants, the Growth Fund elected to invest some of its
funds in unrelated projects. As a result, the Trust expects to maintain control
over the projects. As a result, effective December 31, 2000, the Trust began to
account for these projects using the consolidation method of accounting. Under
the terms of a merger agreement (the "UK Merger"), on October 16, 2001,
Ridgewood UK, through the issuance of 24% of its shares and $2,000,000 cash ,
acquired certain of the assets and liabilities of CLP Services, Ltd., CLP
Development, Ltd and CLP Envirogas, Ltd. (collectively the "Management and
Development Companies") and the equity and debt of new landfill projects (the
"UK Merger" transaction). The Management and Development Companies previously
developed the various United Kingdom Landfill Gas Projects and managed and
operated the projects after they were sold to Ridgewood UK. UK Ltd. was renamed
CLP Envirogas Limited in 2001. The Trust and the Growth Fund own approximately
70% and 30%, respectively, of UK LLC, which in turn owns approximately 76% of
Ridgewood UK.
In return for the stock issuance and $2,000,000 cash, Ridgewood UK received
plant and equipment valued at approximately $4,201,000, a 50% equity interest in
landfill projects valued at approximately $744,000, cash of $454,000 and other
assets with an approximate value of $1,000,000. In accordance with the UK Merger
agreement, Ridgewood UK assumed liabilities of approximately $3,058,000.
Ridgewood UK assigned the electric power sales contacts and other intangibles
acquired a value of $6,781,000, which will be amortized over the 15 year life of
the contacts.
Certain unrelated shareholders of Ridgewood UK are attempting to renovate
certain older projects in the United Kingdom. Under the terms of the UK Merger
agreement, if they are successful in renovating these projects and the projects
meet certain performance tests, Ridgewood UK will be obligated to acquire the
renovated projects in exchange for the issuance of additional shares. The number
of shares to be issued is dependent on the projected financial performance of
the renovated projects. If Ridgewood UK issues the maximum number of shares to
acquire the renovated projects, the Company's ownership of Ridgewood UK would
fall from 76.3% to 63.5%. During 2002, the parties mutually agreed that
Ridgewood UK would not acquire the defined older projects and would not be
required to issue any additional shares in relation to these projects.
Under the terms of the UK merger, certain directors and employees of Ridgewood
UK have received vested options to acquire shares in Ridgewood UK. The price to
exercise the options is equal to the share price of UK Ltd at the time of the
merger. If all the options were exercised, Ridgewood UK would receive
approximately $2.9 million from the exercise of the options and the Company's
ownership of Ridgewood UK would fall from 76.3% to 67.2%.
Through October 16, 2001, CLP Services Limited ("CLPS"), provided day-to-day
services to the projects. CLPS was paid a flat fee of approximately 1.2 cents
per kilowatt-hour for those services (adjusted for increases in the Retail Price
Index) and was eligible for bonus payments if a project's actual annual
electricity output exceeded 90% of its capacity. CLPS was also paid
approximately $88,000 per year (also adjusted for increases in the Retail Price
Index) for management services for the various companies owning the ten existing
projects. The gas extraction and cleaning systems for the landfills was operated
by CLPS for no additional cost. The UK Merger on October 16, 2001 effectively
terminated the agreement making Ridgewood UK responsible for its own operating
expenses, which include development and administrative, operation, labor and
maintenance activities for all of its UK Projects.
Ridgewood UK owns 15 plants with an installed capacity of 25.5 megawatts and
sells the electricity under 15 year contracts to a quasi-autonomous
non-governmental organization that purchases electricity generated by renewable
sources on behalf of all British utilities. Ridgewood UK has 10 additional
projects under development. In the fourth quarter of 2002, Ridgewood UK decided
not to continue the development of two of the plants it received as part of the
2001 UK Merger. As a result of this decision, Ridgewood UK recorded a writedown
of $854,367 to adjust the carrying value of the projects to zero. The writedown
has been presented as a separate line item under other operating expenses in the
Consolidated Statements of Operations.
In addition to the plants located throughout the United Kingdom, Ridgewood UK
has a 50% ownership interest in CLP Organogas SL ("Organogas"), a 2 megawatt
plant located in Seville, Spain. Ridgewood UK obtained its interest in
Organogas, as well as a 50% interest in CLP Envirogas, SL ("Envirogas"), a
management and development service company also located in Seville, Spain, as
part of the UK Merger.
At October 16, 2001 the Management and Development Companies acquired had net
assets of approximately $1,000 and had recognized no profit or loss for the
period of January 1, 2001 to October 16, 2001. In addition, all the landfill
projects acquired as part of the merger, except one, were new construction and
were near completion. The one project that was completed, had just begun
operating. Since the acquired projects had no operating results and the
Management and Development Companies had no income or loss and had minimal net
assets, the pro forma results of operations as if the merger had taken place on
January 1, 2001 would not be significantly different than the current results
included in the Consolidated Statements of Operations.
Investments accounted under the Equity Method
Maine Hydro Projects
In 1996, Ridgewood Maine Hydro Partners, L.P. ("Ridgewood Hydro L.P.") was
formed as a Delaware limited partnership and acquired 14 hydroelectric projects,
located in Maine (the "Maine Hydro Projects"), from a subsidiary of CHI Energy,
Inc. (formerly Consolidated Hydro, Inc.). The assets acquired include a total of
11.3 megawatts of electrical generating capacity. The electricity generated is
sold to Central Maine Power Company and Bangor Hydro Company under long-term
contracts. The purchase price was $13,628,395 cash, including transaction costs.
The Trust owns a 50% limited partnership interest in Ridgewood Hydro L.P. and
50% of the outstanding common stock of Ridgewood Maine Hydro Corporation, which
is the sole general partner of Ridgewood Hydro L.P. The remaining 50% is owned
by Ridgewood Electric Power Trust IV ("Trust IV"). Ridgewood Power LLC is the
managing shareholder of both the Trust and Trust IV.
The Trust's 50% investment in the Maine Hydro Projects is accounted for under
the equity method of accounting. The Trust's equity in the earnings of the Maine
Hydro Projects has been included in the consolidated financial statements since
acquisition.
The Maine Hydro Projects are operated by a subsidiary of CHI Energy, Inc., under
an Operation, Maintenance and Administrative Agreement. The annual operator's
fee is adjusted on June 30th of each year for inflation, plus an annual
incentive fee equal to 50% of the net cash flow in excess of a target amount.
The Maine Hydro Projects recorded $351,162, $343,704 and $414,089 of expense
under this arrangement during the years ended December 31, 2002, 2001 and 2000,
respectively. The agreement has a five-year term, expiring on June 30, 2006, and
can be renewed for one additional five-year term by mutual consent.
Summarized financial information for the Maine Hydro Projects is as follows:
Balance Sheets
December 31, 2002 December 31, 2001
------------------- -------------------
Current assets .................. $ 957,499 $ 632,298
Non-current assets .............. 8,518,141 9,408,314
----------- -----------
Total assets .................... $ 9,475,640 $10,040,612
----------- -----------
Current liabilities ............. $ 665,086 $ 282,582
Partners' equity ................ 8,810,554 9,758,030
----------- -----------
Total liabilities
and equity ..................... $ 9,475,640 $10,040,612
----------- -----------
Trust share ..................... $ 4,405,278 $ 4,879,015
----------- -----------
Statements of Operations
For the Year Ended December 31,
-----------------------------------------------
2002 2001 2000
----------- ----------- -----------
Revenue ................... $ 3,144,471 $ 2,311,346 $ 3,750,095
Operating
expenses ................. 3,442,764 3,049,927 3,271,902
Other income .............. 49,302 13,563 26,307
----------- ----------- -----------
Net income (loss) ......... $ (248,991) $ (725,018) $ 504,500
----------- ----------- -----------
Trust share ............... $ (124,496) $ (362,509) $ 252,250
----------- ----------- -----------
The Maine Hydro Projects qualify as small power production facilities under the
Public Utility Regulatory Policies Act ("PURPA"). PURPA requires that each
electric utility company operating at the location of a small power production
facility, as defined, purchase the electricity generated by such facility at a
specified or negotiated price. The Maine Hydro Projects sell substantially all
of their electrical output to two public utility companies, Central Maine Power
Company ("CMP") and Bangor Hydro-Electric Company ("BHC"), under long-term power
purchase agreements. Eleven of the twelve power purchase agreements with CMP
expire in December 2008 and are renewable for an additional five-year period.
The twelfth power purchase agreement with CMP expires in December 2007 with CMP
having the option to extend the contract for three more five-year periods. The
two power purchase agreements with BHC expire December 2014 and February 2017.
Maine Biomass Projects
In 1997, through a subsidiary, the Trust acquired a 25% preferred membership
interest in Indeck Maine Energy, L.L.C. ("Maine Biomass Projects"), which owns
two electric power generating stations fueled by waste wood. The aggregate
purchase price was $7,297,971 including transaction costs. Each project has 24.5
megawatts of electrical generating capacity. The Penobscot project is located in
West Enfield, Maine and the Eastport project is located in Jonesboro, Maine. The
Eastport Project was shut down in January 1998. The facility currently sells
installed capacity and is periodically restarted for testing or for the sale of
energy during peak periods of demand. The cost of maintaining the idled facility
in good condition is approximately $100,000 per month. The Penobscot facility
resumed full time operation in June 2001.
In accordance with the Maine Biomass Projects operating agreement, the Trust and
Trust IV are currently allocated 100% (50% each) of the Maine Biomass Projects
losses, since the other Maine Biomass Project member's capital account is zero.
The preferred membership interest entitles the Trust to receive an 18%
cumulative annual return on its $7,000,000 capital contribution to the Maine
Biomass Projects from the operating net cash flow from the projects. Trust IV
also purchased an identical preferred membership interest in Indeck Maine. After
payments in full to the preferred membership interests, up to $2,520,000 of any
remaining operating net cash flow during the year is paid to the other Maine
Biomass Project members. Any remaining operating net cash flow is payable 25% to
the Trust and Trust IV and 75% to the other Maine Biomass Project members.
In 2002, 2001 and 2000, the Trust loaned $325,000, $250,000 and $300,000,
respectively, to the Maine Biomass Projects. The loan is in the form of demand
notes that bear interest at 5% per annum. Trust IV made identical loans to the
Maine Biomass Projects. The other Maine Biomass Project member also loaned
$650,000, $500,000 and $600,000 to the Maine Biomass Projects with the same
terms in 2002, 2001 and 2000, respectively.
The Trust's investment in the Maine Biomass Projects is accounted for under the
equity method of accounting. The Trust's equity in the loss of the Maine Biomass
Projects has been included in the statements of operations since acquisition.
The financials statements of the Maine Biomass Projects were not adjusted to
reflect the purchase of the membership interest by the Trust. The Trust's equity
in the net loss of the Maine Biomass Projects recorded in the Trust's
consolidated financial statements has been adjusted to reflect the purchase
price paid by the Trust for its membership interest.
Under an Operating Agreement with the Trust, Ridgewood Power Management LLC
("Ridgewood Management"), an entity related to the managing shareholder through
common ownership, began providing management, purchasing, engineering, planning
and administrative services to the Maine Biomass Projects. Ridgewood Management
charges the projects at its cost for these services and for the allocable amount
of certain overhead items. Allocations of costs are on the basis of identifiable
direct costs, time records or in proportion to amounts invested in projects.
From June through December 1999, the facilities periodically operated on
dispatch from ISO-New England, Inc. (the "ISO") and also submitted offers to the
ISO to run at high prices during power emergencies. The facilities have claimed
the ISO owes them approximately $14 million for the electricity products they
provided in those periods and the ISO has claimed that no material revenues at
all are due to the projects. As a result, on October 24, 2000, Indeck Maine
filed a complaint against the ISO in the Superior Court of Delaware alleging,
among other things, that the ISO's actions resulted in a breach of an express or
implied contract, violated certain consumer protection laws and amounted to
fraud. The ISO removed the litigation to Federal District Court in Delaware. As
a result of various pre-trial motions filed by the parties, such litigation was
filed as a complaint by the Company before FERC. In April 2002, FERC ruled on
this complaint in favor of the ISO. The Company has determined it will not
appeal or otherwise contest the ruling by FERC.
On May 9, 2002, the Penobscot project and the Eastport project each filed an
"Application for Statement of Qualification" with the Massachusetts Division of
Energy Resources (the "Division") to qualify as new renewable electric
generation facilities under the Massachusetts Renewable Portfolio Standard
Regulations ("RPS"). Pursuant to these regulations, qualified renewable electric
generation facilities produce renewable portfolio standard attributes ("RPS
Attributes") when they generate electricity. RPS Attributes are then sold to and
used by entities that are providing electricity to end-use customers in
Massachusetts. The RPS regulations, and the statute under which they were
promulgated, are intended to spur use and development of new renewable
generation facilities.
On July 8, 2002, the Trust received official notice from the Division that the
Application for Statement of Qualification filed pursuant to the Massachusetts
Renewable Energy Portfolio Standard Regulations ("Regulations") by both the
Eastport and Penobscot projects had been approved as of July 3, 2002. Pursuant
to such approval, the Division found that the Projects meet the eligibility
requirements of the Regulations and therefore may market and sell renewable
attributes associated with the electric generation of the Plants. Because the
Penobscot project qualifies under the RPS, pursuant to the power sales contract,
Select Energy paid an additional amount for the RPS Attributes associated with
the electric energy it purchased from the Penobscot project, which amounted to
approximately $2,008,488 for the year ended December 31, 2002.
Summarized financial information for the Maine Biomass Projects is as follows:
Balance Sheets
December 31,
--------------------------------
2002 2001
----------- -----------
Current assets ....................... $ 1,217,126 $ 1,162,010
Non-current assets ................... 3,598,162 3,359,795
----------- -----------
Total assets ......................... $ 4,815,288 $ 4,521,805
----------- -----------
Current
liabilities.......................... 3,485,662 $ 2,021,185
Notes payable
to members .......................... 7,101,000 5,801,000
Members' deficit ..................... (5,771,374) (3,300,380)
----------- -----------
Total liabilities
and equity .......................... $ 4,815,288 $ 4,521,805
----------- -----------
Trust share .......................... $ 3,896,576 $ 4,830,991
----------- -----------
Statement of Operations
For the Year Ended December 31,
-----------------------------------------------
2002 2001 2000
----------- ----------- -----------
Revenue .................. $ 7,246,435 $ 5,587,507 $ 2,017,481
Cost of sales ............ 9,080,905 6,913,336 2,646,770
Other expenses ........... 636,524 557,671 650,680
----------- ----------- -----------
Net loss ................. $(2,470,994) $(1,883,500) $(1,279,969)
----------- ----------- -----------
Trust share .............. $(1,259,415) $ (904,297) $ (639,984)
----------- ----------- -----------
Egypt Projects
In 1999, the Trust and The Ridgewood Power Growth Fund (the "Growth Fund")
jointly formed Ridgewood Near East Holdings LLC ("Ridgewood Near East') to
develop electric power and water purification plants for resort hotels in Egypt.
In 2001, the Ridgewood/Egypt Fund ("Egypt Fund") an affiliate of the Trust and
the Growth Fund, became a member of Ridgewood Near East. The Trust, Egypt Fund
and the Growth Fund own undivided interests in the Egypt projects in proportion
to the capital they contributed, net of distributions and allocated profits and
losses. Through December 31, 2002, the Trust had contributed $4,899,019 to the
Egypt Projects and has a 14% ownership interest in the Egypt Projects.
Currently, the Egypt Projects consist of 13 water desalinization plants and 5
electric generation plants. The total capacity of the water and power plants is
approximately 4,500,000 gallons per day and 18 megawatts, respectively. Each
plant has a contract with a hotel or group of hotels for the sale of the water
or electricity produced from the plant. These contracts generally have terms up
to thirty years and some of the contracts provide for the transfer or sale of
ownership of the plant to the hotel at the expiration of the contract. In 2002,
Ridgewood Near East shut down and removed the equipment from two of its on-site
water desalinization plants. In addition, in the first quarter of 2003,
Ridgewood Near East sold another of its on-site power plants to the hosting
hotel. As a result of these transactions, Ridgewood Near East recorded an
impairment writedown of $297,652 to adjust the carrying value of the projects to
reflect their fair value at December 31, 2002.
On December 30, 2001, Ridgewood Near East purchased a 28% equity interest in
Sinai Environmental Services S.A.E. (the "Sinai Company"), a 1,585,000 gallons
per day water desalinization plant, for 4,999,800 Egyptian pounds (approximately
$1,087,000). At December 31, 2001, Ridgewood Near East accounted for this
investment under the equity method of accounting because it had the ability to
exercise significant influence, but not control. In February of 2002, Ridgewood
Near East made an additional investment of 4,379,637 Egyptian pounds
(approximately $939,000) to increase its ownership to 53% and gain control of
the Sinai Company. As a result of the additional investment, effective February
16, 2002, Ridgewood Near East accounts for its investment in Sinai Company under
the consolidation method of accounting.
In return for its investment Ridgewood Near East received a 53% interest in the
Sinai Company, which at the time of acquisition, had plant and equipment with a
net book value of approximately $5,906,000, accounts receivable of $214,000 and
other assets with an approximate book value of $32,000. In accordance with the
purchase agreement, Ridgewood Near East assumed approximately $450,000 of
liabilities and bank debt of approximately $3,417,000. The loan, which was and
still is in default, bears interest at 12% per annum. The collateralization of
the non-recourse loan is restricted to the assets of the Sinai Company, which at
December 31, 2002 had a net book value of $6,957,265. The provision of the loan
restricts the Sinai Company from paying dividends to its shareholders or
obtaining credit from other banks. Ridgewood Near East assigned the estimated
excess purchase price of $777,000 to plant and equipment, which will be
amortized over the 20 year life of the assets.
The Trust's investment in the Egypt Projects is accounted for under the equity
method of accounting. The Trust's equity in the results of opeartions of the
Egypt Projects has been included in the consolidated financial statements since
the inception of the projects.
Summarized financial information for the Egypt Projects is as follows:
Balance Sheets
December 31, 2002 December 31, 2001
----------------- -----------------
Current assets ....................... $ 2,192,104 $ 1,157,043
Non-current assets ................... 31,340,449 27,047,922
----------- -----------
Total assets ......................... $33,532,553 $28,204,965
----------- -----------
Current liabilities .................. $ 5,798,273 $ 989,609
Non-current
liabilities .......................... 2,876,474 --
Members' equity ...................... 24,857,806 27,215,356
----------- -----------
Liabilities and
members' equity ...................... $33,532,553 $28,204,965
----------- -----------
Trust Share .......................... $ 3,502,819 $ 3,836,912
----------- -----------
Statements of Operations
For the Years Ended December 31,
----------------------------------------------
2002 2001 2000
----------- ----------- -----------
Net sales ................. $ 5,459,011 $ 4,237,676 $ 2,180,231
Cost of sales ............. 5,190,501 3,256,555 1,924,932
Other expenses ............ 2,356,996 821,211 237,476
----------- ----------- -----------
Net income (loss) ......... $(2,088,486) $ 159,910 $ 17,823
----------- ----------- -----------
Trust Share ............... $ (294,442) $ 32,959 $ 5,008
----------- ----------- -----------
Synergics Projects
Beginning in late 1999, the Trust and the Growth Fund began negotiations with
Synergics, Inc. ("Synergics") to buy nine existing hydroelectric generating
plants (the "Synergics Projects"). In the course of negotiations and due
diligence, the Trust and the Growth Fund learned that one of Synergics' lenders
had declared a payment default against Synergics and that the lender had agreed
to discharge the debt at a substantial discount from the face amount if payment
were made by the end of April 2000. In order to preserve the benefit of the
lender's offer and to allow completion of the acquisition on favorable terms,
the Trust and the Growth Fund, through a joint venture, acquired the debt from
the lender on April 28, 2000 for a payment of $17 million to the lender. The
Trust supplied $5 million of the capital used by the joint venture to acquire
the debt and the Growth Fund supplied the remaining $12 million. The Trust and
the Growth Fund own the joint venture in proportion to the capital each supplied
and neither will have preferred rights over the other.
On November 22, 2002, through another joint venture owned in the same proportion
as the joint venture that acquired the debt of Synergics, the Trust and the
Growth Fund acquired 100% of the outstanding stock of Synergics. The former
shareholders of Synergics Inc. received 100% of the outstanding shares of a
subsidiary of Synergics in exchange for selling the stock of Synergics to the
Trust and the Growth Fund.
In total, the Trust and the Growth Fund acquired the Synergics Projects for
approximately $20.3 million. In return for their investment, the Trust and the
Growth Fund received eight hydroelectric generating plants with a market value
of approximately $1.8 million, $2.4 million in cash, $6.7 million in notes
receivable, $0.5 million in accounts receivable, and $0.2 million in other
assets. In accordance with the purchase agreement, the Trust and the Growth Fund
assumed approximately $7.5 million of bank debt and income taxes of
approximately $1.2 million. The Fund and Trust V assigned the approximate excess
purchase price of $17.4 million to electric power sales contracts, which will be
amortized over the remaining life of the respective contracts (11 to 22 years).
The Trust accounted for its investment in the initial $17 million of debt
acquired as a note receivable and accrued interest at 11% per annum. For the
years ended December 31, 2001 and 2000, the Trust recorded $409,825 and $364,289
of income related to the debt of Synergics. During the second half of 2001,
drought conditions affected many of the Synergics Projects, reducing revenues
and cash flows recorded by Synergics. As a result of these reduced cash flows
experienced by Synergics, the Fund ceased accruing interest effective as of
October 1, 2001.
Effective November 23, 2002, the Trust accounted for its 29.2% investment in the
Synergics Projects under the equity method of accounting. The Trust's equity in
the loss of the Synergics Projects has been included in the consolidated
financial statements.
Summarized financial information for the Synergic Projects is as follows:
Balance Sheets
December 31, 2002
------------------
Current assets ............................ $ 2,497,752
Non-current assets ........................ 25,676,016
-----------
Total assets .............................. $28,173,768
-----------
Current liabilities ....................... $ 2,346,934
Non-current liabilities ................... 5,650,000
Members' equity ........................... 20,176,834
-----------
Liabilities and members' equity ........... $28,173,768
-----------
Trust Share ............................... $ 5,887,389
-----------
Statements of Operations
For the Period
November 23, 2002 to
December 31, 2002
---------------------
Net sales ............................... $ 371,345
Cost of sales ........................... 213,095
Other expenses .......................... 238,726
---------
Net income (loss) ....................... $ (80,476)
---------
Trust Share ............................. $ (23,499)
---------
Previous Investments
MetaSound Corporation
In December 1998, through a subsidiary, the Trust purchased an interest in
MetaSound Systems, Inc. ("MetaSound Systems"), which is developing digital audio
marketing systems connected to the internet. The systems are designed to provide
digital quality messages, music and sound information to telephone callers on
hold or in a call center queue. For an aggregate purchase price of $2,508,640,
the Trust purchased 4,676,000 shares of Series C Preferred Stock, a warrant to
purchase up to 4,676,000 additional shares at $.54 per share expiring on May 31,
1999, and a second warrant to purchase up to 2,000,000 additional shares at $.54
per share expiring in 2003. The Series C Preferred Stock may be converted into
an equal number of shares of common stock at the Trust's option. The Series C
Preferred Stock automatically converts into common stock in the event of a
public offering of MetaSound Systems meeting certain requirements.
Ridgewood Capital Venture Partners, LLC and Ridgewood Capital Institutional
Venture Partners, LLC (collectively the "Venture Funds"), investment programs
sponsored by an affiliate of the managing shareholder, invested $3,066,236 in
MetaSound Systems in May 1999 to exercise the 4,676,000 share warrant and obtain
a $500,000 Convertible Promissory Note. The Trust and the Venture Funds own
undivided interests in MetaSound Systems in proportion to the capital they
contributed. The Trust and the Venture Funds own approximately a 42% interest in
MetaSound Systems.
The Trust's investment in MetaSound Systems is accounted for under the equity
method of accounting. The Trust's equity in the loss of MetaSound Systems has
been included in the consolidated financial statements since December 1, 1998.
In early 2001, MetaSound's funds were exhausted and it ceased operations.
Accordingly, the Trust recorded a writedown of $204,028 in 2000 to reduce the
investment to its estimated fair value of zero.
Quantum Conveyor
In September 1998, the Trust purchased a 15% membership interest in Quantum
Conveyor Systems, LLC, a newly organized Delaware limited liability company
("Quantum Conveyor") through a subsidiary of the Trust. At the same time,
Quantum Conveyor acquired substantially all of the assets and certain of the
liabilities of Quantum Conveyor Systems, Inc. Quantum Conveyor designs,
manufactures and sells modular conveyor systems used by post offices,
distribution centers, warehouses, and other material handling facilities.
At the same time as the Trust's subsidiary purchased its membership interest, it
made a secured loan of $2,985,000 to Quantum Conveyor. In addition, the Trust's
subsidiary had an option that expired on March 2, 1999, to purchase an
additional 10% membership interest for $10,000 which was exercised by the
Venture Funds in February 1999. The Trust's subsidiary extended a line of credit
to loan up to an additional $1,990,000 to Quantum Conveyor through June 1, 2003,
under the same terms as the $2,985,000 loan. The Venture Funds provided the
maximum $1,990,000 of loans under this line of credit in 1999. In July 1999, the
Trust and the Venture Funds purchased an additional 2% membership interest in
Quantum Conveyor for $100,000, funded $60,000 by the Trust and $40,000 by the
Venture Funds. The Trust and the Venture Funds own the subsidiary in proportion
to their capital contributions.
The remaining membership interests of Quantum Conveyor are owned by three
individuals. As part of the transaction, the president of Quantum Conveyor, who
owns a membership interest, accepted a $4,000,000 promissory note in
satisfaction of all indebtedness of Quantum Conveyor to him. The promissory note
has the same terms as the Trust's secured loan to Quantum Conveyor.
The secured loan and promissory note bear interest at 12% per year. From
September 1998 to August 2000, no interest payments by Quantum Conveyor were
required. From September 2000 to June 2003, Quantum Conveyor is required to make
quarterly payments of interest only. From July 2003 to September 2008, Quantum
Conveyor must make equal quarterly payments sufficient to fully repay the
principal and interest due under the note by September 2008.
The Trust's investment in Quantum Conveyor is accounted for under the equity
method of accounting. The Trust's equity in the loss of Quantum Conveyor has
been included in the consolidated financial statements since September 1998.
In early 2001, Quantum's funds were exhausted and it reduced its operations to a
minimal level. As a result, the Trust recorded a writedown of $2,889,690 in 2000
to reduce the investment to its estimated fair value of zero.
Santee River Rubber
In August 1998, the Trust and an affiliate, Trust IV, purchased preferred
membership interests in Santee River Rubber Company, LLC, a newly organized
South Carolina limited liability company ("Santee River Rubber"). Santee River
Rubber was building a waste tire and rubber processing facility located near
Charleston, South Carolina. The facility, which was expected to begin full scale
operations in 2000, was designed to receive and process waste tires and produce
fine crumb rubber of various sizes. The Trust and Trust IV purchased the
interests through a limited liability company owned one-third by the Trust and
two-thirds by Trust IV. The Trust's share of the purchase price was $8,979,639
and Trust IV's share of the purchase price was $4,489,819.
Until January 2000, Santee River Rubber paid the Trust and Trust IV interest at
12% per year on $11,000,000 of their investment. After operations began, the
Trusts were entitled to receive all cash flow after payment of debt and other
obligations until the Trusts received a cumulative 20% return on their total
investment. Thereafter, the Trust and Trust IV were to receive 25% of any
remaining cash flow available for distribution. All cash distributions and tax
allocations received from Santee River Rubber were shared two-thirds by the
Trust and one-third by Trust IV. The remaining equity interest was owned by a
wholly-owned subsidiary of Environmental Processing Systems, Inc. ("EPS"), a
company not affiliated with the Trust, which was the manager of the project.
At the same time as the Trust and Trust IV purchased their membership interests,
Santee River Rubber borrowed $16,000,000 through tax exempt revenue bonds and
another $16,000,000 through taxable convertible bonds. It also obtained
$4,500,000 of subordinated financing from the general contractor of the
facility.
In late May 2000, EPS informed the Trust that Santee River Rubber needed
substantial additional money to pay for its operating expenses while
modifications were completed and testing was performed. Intensive negotiations
then began between the Trust, Trust IV, EPS, the facility's bondholders and
potential outside funding sources. While these negotiations continued, the
Project informed the Trust on July 30, 2000 that it had run out of money and
would be unable to make payroll. After further discussions, the Trust and Trust
IV advanced $354,667 and $152,333, respectively, for that purpose. Negotiation
continued until October 26, 2000, when Santee River Rubber Company filed for
Chapter 11 bankruptcy in the U.S. District Court for South Carolina. On November
2, 2000, the U.S. Bankruptcy Court ordered that a trustee in bankruptcy be
appointed to manage Santee River. As a result, the Trust determined that it
would be unlikely to recover its investment in Santee River Rubber Company.
Accordingly, the Trust recorded a writedown of $8,180,081 in 2000 to reduce the
estimated fair value of the investment to zero.
The Trust's investment in Santee River Rubber was accounted for under the equity
method of accounting. The Trust's equity in the income or loss of Santee River
Rubber has been included in the consolidated financial statements since
acquisition.
WaterPure Corporation
In August 1998, the Trust and two unrelated entities filed a revised
reorganization plan for Superstill Technology, Inc ("Superstill"). Superstill, a
California company, has been a debtor in Chapter 11 bankruptcy since July 1997.
The reorganization plan was approved by the bankruptcy court and Superstill's
creditors in December 1998. In accordance with the reorganization plan,
Ridgewood WaterPure Corporation ("WaterPure Corporation") acquired substantially
all the assets of Superstill and made certain payments to satisfy the claims
against Superstill. The purchase price was allocated to the assets and
liabilities acquired based upon their respective fair values.
Superstill holds various patents and intellectual property rights to an energy
efficient water purification technology that it has developed. Superstill has
also designed and licensed distillation and desalinization equipment of various
sizes and capacities.
The Trust made an investment of $3,500,000 in WaterPure Corporation in exchange
for 5,400,000 shares of common stock representing a 54% equity interest in
WaterPure Corporation. The remaining equity interest in WaterPure Corporation
was issued to other creditors and license holders of Superstill in satisfaction
of their claims and to acquire certain licensing rights. WaterPure Corporation
will design, develop and commercialize water purification systems incorporating
the technology acquired from Superstill.
WaterPure Corporation, however, was unable to produce a unit with a commercially
acceptable price and operating characteristics. Although the WaterPure
Corporation technology produces very pure water, it is more expensive to build,
more expensive to power and more difficult to maintain than other technologies
that produce acceptable drinking water. In addition, the minority shareholder of
WaterPure Corporation brought a legal action challenging Waterpure Corporation's
rights to license and sell its projects. Such litigation proved to be quite time
consuming and expensive to defend. WaterPure Corporation used its available cash
to develop and market its products, as well as defend against the litigation. In
2001, the available cash ran out and the shareholders of WaterPure Corporation
were all unwilling to provide additional funds. Therefore, in October 2001,
WaterPure Corporation filed under Chapter 7 of the United States Bankruptcy Code
to liquidate its assets. Such filing was made in the Northern District of Ohio,
but has since been transferred to the United States Bankruptcy Court for the
Northern District of California and essentially is being handled in conjunction
with the Superstill bankruptcy proceeding.
GFG
In September 1999, the Trust and the Growth Fund made a joint investment of
$3,000,000 in Global Fiber Group ("GFG"), which was in the process of developing
an underwater fiber optic cable in the Western Mediterranean (the "Mediterranean
Fiber Optic Project"). The investment, which was funded equally by the Trust and
the Growth Fund, provided for a 25% ownership interest in GFG and the right to
invest in projects developed by GFG. The Trust and the Growth Fund anticipated
equally funding an $18,000,000 joint venture investment in the Mediterranean
Fiber Optic Project in 2000.
The Trust's investment in the GFG is accounted for under the equity method of
accounting. The Trust's equity in the loss of the GFG has been included in the
consolidated financial statements since the inception of the projects.
In the first quarter of 2000, the Trust determined that GFG would probably not
be able to develop the Mediterranean Fiber Optic Project or any other project.
As a result, the Fund determined that it would be unlikely to recover its
investment in GFG. Accordingly, the Trust recorded a writedown of $1,440,291 in
the first quarter of 2000 to reduce the estimated fair value of the investment
to zero. GFG subsequently ceased operations.
4. Long-Term Debt
Following is a summary of United Kingdom Landfill Gas Projects long-term debt at
December 31,2002 and 2001:
2002 2001
------------ ------------
Bank loans payable ................... $ 20,961,279 $ 14,487,733
Less - Current maturity .............. (1,118,497) (609,550)
------------ ------------
Total long-term debt ................. $ 19,842,782 $ 13,878,183
------------ ------------
In 2001, Ridgewood UK renegotiated the terms of its long-term debt with its
bank. The renegotiated bank loans are repayable in semi annual installments each
March 31st and September 30th through September 30, 2014. $10,305,507 of the
outstanding debt bears interest at 7.17%, while $10,655,772 of the outstanding
debt bears interest at 7.82%. The notes are collateralized by substantially all
of the assets of the projects and the credit agreement requires Ridgewood UK to
maintain a debt service coverage ratio of 1.4 to 1. At December 31, 2002,
Ridgewood UK's outstanding debt was in compliance with the covenants of its
credit agreement.
Scheduled principal repayments of long-term debt are as follows:
Year Ended
December 31, Payment
------------ ----------
2003 $ 1,118,497
2004 1,286,193
2005 1,462,658
2006 1,649,195
2007 1,793,586
Thereafter 13,651,150
----------
Total $ 20,961,279
============
During the fourth quarter of 1997, the Trust and its principal bank executed a
revolving line of credit agreement, whereby the bank provided a three year
committed line of credit facility of $750,000. The credit facility was extended
until July 31, 2002. During the third quarter of 2002, the Trust extended its
revolving line of credit agreement with its principal bank through August 31,
2002 and subsequently finalized a further extension until July 31, 2003. The
extension provides the Trust with a committed line of credit of $593,000.
Outstanding borrowings bear interest at LIBOR plus 2.5% (3.882% and 4.376% at
December 31, 2002 and 2001, respectively). The credit agreement requires the
Trust to provide 100% cash collateral for any borrowings after December 31,
2002. There were no outstanding borrowings at December 31, 2002 and 2001.
5. Fair Value of Financial Instruments
At December 31, 2002 and 2001, the carrying values of the Trust's cash and cash
equivalents, accounts receivable and accounts payable and accrued expenses
approximate their fair values. The fair value of the long-term debt, calculated
using current rates for loans with similar maturities, approximates its carrying
value. The fair value of the letter of credit does not differ materially from
its carrying value.
6. Electric Power Sales Contracts
The United Kingdom Landfill Gas Projects are committed to sell all of the
electricity it produces to quasi-autonomous non-governmental organizations that
purchase electricity generated by renewable sources (such as landfill gas power
plants) on behalf of all British utilities in order to meet British
environmental protection goals. The electricity prices will be increased
annually by a factor equal to the percentage increase in the United Kingdom
Retail Price Index.
7. Transactions with Managing Shareholder and Affiliates
The Trust entered into a management agreement with the Managing Shareholder
under which the Managing Shareholder renders certain management, administrative
and advisory services and provides office space and other facilities to the
Trust. As compensation to the Managing Shareholder for such services, the Trust
pays the Managing Shareholder an annual management fee equal to 2.5% of the
total capital contributions to the Trust payable monthly upon the closing of the
Trust which occurred in April 1998. For the year ended December 31, 2002, 2001
and 2000, the Trust paid management fees of $1,166,112, $2,332,224 and
$2,257,357, respectively. For the year ended December 31, 2002, the managing
shareholder waived 50% of the management fee due.
The Trust reimburses the Managing Shareholder and affiliates for expenses and
fees of unaffiliated persons engaged by the Managing Shareholder for fund
business. The Managing Shareholder or affiliates originally paid all project due
diligence costs, accounting and legal fees and other expenses shown in the
statement of operation and were reimbursed by the Trust.
Under the Declaration of Trust, the Managing Shareholder is entitled to receive
each year 1% of all distributions made by the Trust (other than those derived
from the disposition of Trust property) until the shareholders have been
distributed each year an amount equal to 14% of their equity contribution.
Thereafter, the Managing Shareholder is entitled to receive 20% of the
distributions for the remainder of the year. The Managing Shareholder is
entitled to receive 1% of the proceeds from dispositions of Trust properties
until the shareholders have received cumulative distributions equal to their
original investment ("Payout"). After Payout, the Managing Shareholder is
entitled to receive 20% of all remaining distributions of the Trust.
Income is allocated to the Managing Shareholder until the profits equal
distributions to the Managing Shareholder. Then, income is allocated to the
investors, first among holders of Preferred Participation Rights until such
allocations equal distributions from those Preferred Participation Rights, and
then among Investors in proportion to their ownership of investor shares. If the
Trust has net losses for a fiscal period, the losses are allocated 99% to the
Investors and 1% to the Managing Shareholder.
Where permitted, in the event the Managing Shareholder or an affiliate performs
brokering services in respect of an investment acquisition or disposition
opportunity for the Trust, the Managing Shareholder or such affiliate may charge
the Trust a brokerage fee. Such fee may not exceed 2% of the gross proceeds of
any such acquisition or disposition. No such fees have been paid through
December 31, 2002.
The corporate trustee of the Trust, Ridgewood Energy Holding Corporation, an
affiliate of the Managing Shareholder through common ownership, received no
compensation from the Fund.
Amounts due to and from affiliates are non-interest bearing and are usually
settled within thirty days. Such amounts arise from the delay between when
expenses are paid by the Trust or affiliates and when reimbursement occurs.
The Managing Shareholder purchased one investor share of the Trust for $83,000
in 1996. The Trust granted the Managing Shareholder a single Management Share
representing the Managing Shareholder's management rights and rights to
distributions of cash flow.
At December 31, 2002 and 2001, the Trust had outstanding payables and
receivables, with the following affiliates:
As of December 31,
Due To Due From
----------------------- -----------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Ridgewood Management ....... $ -- $ 141,707 $ 80,973 $ --
Ridgewood Renewable Power .. 1,265,862 -- -- --
Growth Fund ................ 387,100 181,832 -- --
Trust IV ................... -- -- -- 135,823
Maine Hydro ................ -- -- 610,878 100,000
Maine Biomass .............. -- -- 950,244 200,000
Synergics Projects ......... 1,510,000 -- -- --
Other affiliates ........... 19,094 19,518 154,435 --
---------- ---------- ---------- ----------
Total ............... 3,182,056 343,057 1,796,530 435,823
---------- ---------- ---------- ----------
From time to time, the Trust records short-term payables and receivables from
other affiliates in the ordinary course of business. The amounts payable and
receivable with the other affiliates do not bear interest.
8. Other Income
In 2002 the Trust received $200,000 from the liquidation of the Santee River
Rubber Company, which filed for bankruptcy in 2000. The proceeds received have
been recorded as other income in the consolidated statements of operations.
9. Subsequent Event
On February 13, 2003, the Maine Biomass Projects sold the renewable portfolio
standards ("RPS") Attributes generated from the power produced in fourth quarter
of 2002 for $336,570 and $1,236,720, respectively. The Trust, along with Trust
IV, is currently negotiating a transaction with a power marketer that does
business in Massachusetts for the sale of the RPS Attributes generated by the
Maine Biomass Projects, in the calendar year 2003.
During the first quarter of 2003, Ridgewood UK entered into an agreement with
one of its minority shareholders. Under the terms of the agreement, Ridgewood UK
transferred its 50% interest in the Spanish landfill projects in return for a
portion of the minority shareholder's interest in Ridgewood UK. As a result of
the transaction, Ridgewood UK increased its ownership in UK Ltd. from 76.3% to
88.3%.
On January 30, 2003, the Egyptian government discontinued the regulation of its
monetary currency rate and decided to allow the currency rate to float. As a
result of this change in policy, the Egyptian pound decreased 15% against the US
dollar on January 30, 2003. As of May 31, 2003, the Trust's investment in the
Egyptian projects decreased by approximately 23% as a result of the decrease in
exchange rate.
In the fourth quarter of 2002, the Trust's Managing Shareholder formed Ridgewood
Renewable PowerBank LLC ("PowerBank") and began offering shares. PowerBank
raised approximately $12 million and discontinued its offering in April 2003.
The proceeds from this fund raising will finance the expansion of the United
Kingdom Landfill Gas Projects.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholder of the Trust, Ridgewood Renewable Power LLC has
direct and exclusive discretion in management and control of the affairs of the
Trust. The Managing Shareholder will be entitled to resign as Managing
Shareholder of the Trust only (i) with cause (which cause does not include the
fact or determination that continued service would be unprofitable to the
Managing Shareholder) or (ii) without cause with the consent of a majority in
interest of the Investors. It may be removed from its capacity as Managing
Shareholder as provided in the Declaration.
Ridgewood Holding, which was incorporated in April 1992, is the Corporate
Trustee of the Trust.
(b) Managing Shareholder.
Ridgewood Power Corporation was incorporated in February 1991 as a Delaware
corporation for the primary purpose of acting as a managing shareholder of
business trusts and as a managing general partner of limited partnerships. It
organized the Trust and acted as managing shareholder until April 1999. On or
about April 21, 1999 it was merged into the current Managing Shareholder,
Ridgewood Power LLC. In December of 2002, Ridgewood Power, LLC changed its name
to Ridgewood Renewable Power, LLC. Robert E. Swanson is the controlling member,
sole manager and President of the Managing Shareholder. All of the equity in the
Managing Shareholder is owned by Mr. Swanson or by family trusts. Mr. Swanson
has the power on behalf of those trusts to vote or dispose of the membership
equity interests owned by them.
The Managing Shareholder has also organized the Other Power Trusts as
Delaware business trusts or other Delaware limited liability companies.
Ridgewood Renewable Power LLC is the managing shareholder of the Other Power
Trusts and the manager of the Ridgewood LLCs. The business objectives of these
trusts and LLCs are similar to those of the Trust.
A number of other companies are affiliates of Mr. Swanson and Ridgewood
Power. Each of these also was organized as a corporation that was wholly-owned
by Mr. Swanson. In April 1999, most of them were merged into limited liability
companies with similar names and Mr. Swanson became the sole manager and
controlling owner of each limited liability company. For convenience, the
remainder of this Memorandum will discuss each limited liability company and its
corporate predecessor as a single entity.
The Managing Shareholder is an affiliate of Ridgewood Energy Corporation
("Ridgewood Energy"), which has organized and operated 48 limited partnership
funds and one business trust over the last 18 years (of which 25 have
terminated) and which had total capital contributions in excess of $190 million.
The programs operated by Ridgewood Energy have invested in oil and natural gas
drilling and completion and other related activities. Other affiliates of the
Managing Shareholder include Ridgewood Securities LLC ("Ridgewood Securities"),
an NASD member which has been the placement agent for the private placement
offerings of the seven trusts sponsored by the Managing Shareholder and the
funds sponsored by Ridgewood Energy; Ridgewood Capital Management LLC
("Ridgewood Capital"), which assists in offerings made by the Managing
Shareholder and which is the sponsor of four privately offered venture capital
funds (the Ridgewood Capital Venture Partners and Ridgewood Capital Venture
Partners II funds); Ridgewood Power VI LLC ("Power VI"), which is a managing
shareholder of the Growth Fund, and RPM. Each of these companies is controlled
by Robert E. Swanson, who is their sole director or manager.
Set forth below is certain information concerning Mr. Swanson and other
executive officers of the Managing Shareholder.
Robert E. Swanson, age 56, has also served as President of the Trust since
its inception in 1991 and as President of RPM, the Other Power Trusts since
their respective inceptions. Mr. Swanson has been President and registered
principal of Ridgewood Securities and became the Chairman of the Board of
Ridgewood Capital on its organization in 1998. He also is Chairman of the Board
of the Ridgewood Capital Venture Partners I, II,III and IV venture capital funds
("Ridgewood Venture Funds"). In addition, he has been President and sole
stockholder of Ridgewood Energy since its inception in October 1982. Prior to
forming Ridgewood Energy in 1982, Mr. Swanson was a tax partner at the former
New York and Los Angeles law firm of Fulop & Hardee and an officer in the Trust
and Investment Division of Morgan Guaranty Trust Company. His specialty is in
personal tax and financial planning, including income, estate and gift tax. Mr.
Swanson is a member of the New York State and New Jersey bars, the Association
of the Bar of the City of New York and the New York State Bar Association. He is
a graduate of Amherst College and Fordham University Law School.
Robert L. Gold, age 44, has served as Executive Vice President of the
Managing Shareholder, RPM, the Trust, and the Other Power Trusts since their
respective inceptions, with primary responsibility for marketing and
acquisitions. He has been President of Ridgewood Capital since its organization
in 1998. As such, he is President of the Ridgewood Venture Funds. He has served
as Vice President and General Counsel of Ridgewood Securities Corporation since
he joined the firm in December 1987. Mr. Gold has also served as Executive Vice
President of Ridgewood Energy since October 1990. He served as Vice President of
Ridgewood Energy from December 1987 through September 1990. For the two years
prior to joining Ridgewood Energy and Ridgewood Securities Corporation, Mr. Gold
was a corporate attorney in the law firm of Cleary, Gottlieb, Steen & Hamilton
in New York City where his experience included mortgage finance, mergers and
acquisitions, public offerings, tender offers, and other business legal matters.
Mr. Gold is a member of the New York State bar. He is a graduate of Colgate
University and New York University School of Law.
Daniel V. Gulino, age 42 has been Senior Vice President and General Counsel
of the Managing Shareholder, RPM, the Trust, and other Power Trusts since August
2000. He began his legal career as an associate for Pitney, Hardin, Kipp &
Szuch, a large New Jersey law firm, where his experience included corporate
acquisitions and transactions. Prior to joining Ridgewood, Mr. Gulino was
in-house counsel for several large electric utilities, including GPU, Inc.,
Constellation Power Source, and PPL Resources, Inc., where he specialized in
non-utility generation projects, independent power and power marketing
transactions. Mr. Gulino also has experience with the electric and natural gas
purchasing of industrial organizations, having worked as in-house counsel for
Alumax, Inc. (now part of Alcoa) where he was responsible for, among other
things, Alumax's electric and natural gas purchasing program. Mr. Gulino is a
member of the New Jersey State Bar and Pennsylvania State Bar. He is a graduate
of Fairleigh Dickinson University and Rutgers University School of Law - Newark.
Christopher I. Naunton, 38, has been the Vice President and Chief Financial
Officer of the Managing Shareholder, RPM, the Trust, and Other Power Trusts
since April 2000. From February 1998 to April 2000, he was Vice President of
Finance of an affiliate of the Managing Shareholder. Prior to that time, he was
a senior manager at the predecessor accounting firm of PricewaterhouseCoopers
LLP. Mr. Naunton's professional qualifications include his certified public
accountant qualification in Pennsylvania, membership in the American Institute
of Certified Public Accountants and Pennsylvania Institute of Certified Public
Accountants. He holds a Bachelor of Science degree in Business Administration
from Bucknell University (1986).
Mary Lou Olin, age 50, has served as Vice President of the Managing
Shareholder, RPM, Ridgewood Capital, the Trust, the Other Power Trusts since
their respective inceptions. She has also served as Vice President of Ridgewood
Energy since October 1984, when she joined the firm. Her primary areas of
responsibility are investor relations, communications and administration. Prior
to her employment at Ridgewood Energy, Ms. Olin was a Regional Administrator at
McGraw-Hill Training Systems where she was employed for two years. Prior to
that, she was employed by RCA Corporation. Ms. Olin has a Bachelor of Arts
degree from Queens College.
(c) Management Agreement.
The Trust has entered into a Management Agreement with the Managing
Shareholder detailing how the Managing Shareholder will render management,
administrative and investment advisory services to the Trust. Specifically, the
Managing Shareholder will perform (or arrange for the performance of) the
management and administrative services required for the operation of the Trust.
Among other services, it will administer the accounts and handle relations with
the Investors, provide the Trust with office space, equipment and facilities and
other services necessary for its operations and conduct the Trust's relations
with custodians, depositories, accountants, attorneys, brokers and dealers,
corporate fiduciaries, insurers, banks and others, as required. The Managing
Shareholder will also be responsible for making investment and divestment
decisions, subject to the provisions of the Declaration.
The Managing Shareholder will be obligated to pay the compensation of the
personnel and all administrative and service expenses necessary to perform the
foregoing obligations. The Trust will pay all other expenses of the Trust,
including transaction expenses, valuation costs, expenses of preparing and
printing periodic reports for Investors and the Commission, postage for Trust
mailings, Commission fees, interest, taxes, legal, accounting and consulting
fees, litigation expenses and other expenses properly payable by the Trust. The
Trust will reimburse the Managing Shareholder for all such Trust expenses paid
by it.
As compensation for the Managing Shareholder's performance under the
Management Agreement, the Trust is obligated to pay the Managing Shareholder an
annual management fee described below at Item 13 -- Certain Relationships and
Related Transactions.
Each Investor consented to the terms and conditions of the initial
Management Agreement by subscribing to acquire Investor Shares in the Trust. The
Management Agreement is subject to termination at any time on 60 days' prior
notice by a majority in interest of the Investors or the Managing Shareholder.
The Management Agreement is subject to amendment by the parties with the
approval a majority in interest of the Investors.
(d) Executive Officers of the Trust.
Pursuant to the Declaration, the Managing Shareholder has appointed
officers of the Trust to act on behalf of the Trust and sign documents on behalf
of the Trust as authorized by the Managing Shareholder. Mr. Swanson has been
named the President of the Trust and the other executive officers of the Trust
are identical to those of the Managing Shareholder.
The officers have the duties and powers usually applicable to similar
officers of a Delaware business corporation in carrying out Trust business.
Officers act under the supervision and control of the Managing Shareholder,
which is entitled to remove any officer at any time. Unless otherwise specified
by the Managing Shareholder, the President of the Trust has full power to act on
behalf of the Trust. The Managing Shareholder expects that most actions taken in
the name of the Trust will be taken by Mr. Swanson and the other principal
officers in their capacities as officers of the Trust under the direction of the
Managing Shareholder rather than as officers of the Managing Shareholder.
(f) Corporate Trustee
The Corporate Trustee of the Trust is Ridgewood Holding. Legal title to
Trust property is now and in the future will be in the name of the Trust, if
possible, or Ridgewood Holding as trustee. Ridgewood Holding is also a trustee
of the Other Power Trusts and of an oil and gas business trust sponsored by
Ridgewood Energy and is expected to be a trustee of other similar entities that
may be organized by the Managing Shareholder and Ridgewood Energy. The
President, sole director and sole stockholder of Ridgewood Holding is Robert E.
Swanson; its other executive officers are identical to those of the Managing
Shareholder. The principal office of Ridgewood Holding is at 1105 North Market
Street, Suite 1300, Wilmington, Delaware 19899.
(g) Section 16(a) Beneficial Ownership Reporting Compliance
All individuals subject to the requirements of Section 16(a) have complied
with those reporting requirements during 1999.
(h) RPM.
As discussed above at Item 1 - Business, RPM assumed day- to-day management
responsibility for the Maine Biomass Projects in March 1999. Like the Managing
Shareholder, RPM is wholly owned by Robert E. Swanson. It will enter into an
"Operation Agreement" with the Indeck Maine Energy, LLC under which RPM, under
the supervision of the Managing Shareholder, will provide the management,
purchasing, engineering, planning and administrative services for the Maine
Biomass Projects. RPM will charge the Trust at its cost for these services and
for the Trust's allocable amount of certain overhead items. RPM shares space and
facilities with the Managing Shareholder and its affiliates. To the extent that
common expenses can be reasonably allocated to RPM, the Managing Shareholder
may, but is not required to, charge RPM at cost for the allocated amounts and
such allocated amounts will be borne by the Trust and other programs. Common
expenses that are not so allocated will be borne by the Managing Shareholder.
Initially, the Managing Shareholder does not anticipate charging RPM for
the full amount of rent, utility supplies and office expenses allocable to RPM.
As a result, both initially and on an ongoing basis the Managing Shareholder
believes that RPM's charges for its services to the Trust are likely to be
materially less than its economic costs and the costs of engaging comparable
third persons as managers. RPM will not receive any compensation in excess of
its costs.
Allocations of costs will be made either on the basis of identifiable
direct costs, time records or in proportion to each program's investments in
Projects managed by RPM; and allocations will be made in a manner consistent
with generally accepted accounting principles.
RPM will not provide any services related to the administration of the
Trust, such as investment, accounting, tax, investor communication or regulatory
services, nor will it participate in identifying, acquiring or disposing of
Projects. RPM will not have the power to act in the Trust's name or to bind the
Trust, which will be exercised by the Managing Shareholder or the Trust's
officers.
The Operation Agreement does not have a fixed term and is terminable by
RPM, by the Managing Shareholder or by vote of a majority in interest of
Investors, on 60 days' prior notice. The Operation Agreement may be amended by
agreement of the Managing Shareholder and RPM; however, no amendment that
materially increases the obligations of the Trust or that materially decreases
the obligations of RPM shall become effective until at least 45 days after
notice of the amendment, together with the text thereof, has been given to all
Investors.
The executive officers of RPM are the same as those of the Managing
Shareholder set forth above.
Item 11. Executive Compensation.
The Managing Shareholder compensates its officers without additional
payments by the Trust. The Trust will reimburse RPM at cost for services
provided by RPM's employees. Information as to the fees payable to the Managing
Shareholder and certain affiliates is contained at Item 13 - Certain
Relationships and Related Transactions.
Ridgewood Holding, the Corporate Trustee of the Trust, is not entitled to
compensation for serving in such capacity, but is entitled to be reimbursed for
Trust expenses incurred by it, which are properly reimbursable under the
Declaration.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Managing Shareholder purchased for cash of $83,000 in the offering one
full Investor Share. By virtue of its purchase of Investor Shares, the Managing
Shareholder is entitled to the same ratable interest in the Trust as all other
purchasers of Investor Shares. No other Trustees or executive officers of the
Trust acquired Investor Shares in the Trust's offering. No person beneficially
owns 5% or more of the Investor Shares.
The Managing Shareholder was issued one Management Share in the Trust
representing the beneficial interests and management rights of the Managing
Shareholder in its capacity as the Managing Shareholder (excluding its interest
in the Trust attributable to Investor Shares it acquired in the offering). The
management rights of the Managing Shareholder are described in further detail
above at Item 1 - Business and below in Item 10. Directors and Executive
Officers of the Registrant. Its beneficial interest in cash distributions of the
Trust and its allocable share of the Trust's net profits and net losses and
other items attributable to the Management Share are described in further detail
below at Item 13 -- Certain Relationships and Related Transactions.
Item 13. Certain Relationships and Related Transactions.
The Declaration provides that cash flow of the Trust, less reasonable
reserves which the Trust deems necessary to cover anticipated Trust expenses, is
to be distributed to the Investors and the Managing Shareholder (collectively,
the "Shareholders"), from time to time as the Trust deems appropriate. Prior to
Payout (the point at which Investors have received cumulative distributions
equal to the amount of their capital contributions), each year all distributions
from the Trust, other than distributions of the revenues from dispositions of
Trust Property, are to be allocated 99% to the Investors and 1% to the Managing
Shareholder until Investors have been distributed during the year an amount
equal to 14% of their total capital contributions (a "14% Priority
Distribution"), and thereafter all remaining distributions from the Trust during
the year, other than distributions of the revenues from dispositions of Trust
Property, are to be allocated 80% to Investors and 20% to the Managing
Shareholder. Revenues from dispositions of Trust Property are to be distributed
99% to Investors and 1% to the Managing Shareholder until Payout. In all cases,
after Payout, Investors are to be allocated 80% of all distributions and the
Managing Shareholder 20%.
For any fiscal period, the Trust's net profits, if any, other than those
derived from dispositions of Trust Property, are allocated 99% to the Investors
and 1% to the Managing Shareholder until the profits so allocated offset (1) the
aggregate 14% Priority Distribution to all Investors and (2) any net losses from
prior periods that had been allocated to the Shareholders. Any remaining net
profits, other than those derived from dispositions of Trust Property, are
allocated 80% to the Investors and 20% to the Managing Shareholder. If the Trust
realizes net losses for the period, the losses are allocated 80% to the
Investors and 20% to the Managing Shareholder until the losses so allocated
offset any net profits from prior periods allocated to the Shareholders. Any
remaining net losses are allocated 99% to the Investors and 1% to the Managing
Shareholder. Revenues from dispositions of Trust Property are allocated in the
same manner as distributions from such dispositions. Amounts allocated to the
Investors are apportioned among them in proportion to their capital
contributions.
On liquidation of the Trust, the remaining assets of the Trust after
discharge of its obligations, including any loans owed by the Trust to the
Shareholders, will be distributed, first, 99% to the Investors and the remaining
1% to the Managing Shareholder, until Payout, and any remainder will be
distributed to the Shareholders in proportion to their capital accounts.
The Trust made distributions to the Managing Shareholder (which is a member
of the Board of the Trust) and Investors in 2000 and 1999 as stated at Item 5 -
Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters. The Trust paid fees to the Managing Shareholder and its
affiliates as follows:
Fee Paid to 2002 2001 2000 1999 1998
Investment fee Managing
Shareholder $ -- $ -- $ -- $ -- $337,158
Placement agent fee Ridgewood
and sales commis- Securities
sions Corporation -- -- -- -- 277,008
Organizational, Managing
distribution and Shareholder
offering fee -- -- -- -- 1,448,944
Management fee Managing
Shareholder 1,166,112 2,332,224 2,257,357 2,377,941 1,606,269
Due diligence Managing
expenses Shareholder -- -- -- 969,793 830,823
Reimbur- Managing
sements Shareholder -- -- -- -- 793,654
The investment fee equaled 2% of the proceeds of the offering of Investor
Shares and was payable for the Managing Shareholder's services in investigating
and evaluating investment opportunities and effecting investment transactions.
The placement agent fee (1% of the offering proceeds) and sales commissions were
also paid from proceeds of the offering, as was the organizational, distribution
and offering fee (5% of offering proceeds) for legal, accounting, consulting,
filing, printing, distribution, selling, closing and organization costs of the
offering.
In addition to the foregoing, the Trust reimbursed the Managing Shareholder
and RPM at cost for expenses and fees of unaffiliated persons engaged by the
Managing Shareholder for Trust business and for certain expenses related to
management of Projects.
Other information in response to this item is reported in response to Item
12. Executive Compensation, which information is incorporated by reference into
this Item 13.
Item 14. Control and Procedures
Within the 90 days prior to the filing date of this Report, the Trust's
Chief Executive Officer and Chief Financial Officer conducted an evaluation of
the effectiveness and design of the Fund's disclosure controls and procedures
pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange
Act"). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer each concluded that the disclosure controls and procedures
were effective, with the exception of the matter noted below.
During the 2002 annual financial reporting process, management has
identified deficiencies in the Trust's ability to process and summarize
financial information of certain individual projects and equity investees on a
timely basis. Management is establishing a project plan to address this
deficiency in 2003.
There have been no significant changes in the internal controls or in other
factors that could significantly affect these controls subsequent to the date
that they completed their evaluation.
The term "disclosure controls and procedures" is defined in Rule 13a-14(c)
of the Exchange Act as "controls and other procedures designed to ensure that
information required to be disclosed by the issuer in the reports files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the [Securities and Exchange] Commission's
rules and forms." The Trust's disclosure controls and procedures are designed to
ensure that material information relating to the consolidated subsidiaries is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding the required disclosures.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
See the Index to Financial Statements in Item 8 hereof.
(b) Reports on Form 8-K.
On January 3, 2002, the Trust filed a Form 8-k to report that the Investors
had voted to approve the amendments to the Declaration. On July 18, 2002, the
Trust filed a Form 8-k to report that the Biomass Plants had each received
Statements of Qualification from the Massachusetts Division of Energy Resources.
On November 27, 2002, the Trust filed a Form 8-k to report on the completion of
the Synergics acquisition.
(c) Exhibits
3.A. Certificate of Trust of the Registrant. Incorporated by reference to
Exhibit 3.A of the Registrant's Registration Statement on Form 10, dated April
30, 1998.
3.B. Amended Declaration of Trust of
the Registrant. Incorporated by reference to Exhibit 3.B of the Registrant's
Registration Statement on Form 10, dated April 30, 1998.
3.C. Amendment No. 2 to Declaration of Trust. Incorporated by reference to
Exhibit 3.C of the Registrant's Registration Statement on Form 10, dated April
30, 1998.
3.D. Amendment No. 3 to Declaration of Trust. Incorporated by reference to
Exhibit 3.D of the Registrant's Registration Statement on Form 10, dated April
30, 1998.
10.A. Agreement of Merger, dated as of July 1, 1996, by and among
Consolidated Hydro Maine, Inc., CHI Universal, Inc., Consolidated Hydro, Inc.,
Ridgewood Maine Power Partners, L.P. and Ridgewood Maine Hydro Corporation.
Incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed
by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK
0000930364) with the Commission on January 8, 1997.
10.B. Letter, dated November 15, 1996, amending Agreement of Merger.
Incorporated by reference to Exhibit 2.2 of Amendment No. 1 to the -Current
Report on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File
No. 0-25430, CIK 0000930364) with the Commission on January 9, 1997.
10.C. Letter, dated December 3, 1996, amending Agreement of Merger.
Incorporated by reference to Exhibit 2.3 of the Current Report on Form 8-K filed
by Ridgewood Electric Power Trust IV (Commission File No.0-25430, CIK
0000930364) with the Commission on January 8, 1997.
10.D. Operation, Maintenance and Administration Agreement, dated November
1996, by and among Ridgewood Maine Hydro Partners, L.P., CHI Operations,
Inc. and Consolidated Hydro, Inc. Incorporated by reference to Exhibit 10 of the
Current Report on Form 8-K filed by Ridgewood Electric Power Trust IV
(Commission File No.0-25430, CIK 0000930364) with the Commission on January 8,
1997.
10.E. Management Agreement, dated as of April 12, 1996, between the
Registrant and Ridgewood Power Corporation. Page 172
10.F. Agreement to Purchase Membership Interests, dated as of June 11,
1997, by and between Ridgewood Maine, L.L.C. and Indeck Maine Energy, L.L.C.
Incorporated by reference to Exhibit 2.A. of Amendment No. 1 to Current Report
on Form 8-K filed by Ridgewood Electric Power Trust IV (Commission File
No.0-25430, CIK 0000930364), dated July 1, 1997.
10.G. Amended and Restated Operating Agreement of Indeck Maine Energy,
L.L.C., dated as of June 11, 1997. Incorporated by reference to Exhibit 2.B. of
Amendment No. 1 to Current Report on Form 8-K filed by Ridgewood Electric Power
Trust IV (Commission File No.0-25430, CIK 0000930364) dated July 1, 1997.
10.H. Omitted. No longer in force.
10.I. Limited Liability Company Agreement of Santee River Rubber Company,
LLC.
99.1. Certifications under Section 906 of the Sarbanes-Oxley Act.
The Registrant agrees to furnish supplementally a copy of any omitted exhibit or
schedule to agreements filed as exhibits to the Commission upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
RIDGEWOOD ELECTRIC POWER TRUST V (Registrant)
By:/s/ Robert E. Swanson President June 24, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/ Robert E. Swanson President June 24, 2003
Robert E. Swanson
By:/s/ Christopher Naunton Vice President and June 24, 2003
Christopher Naunton Chief Financial Officer
RIDGEWOOD POWER LLC Managing Shareholder June 24, 2003
By:/s/ Robert E. Swanson President
Robert E. Swanson
CERTIFICATION PURSUANT TO RULE 13A-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Robert E. Swanson, Chief Executive Officer of Ridgewood Electric Power Trust
V ("registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and senior management:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 24, 2003
/s/ Robert E. Swanson
- -----------------------
Robert E. Swanson
Chief Executive Officer
CERTIFICATION PURSUANT TO RULE 13A-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Christopher I. Naunton, Chief Financial Officer of Ridgewood Electric Power
Trust V ("registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and senior management:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: June 24, 2003
/s/ Christopher I. Naunton
- ----------------------------
Christopher I. Naunton
Chief Financial Officer