SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
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)
c/o Ridgewood Power Corporation, 947 Linwood Avenue, Ridgewood, New Jersey
07450
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (201) 447-9000
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Investor Shares of Beneficial Interest
(Title of Class)
Exhibit Index is located on page 98.
PART I
Item 1. Business.
Forward-looking statement advisory
This Registration Statement on Form 10, as with some other
statements made by the Trust from time to time, has forward-
looking statements. These statements discuss business trends and
other matters relating to the Trust's future results and the
business climate and are found, among other places, at Items
1(c)(3), 1(c)(4), 1(c)(5), 1(c)(6), 1(c)(7), 1(c)(8) and 2(b).
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.
This Registration Statement discusses 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 of fuel 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.
Some of these cautionary factors that readers should consider are
described below at Item 1(c)(6) - Trends in the Electric Utility
and Independent Power Industries.
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.
Ridgewood Electric Power Trust V, the Registrant hereunder
(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
("Independent Power Projects" or "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 has raised approximately $90,709,000. Net of
offering fees, commissions and expenses, the offering has
provided approximately $75,288,000 for investments in the
development and acquisition of Independent Power Projects and
operating expenses. The Trust has approximately 1,560 holders of
Investor Shares (the "Investors"). As described below in Item
1(c)(4), the Trust has invested approximately $14.3 million of
its funds in the acquisition of interests in two sets of
Independent Power Projects and is actively seeking additional
Projects for investment.
Ridgewood Power Corporation (the "Managing Shareholder"), a
Delaware corporation, is the Managing Shareholder of the Trust
and as such has direct and exclusive discretion in the management
and control of the affairs of the Trust. The Independent Panel
Members do not exercise general oversight of the Managing
Shareholder. 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. The
Independent Panel Members do not have any management or
administrative powers over the Trust or its property, but
approval of a majority of the Independent Panel Members is
required for approval of transactions between the Trust and other
investment programs sponsored by the Managing Shareholder. See
Item 5 - Directors and Executive Officers of the Registrant below
for a further description of the management of the Trust. The
Managing Shareholder and the Investors are collectively referred
to as the "Shareholders."
The Managing Shareholder is wholly owned by Robert E.
Swanson, who is its sole stockholder, sole director and chief
executive officer. The following chart illustrates some of the
important relationships among the Trust, the Managing Shareholder
and some of their affiliates. For additional information, see
Item 5 -- Directors and Executive Officers of the Registrant.
Ridgewood Electric Power Trust V and certain affiliates
(some entities and relationships omitted)
Robert E. Swanson
x
x Sole stockholder
x Sole director
x Chief executive officer
x
_____________X_________________________________________________
x x x x x
x x x x x
x x x x x
Ridgewood Ridgewood Power Ridgewood Ridgewood Energy Ridgewood
Securities Management Corp. Power Holding Corp. Power Capi-
Corporation Corporation tal Corp.
Operates power Corporate trustee
Placement plants for five Managing for six power Marketing
agent power trusts Shareholder trusts affiliate
("RPMC") of six power
trusts
x
x
x
_________________________________x__________________________
x x x x x x
x x x x x x
x x x x x x
Ridgewood Ridgewood Ridgewood Ridgewood Ridgewood The
Electric Electric Electric Electric Electric Ridgewood
Power Power Power Power Power Power
Trust I Trust II Trust III Trust IV Trust V Growth
(org. 1991) (org. 1993) (org. 1994) (org. 1995) (org. 1996) Fund
(org. 1997)
("Ridgewood ("Ridgewood ("Ridgewood ("Ridgewood ("Ridgewood (the "Growth
Power I") Power II") Power III") Power IV") Power V") Fund")
Ridgewood Power I through IV are referred to as the "Prior Programs."
(b) Financial Information about Industry Segments.
The Trust has been organized to operate in only one industry
segment: independent power generation.
(c) Narrative Description of Business.
(1) General Description.
The Trust was formed to participate in the development,
construction and operation of independent electric power projects
that generate electricity for sale to utilities and other users,
and that might provide heat energy as well to users. The Trust
may also invest in other energy projects (but not in nuclear
facilities) or capital projects that have similar risk-return
characteristics to those of electric power projects. These
projects or potential investments for the Trust will be referred
to as "Projects." The Trust has acquired significant interests
in two sets of Projects to date. The Maine Hydro Projects are 14
small hydroelectric projects located in Maine. In December 1996
the Trust and an affiliate, Ridgewood Power IV, each acquired a
50% interest in the limited liability company owning the
Projects. On July 1, 1997, the Trust and Ridgewood Power IV
purchased a preferred membership interest in Indeck Maine Energy,
L.L.C., an Illinois limited liability company ("Indeck Maine")
that owns two electric power generating stations fueled by waste
wood at West Enfield and at Jonesboro, Maine (the "Maine Biomass
Projects"). For more information, see Item 1(c)(4) - The Trust's
Investments, below.
The following chart summarizes some of these relationships:
Ridgewood Power
Corporation
x
x Managing Shareholder
x
__________________________X___________
x x
Ridgewood Electric Ridgewood Electric Power
Power Trust IV Trust V
x x
x 50% x 50%
x x
x x
_________X__________________________________X______
x x x
x x x
x x x
Ridgewood Maine x Ridgewood Maine
Hydro Corporation x LLC
x x x Seven indi-
General x x Limited Member x vidual members
partner x x partners x (not affili-
1% x x (49.5% x ated with
x x each) x Trusts)
x x x x
Ridgewood Maine Hydro Partners, Indeck Maine Energy
L.P.(owner of Maine Hydro L.L.C.
Projects)
Historically, producers of electric power in the United
States consisted of regulated utilities, government agencies and
industrial users that produced electricity to satisfy their own
needs. The independent power industry in the United States was
created by federal legislation passed in response to the energy
crises of the 1970s. The Public Utility Regulatory Policies Act
of 1978, as amended ("PURPA"), requires utilities to purchase
electric power from "Qualifying Facilities" (as defined in
PURPA), including "cogeneration facilities" and "small power
producers," and also exempts these Qualifying Facilities from
most utility regulatory requirements. Under PURPA, Projects that
are Qualifying Facilities are generally not subject to federal
regulation, including the Public Utility Holding Company Act of
1935, as amended, and state regulation. Furthermore, PURPA
generally requires electric utilities to purchase electricity
produced by Qualifying Facilities at the utility's avoided cost
of producing electricity (i.e., the incremental costs the utility
would otherwise face to generate electricity itself or purchase
electricity from another source). The Maine Hydro
Projects are Qualifying Facilities which have long-term
agreements with local utilities for the purchase of all of their
output ("Power Contracts") at fixed prices. The Maine Biomass
Projects are also Qualifying Facilities but do not have long-term
Power Contracts.
(2) Risk Considerations
General
Investment in the Trust involves substantial risks and
potential conflicts of interest and is suitable only for those
persons who meet the investor suitability standards on a
continuing basis, have a substantial net worth, have no need for
liquidity from such investment, and are able to bear the loss of
the entire investment. In addition, each Investor should
understand that the Subscription Agreement and the Declaration
materially restrict Investors from selling or otherwise disposing
of their Shares.
Importance of Regulatory and Political
Environments
Independent power projects, including cogeneration
facilities, are creatures of the regulatory and political
process. Since the passage of PURPA in 1978, the independent
power industry (consisting of non-governmental enterprises that
generate electricity but that are not themselves regulated
utilities) has grown, in large part, because regulatory and
political environments made it feasible to amass the large sums
of long-term capital needed to develop, construct and operate
power plants. In particular, the regulatory advantages currently
provided by PURPA for Qualifying Facilities are essential for the
viability of most existing independent power projects.
Modification or repeal of PURPA or the regulations thereunder
could make some Projects uneconomic.
In several states, including Massachusetts, Maine and
California, requirements may be imposed on sellers of electricity
to purchase a minimum amount of "renewable" power (generally,
power from small hydroelectric plants, geothermal, solar or wind
plants, or plants that burn non-fossil fuels). These requirements
may be very advantageous for the Maine Biomass Projects, but
adverse state or federal action might make those Projects
uneconomic in the future. Further, it is possible that future
developments, such as more stringent requirements of
environmental laws and enforcement policies thereunder, could
affect the costs of and the manner in which Projects are
developed, built or operated. There can be no assurance that in
such event the Projects would be able to recover all or any of
such increased costs or that their businesses and financial
conditions would not be materially and adversely affected. See
Item 1(c)(6)(ii) at Renewable Power.
Deregulatory Initiatives
The Comprehensive Energy Policy Act of 1992 (the "1992
Energy Act") removed certain restrictions imposed by the Holding
Company Act on the ability of electric utility holding companies
and electric utilities to control their local markets. Since
passage of the 1992 Energy Act, the Federal Energy Regulatory
Commission ("FERC") in its Order 888 of April 1996 has
deregulated the wholesale market for electricity (the market for
sales to local utilities or distributors of electricity).
Further, many states are implementing plans to further encourage
investment in wholesale generators and to facilitate utility
decisions to spin off or divest generating capacity from the
transmission or distribution businesses of the utilities. As a
result, Independent power projects in the future will face
competition not only from other Independent power projects
seeking to sell electricity on a wholesale basis but also from
exempt wholesale generators, electric utilities with excess
capacity and independent generators spun off or otherwise
separated from their parent utilities. See Competition, Markets
and Regulation.
On the other hand, by expanding the potential pool of
Projects in which electric utility holding companies and electric
utilities are able to invest, the 1992 Energy Act has resulted in
increased competition from the holding companies and utilities to
develop promising Projects and in increased competition in the
sale of electricity by independent power projects. Further, the
1992 Energy Act and Order 888 introduced an element of
competition in the transmission component of the electric power
industry by requiring electric utilities to make available their
transmission facilities to independent power projects where it is
in the public interest and does not unreasonably impair the
reliability of electricity service. In April 1996, FERC adopted
Order 888, which required electric utilities and power pools to
make transmission facilities and information available on equal
terms to all generators.
It is not yet possible to characterize the effects of the
order on the Trust. If there are limitations on transmission
capacity, however, the Trust might have to compete and bid for
capacity in order to transmit electricity to distant customers if
it is selling in a competitive market or if it is selling
"renewable" power to a distant customer. In those events, the
Trust might have to compete against companies that are far larger
and more diversified than itself or that have lower costs of
operation or access to transmission facilities. See Item
1(c)(6)(ii)at Wholesale-level Access to Transmission Capacity for
a discussion of these problems as they affect the Trust's current
Maine Biomass Projects. If the Trust were unsuccessful in
obtaining transmission capacity, it might not be able to sell its
output except to local utilities (or in some cases, local retail
customers). There is no assurance local customers would purchase
that power or that the local price would be as advantageous as
the price more distant customers would pay.
The large scale deregulation of transmission facilities is
likely to have other far-reaching effects which may be adverse to
the independent electric power industry, generally, or to the
particular facilities owned by the Trust. In particular, because
the Trust anticipates investing in small scale facilities, it may
be difficult for it in the short run to market power to end users
or over long distances.
State initiatives to deregulate and encourage competition in
the businesses of generating electric power and transmitting it
to customers are also creating significant risks. See Item
1(c)(6)(ii) at Retail-level Competition. Further, jurisdictional
disputes between federal and state regulators have raised some
questions as to the allocation of electric utility costs and
obligations that may not be recovered by utilities in a
competitive environment. As a result, there is little certainty
as to the eventual regulatory environment and the risks and
opportunities it will create.
As various states implement retail deregulation, a number of
additional risks are posed for independent power projects. In
many states, local electric utilities are being required or
encouraged to sell their generating stations. Often, large
electric utilities, affiliates of natural gas marketers or other
large entities have purchased large quantities of these assets
and thus immediately become sizable competitors in the market to
sell electricity. In some other states, local electric utilities
will be permitted to retain generating assets and sell power to
themselves. In that event, they may prefer purchases from their
own plants and opportunities for independent power projects to
sell electricity in a competitive market may be stifled.
Further, in a competitive market, prices for electricity may
be very volatile. If a generator is nonetheless able to obtain a
long-term Power Contract, the prices under that contract may be
inadequate to cover costs and yield a return, or the generator
may lose opportunities to sell electricity at higher prices. If a
generator is unable to obtain a long-term Power Contract and
sells its output under short-term contracts or in a spot or
auction market, the prices received may be inadequate to cover
costs or to permit the Project to earn a return. Prices may vary
so much as to make planning impossible. There is no assurance
that the generator will be able to obtain new Power Contracts so
as to keep its Project in continuous operation and the generator
may have to absorb significant costs of Project shutdown and
restart as well as lay off and rehire its workforce, as has
occurred with the Maine Biomass Projects. See Item 1(c)(4)(ii).
These factors have intensified the pressures on larger
market participants to consolidate, have created additional
incentives for generating efficiency and low-cost production of
power, have tended to depress the purchase prices of existing
small-scale Projects and are likely to have additional,
unpredictable effects. Recently, a number of very large
utilities, natural gas companies and independent generation
companies have paid significant premiums over book value or other
measures of value to purchase large packages of power plants
being divested by utilities and others have announced plans to
construct extremely large-scale merchant power plants. These
transactions or proposals have been in the range of hundreds of
millions of dollars to billions of dollars. This may indicate
that these industry participants have concluded that very large
scale is a necessary competitive advantage.
See Item 1(c)(3) at Business Plan for an explanation of the
Trust's strategy in response to these factors and others. There
can be no assurance that that strategy or any other actions by
the Trust will avoid material adverse effects on the Trust.
Threats to Power Contracts
The Power Contract with the local utility, industrial host
or other energy purchaser is perhaps the most important contract
to an existing Independent Power Project. The Power Contracts
between the Maine Hydro Projects and two local utilities in Maine
now provide for rates in excess of current short-term rates for
purchased power and the utilities are treating their contractual
obligations as a form of stranded cost. 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 making
the owners of independent power plants bear some of the costs of
deregulation.
To date, the Federal Energy Regulatory Commission and each
state regulator that has addressed the issue have ruled that
existing Power Contracts will not be affected by their
deregulation initiatives. The regulators have so far rejected the
requests of a few utilities to invalidate existing Power
Contracts. See Item 1(c)(6)(i). Further, no material action has
yet been taken by federal or state legislators to date to impair
independent power projects' existing power sales contracts, and
there are federal constitutional provisions restricting actions
to impair existing contracts. There can not be any assurance,
however, that the rapid changes occurring in the industry and the
economy as a whole would not cause regulators or legislative
bodies to attempt to change the regulatory structure in ways
harmful to independent power projects or to attempt to impair
existing contracts. In particular, some regulatory agencies have
urged utilities to construe Power Contracts strictly and to
police independent power projects compliance with those Power
Contracts vigorously. Predicting the consequences of any
legislative or regulatory action is inherently speculative and
the effects of any action proposed or effected in the future may
harm or help the Trust. Because of the consistent position of the
regulatory authorities to date and the other factors discussed
here, the Trust believes that so long as it performs its
obligations under the Power Contracts, it will be entitled to the
benefits of those contracts.
In recent years, many electric utilities that have entered
into long-term Power Contracts have concluded that the prices set
under those contracts are disadvantageous to them under current
conditions. Accordingly, they have often attempted to exploit all
possible means of terminating these Power Contracts with
independent power projects, including requests to regulatory
agencies and alleging violations of even immaterial terms of the
Power Contracts as justification for terminating those contracts.
The Trust's current investment strategy includes the purchase of
smaller-sized Projects with existing long-term Power Contracts.
If the prices for electricity under those contracts are in excess
of the prices charged by alternative sources, or if the electric
utility purchasers under those contracts have other incentives to
terminate those contracts, the Trust may face material costs in
contesting those utility actions.
Other Aspects of Power Contracts
A generating facility which uses biomass or "waste" fuel,
such as landfill gas or waste coal, may be a Qualifying Facility
under PURPA. The Maine Biomass Projects qualify under this
definition. The Trust in the future might invest in a different
type of Qualifying Facility, cogeneration projects. Cogeneration
projects increase the efficiency of a conventionally fueled
(coal, oil, natural gas) generating plant by using the waste heat
energy (heated exhaust gases and heated engine coolant) in some
useful process. However, in order for a cogeneration facility
using conventional fuel to be a Qualifying Facility under PURPA
and current regulations, at least 5% of a Project's total energy
output must be "useful" heat energy that typically is sold or
made available in the form of steam or hot water to an entity
(the "Steam Host"). (Other requirements are discussed below at
Item 1(c)(8).) Under current regulatory interpretations, heat
energy is "useful" if its use has a business purpose independent
from the sale of electricity and there is some economic
justification for the use. Typically, a Project meets its PURPA
requirements by entering into a long term contract with a Steam
Host which provides that the Steam Host will take delivery of
sufficient thermal energy to permit the Project to meet the
requirements of PURPA. If a cogeneration Project did not meet the
requirements for supplying heat energy to a Steam Host because,
for example, the Steam Host went out of business, or the thermal
contract is otherwise terminated, that cogenerating Project might
lose its status under PURPA as a Qualifying Facility. If as a
result of this loss of status the cogenerating Project became
subject to federal and state regulation or its Power Contract
were terminated or modified, the cogenerating Project might incur
material loss. Although PURPA provides grace periods for a
cogeneration Project to find an alternative Steam Host, potential
alternate Steam Hosts may be very limited or non-existent because
of the practical necessity for a Steam Host to be located
adjacent to the Project to minimize heat loss.
Under PURPA, electric power utilities are directed to
purchase electricity output offered to them by Qualifying
Facilities at a price no greater than the utilities' avoided
costs of generating electricity from another source. The Power
Contracts for many existing Projects have been negotiated with
the utility as long term agreements to purchase the Projects'
output. There can be no assurance that the rates offered to a new
Project or the other terms of a Power Contract will be
sufficiently favorable to induce development and construction of
a Project or permit profitable operation of a completed Project.
Many long-term Power Contracts provide for levelized rates
over the life of the contracts or shorter periods, which are
designed to stabilize projected revenues earned by an independent
power Project. The effect of many levelized rate contracts is to
provide that the utility will purchase electricity from a Project
at higher rates in the earlier years in exchange for an agreement
from the Project to accept lower rates to be paid by the utility
in later years. If a Project experiences operational difficulties
and produces less than the expected volume of electricity in
later years, it may be required to make cash payments to the
utility to compensate for such shortfall, thereby reducing
available cash flow to the Project owner.
Although there is some risk that a utility bound by a long-
term Power Contract may be unable to meet its purchase
obligations, under current federal law and current law in most
states electric utilities are required to maintain prudent
financing structures and are reviewed periodically by their
regulators for compliance with these requirements. In addition,
if state regulators approve, the payments made by a utility to an
independent power Project may be included as allowed costs to be
passed through to the utility's retail customers, thereby giving
the utility an additional source of revenue which can be used to
make payments to the independent power Project. Accordingly, the
financial inability of a utility to meet payment obligations to
an independent power Project which is operating in compliance
with its Power Contract has been a rare occurrence to date.
Most deregulatory programs treat Power Contracts with prices
in excess of market prices as "stranded costs" and provide for
reimbursement to utilities for those stranded costs for an
extended period of time. During these periods, which can range
from three to ten years or longer in some instances, there may be
some assurance that the utilities will pay. However, retail
deregulation may impose other financial strains on electric
utilities, which will be relegated to maintaining the
distribution network and delivering power to individual
residential, commercial and industrial locations. Those utilities
will have to downsize and reorganize their workforces and
resources and compete in many cases as suppliers of electricity.
It is likely that some utilities may reorganize or enter
bankruptcy if they are unable to meet these challenges. In those
cases, the Trust may be unable to collect amounts due to it or
may have its Power Contracts abrogated in bankruptcy. Industrial
and other retail purchasers of power do not have an assured
source of revenue from which to make payments under the Power
Contract and a Project selling to them must rely solely on the
credit of such purchaser. Consequently, although the Trust will
conduct a business review of each purchaser's creditworthiness
prior to contracting with it, there can be no assurance that it
will remain in business over time or be able to perform its
payment obligations for the duration of the Power Contract.
In the event of a default or failure to pay by an energy
purchaser under a Power Contract because of its bankruptcy or
insolvency, regulatory changes, failure of a Project to comply
with the terms of its contract or other events, there can be no
assurance that the Project will be able to obtain a Power
Contract with another purchaser or to obtain a Power Contract on
terms as favorable as those of the previous contract.
The Trust expects that if it were to invest in capital
facilities outside the electric power industry, those facilities
would have output contracts providing for long-term payments by a
responsible customer or customers for the facilities' production.
These contracts would likely be structured in a manner similar to
Power Contracts with non-utility customers. In that event, the
Trust would be subject to the risks of the customers'
creditworthiness and the long-term anticipated demand for the
products.
Reliance on Fuel Supplies at Appropriate Prices
Since the cost of fuel is usually one of the largest
components of a Project's operating costs (especially so in the
case of natural gas, coal or oil-fired electric power Projects),
the success of a Project may depend not only on the availability
of fuel supplies but also on the Project's ability to obtain long
term contracts for fuel and fuel transportation at appropriate
prices.
The Trust will attempt to invest in Projects which have fuel
supply arrangements which closely match the fuel adjustment
provisions of the Power Contract with the utility, industrial
user or other energy purchaser, so that changes in Project fuel
costs will be offset by corresponding changes in revenue from the
sale of energy. Existing Projects that do not have favorable fuel
price adjustment provisions in fuel supply contracts may have
purchase prices or values that are significantly discounted from
those of other Projects.
If fuel prices payable by a Project are relatively high
compared to the contract price of energy, the Project may not be
able to generate energy on an economic basis. On the other hand,
if a Project's economic returns are based upon the ability to
generate substantial fuel savings through use of cogeneration and
other more efficient power generation technologies, lower fuel
prices may tend to reduce the value of the fuel savings and may
adversely affect the financial performance of the Project. Since
cogeneration and other more efficient technologies often require
higher capital costs than conventional power plants, periods of
very low fuel prices could result in fuel savings which are
insufficient to cover the additional capital costs, thereby
creating losses from the Project.
Small scale Projects may find it difficult or uneconomical
to obtain long-term fuel supply contracts and thus may be exposed
to risks of fuel price escalations. For example, after a
relatively long period of depressed prices, natural gas prices in
many areas tripled between the summer of 1996 and the winter
months of 1996-1997. These increases adversely affected many
small Projects operated by Prior Programs, although RPMC was able
to negotiate one-year supply contracts for many Projects it
managed at a price substantially less than peak prices. Because
the Trust may be a relatively small consumer of fuel, it may be
difficult for it to economically hedge fuel prices or purchase
reliable supplies on a long term basis. In that case, the Trust
may be exposed to the risk that fuel price increases could reduce
or even eliminate profitability of its Projects.
A separate component of a Project's overall fuel
requirements is the availability, reliability and cost of
transporting the fuel to the Project. For example, Projects fired
by natural gas may be dependent upon a single pipeline for
transportation of large volumes of natural gas, and may be
adversely affected by the costs of transportation on the pipeline
or by outages, capacity restrictions, priority allocations to
other customers or other events affecting the pipeline. Some
Projects are designed to operate on alternate fuels (such as
using fuel oil when natural gas is unavailable) but these
alternate fuels are also subject to similar variables of
availability, cost and transportation.
In contrast to the Power Contract, which is one of the first
objectives of a Project, the fuel supply contracts are frequently
obtained relatively late in the development process or in the
operating stage. There is no assurance that adequate fuel supply
arrangements for a Project will be available from dependable
sources and at acceptable prices at the time required.
Environmental Regulation
Projects in which the Trust will participate will be subject
to environmental regulation by federal, state and local
government authorities. The failure to comply and to maintain
compliance with these regulations may potentially result in
substantial liability for pollution and other damages under
statutes and regulations relating to environmental matters. Thus,
the regulatory risks associated with the environment should be
considered carefully by Investors before investing in the Trust.
Environmental regulation includes the requirement that the
Projects in which the Trust will participate obtain and maintain
various regulatory approvals, licenses and permits. The process
involved in obtaining these approvals can be quite time consuming
and expensive, resulting in delays in the development or
construction of a Project or imposing operating limitations on
the Project. These factors could lead to increased costs to the
Trust. If the Trust invests in Projects that were developed by
others or that have an operating history, it may become liable
for pollution and environmental discharges that occurred before
it took ownership of the Project or that the Trust had no ability
to affect. As a result, the purchase of any existing Project or
any Project located on land affected by previous activities may
subject the Trust to unpredictable and material contingent
liabilities. Although the Trust through its investigation of
Projects will attempt to minimize such contingencies, there can
be no assurance that it can do so.
In addition, there can be no assurance that future
environmental legislation or regulations will not affect Project
economics. The imposition of more stringent environmental laws
and more effective enforcement policies thereunder could
significantly increase the costs associated with the development,
construction and operation of any Project and, thus,
substantially reduce the return which Investors could anticipate
with regard to the Trust's interest therein. For example, ongoing
implementation of Title V of the Clean Air Act Amendments of 1990
will require all existing industrial sources of air pollution to
obtain new operating permits and to comply with additional daily
operational limits. See Item 1(c)(8)(ii) - Environmental
Regulation.
Identifying Projects
There is no assurance that there will be a sufficient number
of attractive potential Projects available to the Trust. In
seeking to participate in Projects, in many cases the Trust is
likely to encounter significant competition from construction
companies, equipment vendors, electric and gas utilities and
their affiliates, other developers of Projects and investment
groups which participate in the development, construction and
operation of Projects. Many of these competitors have greater
experience in the independent power industry or project
development or have superior capital resources. See Items
1(c)(6)(ii) at New Generating Technologies and New Industry
Participants and 1(c)(7).
The process of identifying and investing in Projects can be
protracted and during that period the net proceeds of Investors'
subscriptions for Investor Shares are held in U.S. Government
securities, in money market funds holding those securities or in
short-term commercial paper or money market instruments at lower
yields than those anticipated from the Projects. Factors that may
cause delays include lack of funds for the Trust to begin the
acquisition process, variations in the availability of Projects
and funds available to other purchasers of Projects, negotiations
and environmental and regulatory delays caused by agency action
or the need to investigate or remediate conditions before
investing funds. The Trust seeks to reduce the period necessary
to invest funds, primarily through the Early Investor Incentive,
which was instituted to allow programs to begin acquiring
Projects during their offering periods. See Item 11(a) at
Preferred Participation Rights and Early Investor Incentive. The
period from the closing of the offering to 90% investment of
available funds dropped from approximately 29 months in Ridgewood
Power I to 12 months in Ridgewood Power III but is expected to be
at least 18 months for Ridgewood Power IV and at least 12 months
for the Trust.
Need for Diversification
The Trust expects that it will participate in several
Projects. However, the size of each investment may depend upon a
variety of factors, including, among other things, the amount of
funds available to the Trust, the size and timing of the proposed
investment, the availability of capital from other investors, the
ability of other investment programs sponsored by the Managing
Shareholder or its affiliates to participate, and the
requirements of other participants in the transaction. Based on
prior experience, the Trust believes that the likely range for
each major investment by the Trust may be from 10% to 33% of the
Trust's total capital, and may exceed 33% if the Trust
participates in certain larger scale Projects. Although the Trust
will attempt to concentrate most of its investments in lower risk
Projects that are in operation or in advanced stages of
construction, there can be no assurance that any Projects will
earn a return and failure of any Project to earn a satisfactory
return may have an adverse effect on the financial performance of
the Trust as a whole if that Project represents a significant
portion of the Trust's investments.
Risks of Foreign Investments
The Trust may invest in Projects located outside the United
States. The Trust has not yet invested material amounts in
foreign Projects, although it has evaluated several proposals,
has expended funds on due diligence and exploratory investments
to develop one Project in
Central America. See Item 1(c)(4). Neither the Managing
Shareholder nor any of its affiliates has any significant
experience in evaluating, investing in, developing, operating or
disposing of Projects located outside the United States. Among
the risks that the Trust will encounter in making investments
outside the United States are: risks in relying upon unknown or
little-known foreign businesses as partners or operators of
projects, increased costs for legal, accounting, environmental
and other services, exposure to unfamiliar systems of
governmental regulation, electricity pricing, taxation,
employment relations and economic organization, inability to
obtain goods and services from abroad or local requirements to
purchase goods and services of unknown characteristics and
quality from local suppliers, credit risks in dealing with local
businesses and customers, foreign exchange risks such as
depreciation of the local currency against the dollar or
inability to transfer money to the United States, governmental
and business corruption, kidnapping, extortion and other risks to
the Trust's personnel, and difficulty in selling or disposing of
Projects or assets.
Utilization of Funds for Undesignated Projects
The Trust may direct a substantial portion of the net
proceeds of this offering of Shares to Projects that have not
been described in this Registration Statement or subsequent
reports to the Securities and Exchange Commission, and the Trust
may be unable to or may decline to participate in any specific
investments described in this Registration Statement or
subsequent reports. Investors will not have the right to vote on
the selection of Projects. Consequently, Investors will be
relying upon the judgment of the Managing Shareholder for such
decisions. See Items 1(c)(3) and 11.
Projects Require Large Amounts of Capital and Time for
Development and Construction
The Trust may commit a significant portion of its capital to
a single Project, and it is possible that additional capital may
be required to complete a Project or make necessary alterations
or additions to such Project. There can be no assurance that the
Trust will have access to any such additional capital or that the
Project can obtain any such additional capital from other sources
on satisfactory terms. Further, to the extent the Trust
participates in larger Projects, extended periods of time (one to
three years) may elapse before the Project commences operation.
Construction
As described at Item 1(c)(3), the Trust may invest in the
development and construction of new Projects and if it does so,
it will be exposed to the risks that arise in the construction
stage of a Project. These risks include interruptions of supplies
or work stoppages; delays caused by changes in plans and
specifications; inclement weather; subcontractor non-performance;
planning error; contractor insolvency; cost increases; regulatory
changes; and other construction-related matters. Although the
Trust will attempt to reduce those risks where possible by
contracting with responsible contractors or suppliers on a
turnkey or performance incentive basis (where these risks are
assumed by others), it may not be possible to do so effectively.
Financing and Leverage
Although the Trust does not intend to borrow funds to make
its equity investments in Projects, it may invest in Projects
that have borrowed money for part of the cost of development or
construction. Some Projects may require non-recourse
construction and/or long term financing in order to be viable.
In particular, two proposed investments described below at Item
1(c)(4)(iii) are obtaining significant financing from a bank and
from an equipment supplier. There can be no assurance that such
financing will be available at the time required on satisfactory
terms and conditions, and if not available, the Project may be
abandoned and all amounts invested in the Project to that point
will likely be lost. Even if commitments for construction and/or
long term financing are obtained by a Project, there is no
assurance that the Project will be able to meet all of the
conditions which are typically required by project finance
lenders in order to fund such financing commitments. Further,
even if construction or long term financing is obtained, failure
by the Project to obtain and maintain expected operating
parameters may lead the holders of the debt to foreclose on the
Project and eliminate the equity investment of the owners.
There can be no assurance that these factors will not have a
material adverse effect on the Trust's business.
Limited Transferability of Trust Assets
The Trust's interests in many Projects in which it
participates may be illiquid. When the Trust initially commits
funds to a Project, it may endeavor to negotiate the right to
sell all or part of its equity interests in a Project at a later
time without the consents of other participants. However, the
interests in the entities that own Projects in which the Trust
participates with other owners will typically be closely held and
the Trust's ability to transfer its interests in such Project
entities may be restricted or prohibited by their governing
documents, or by other agreements among Project participants or
by covenants in financing documents. Even if the Trust
successfully negotiates the right to sell its interest in a
project without obtaining the consents of other participants, the
Trust may find that it is unable to sell or dispose of its
interests in Projects at the times it had planned or that such
transactions would be disadvantageous to the Trust. Successful
sales would depend upon, among other things, the operating
history and prospects for the Projects to be sold, the number of
potential purchasers and the economics of any bids made by them
and the state of the independent power market. In addition, sales
of substantial interests in a Project may result in adverse tax
consequences.
The Managing Shareholder will have full discretion to
determine whether any of the Trust's assets should be sold and
which should be held and in what proportions, and the Trust will
have no obligation to sell all or a portion of any asset for the
benefit of Investors or to retain any asset for the benefit of
Investors. Investors may be required to remain in the Trust until
it is terminated and dissolved.
General Risks of Operation
Although risk may be materially reduced once construction is
complete on a Project, the commencement of operation by a Project
does not necessarily assure recovery of or a profit on any
investment made in such Project by the Trust. If a Project is
completed and placed into operation, it will be subject to the
general risks of the power generation industry, including, but
not limited to, equipment failures, fuel interruption, failure of
the Project to perform according to projections, loss of a Power
Contract for not maintaining a minimum required output
availability or other breaches, decreases or escalations in Power
Contract or fuel supply contract price indices in an unexpected
manner, bankruptcy of a key customer or supplier, failure to
obtain required wheeling rights or use of transmission facilities
at economic rates, liabilities in tort (which may exceed
insurance coverage), environmental obligations, inability to
obtain desirable amounts of insurance at economic rates, acts of
God and other catastrophes.
Joint Activity with Others
It is anticipated that the Trust will normally participate
in a larger Project jointly with one or more other entities
through a joint venture or partnership vehicle. To the extent
that other participants in a Project cannot fulfill their
obligations or have divergent interests or are in a position to
take action contrary to the policies or objectives of the Trust,
the Trust's interest in such venture may be adversely affected.
In certain cases, the Trust may participate or be deemed to
participate as a general partner of the entity developing the
Project, thereby exposing the Trust to general partner liability.
The Trust will seek to limit such exposures by interposing a
limited liability entity between the Trust and the Project, or by
obtaining specific agreement from other Project participants they
will not seek recourse against Trust assets (other than the
Trust's investment in the Project) for any claims.
Although the Managing Shareholder will remain closely
involved in all aspects of the Trust's activities, the Trust in
some cases (typically larger Projects) will rely upon the advice
of others as to the development or management of Projects. Thus,
a substantial amount of responsibility will be placed on third
parties who function as sponsors or developers of Projects or
Project managers. The success of any Project will, to a large
extent, be determined by the quality and performance of its
sponsors and managers. Sponsors and Project development companies
may have conflicting demands on their resources or may be
adversely affected by other developments at their affiliated or
associated entities. As a result, there is the risk that such
sponsors or Project development companies or their other
investors may be unable to fulfill their responsibilities.
Limited Operating Experience
Although the Managing Shareholder has participated in
numerous independent power projects and executive officers of the
Managing Shareholder and advisors to the Managing Shareholder
have extensive backgrounds in the independent power industry and
the construction and operation of independent power projects, the
Managing Shareholder has limited expertise in the design,
construction and operation of independent power plants. There can
be no assurance that the Managing Shareholder's prior experience
has given it a comprehensive knowledge of the independent power
industry sufficient enough to result in successful or profitable
operations of the Trust or that such experience extends to all of
the diverse areas of the independent power industry or capital
facilities developments in which the Trust may participate.
Projects that the Trust will operate for its own account
will be managed under contract with the Trust by RPMC, an
Affiliate of the Managing Shareholder. Although many of the
officers and personnel of the Managing Shareholder also serve as
officers and personnel of RPMC, RPMC was organized in January
1996 and thus has only limited operating experience. Many of its
personnel, although experienced, have been recently hired by it.
Further, RPMC also manages the operations of Projects owned and
operated by the Prior Programs, and is currently subject to
substantial demands on its organizational and management
resources. It is possible that the management of Projects to be
acquired by the Trust would be impaired by these demands,
although the Managing Shareholder believes that RPMC will have
sufficient resources and experience to operate Projects for the
Trust.
Delaware Business Trust
The Trust has been organized as a Delaware business trust
having limited liability of the Shareholders of the Trust. Not
every state in which the Trust may conduct business has enacted
legislation recognizing the limited liability provisions of the
Delaware business trust. Accordingly, there is a risk that
investors will not have limited liability for activities of the
Trust in those states. Such risk is substantially, if not
entirely, mitigated by the Trust's conducting its activities and
holding its interest in Projects in such states through limited
liability entities such as limited partnerships or limited
liability companies.
Limitations on Liability of Managing
Persons to Trust
The Declaration provides that the Trust's officers and
agents, the Managing Shareholder, the Corporate Trustee, the
affiliates of the Managing Shareholder and their respective
directors, officers and agents when acting for the Managing
Shareholder or its affiliates on behalf of the Trust
(collectively, "Ridgewood Managing Persons") will be indemnified
and held harmless by the Trust from any and all claims rising out
of their management of the Trust, except for claims arising out
of the recklessness or misconduct of such persons or a breach of
the Declaration by such persons. Therefore, the right of an
Investor to bring an action against any of the Ridgewood Managing
Persons for a breach of its or his fiduciary responsibility or
other obligations to the Trust may be limited. See also Item 12.
The Managing Shareholder, in its capacity as a Managing
Shareholder, will receive, after the preferences to Investors,
20% of the distributions of the Trust. The Managing Shareholder
will not be obligated to contribute any cash to the Trust for
that interest, except to the extent that Trust Organizational,
Distribution and Offering Expenses exceed the Organizational,
Distribution and Offering Fee payable to The Managing
Shareholder. The Managing Shareholder has purchased one full
Investor Share as an Investor in the Trust.
Lack of Investor Participation in Management
No Investor will have the right, power or authority to
participate in the ordinary and routine management of Trust
affairs or to exercise any control over the decisions of the
Trust. The Managing Shareholder will have the exclusive right to
manage, control and operate the affairs and business of the Trust
and to make all decisions relating thereto and will have full,
complete and exclusive discretion with respect to all such
matters. Accordingly, Investors should be willing to entrust all
aspects of management of the Trust to the Managing Shareholder.
See also Item 11(b).
Limited Transferability of Shares
Shares in the Trust are an illiquid investment. There is no
market for the Shares, and, because there will be a limited
number of persons who purchase Shares and significant
restrictions on the transferability of such Shares, it is
expected that no public market will develop. Any change in the
status of the Shares would require compliance with multiple
regulatory and tax requirements and consent from a Majority of
Investors. See Items 1(c)(3) - Lack of Liquidity, 7(b) and 11(d).
Investors will generally be prohibited from selling or
transferring their Shares except in the circumstances permitted
under Article 13 of the Declaration, and all such sales or
transfers require the consent of the Managing Shareholder, which
may withhold such approval in its sole discretion. Accordingly,
an Investor will have no assurance that he or she can liquidate
his investment in the Trust and must be prepared to bear the
economic risk of the investment until the Trust is terminated and
dissolved.
The Shares have not been, and are not expected to be,
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities law in a manner that will make
the Shares freely transferable by purchasers under such laws and,
therefore, cannot be resold unless they are subsequently
registered under the Act or an exemption from such registration
is available and subject to other limitations and conditions
imposed by the Declaration. The provisions of Rule 144 under the
Act would be available to Investors in connection with such
resale, if the requirements of that rule are met, but the Trust
has no current intention to allow transfers to be made on the
open market pursuant to the rule.
The illiquidity of and other significant risks associated
with an investment in the Trust make the ownership of Shares
suitable only for an Investor who has substantial net worth, who
has no need for liquidity with respect to this investment, who
understands the risks involved, who has reviewed this
Registration Statement and the Exhibits hereto and the risks
involved with his or her tax, legal and investment advisors, and
who has adequate means of providing for his or her current and
foreseeable needs and contingencies.
Voluntary Additional Capital Contributions
There will be no mandatory assessments of the Investors or
the Managing Shareholder. Investors may, however, be called upon
on a voluntary basis to make additional Capital Contributions
after the expenditure of the Initial Capital Contributions. If an
Investor elects not to make a requested additional Capital
Contribution, the Managing Shareholder may determine that the
Managing Shareholder, other Investors or other persons may do so
or may supply loans instead, which may result in a dilution of
that Investor's interest in the Trust. See Item 11(f).
Failure Of Trust To Perform Funding Obligations
Although the Trust anticipates that it will be able to
perform all of its commitments to Trust Projects, in certain
instances there may be adverse consequences to the Trust if it
were to fail to do so. For example, a partnership agreement or
other instrument governing the Trust's participation in a Project
might provide that, in the event the Trust fails to make a
capital contribution to the partnership or particular Project as
required under such agreement, the Trust will forfeit its entire
interest in the partnership or Project, as the case may be.
Year 2000 Risks
Actions being taken by the Managing Shareholder to respond
to year 2000 remediation requirements are described at Item 2(b)
- - Year 2000 Remediation. There can be no assurance that those
actions will be successful or adequate or that any additional
year 2000 problems that exist will be discovered or remedied in
sufficient time. The Managing Shareholder and the Trust are also
vulnerable to potential losses of revenue, goods or services
caused by failures of suppliers and customers or other persons to
remedy their year 2000 problems.
Potential Conflicts of Interest
There are material, potential conflicts of interest involved
in the operation of the Trust. Some examples of these potential
conflicts include
competing demands for management resources of the Managing
Shareholder and RPMC;
competing demands for allocating investment or divestiture
opportunities among programs;
competing demands for opportunities to sell electric power
in competitive markets;
conflicts between the interests of the Managing Shareholder
and its Affiliates in receiving compensation from the Trust for
investment activities, operating activities, and divestitures, as
well as reimbursement for expenses, and the interests of the
Investors;
conflicts relating to the allocation of costs and expenses
among programs;
conflicts arising from the fact that the Managing
Shareholder will not make a capital contribution in respect of
its interest as such in the Trust and that the Investors will
supply all of the capital of the Trust;
conflicts between the interests of the Trust and other
programs sponsored by the Managing Shareholder and its Affiliates
if those programs are co-owners of Projects with the Trust;
conflicts as to who will supply additional capital in the
event the Trust were to require additional contributions;
potential interests of the Managing Shareholder or its
Affiliates in competing independent power or investment ventures;
and
the lack of independent representation of Investors in
structuring the offering of Investor Shares and in determining
compensation.
Material transactions between the Trust and other Programs
sponsored by the Managing Shareholder and its affiliates must be
reviewed and approved by the Independent Review Panel described
below at Item 5(e). Although the potential conflicts of interest
described here and others cannot be eliminated, the Trust
believes any such potential conflicts will not materially affect
the obligation of the Managing Shareholder to act in the best
interests of the Investors and the Trust.
Tax Risks
There are tax advantages associated with an investment in
the Trust, and there are some tax risks associated with those tax
benefits. The risks include, but are not limited to, those
discussed below.
(A) Partnership Tax Status of Trust
While it is the opinion of tax counsel to the Managing
Shareholder that the Trust should be recognized as a partnership
for federal income tax purposes, such opinion is not binding upon
the Internal Revenue Service and no advance ruling from the
Internal Revenue Service as to such status has been requested,
and such a request is not contemplated. If a secondary market for
the Trust's Investor Shares develops, the Internal Revenue
Service, in the event it audits the Trust, might attempt to treat
the Trust as an association taxable as a corporation. If such
challenge were successful, the Investors would be treated as if
they were corporate shareholders and, therefore, would not be
entitled to deduct their proportionate share of the Trust's
operating losses.
(B) State and Local Taxes
Each Investor may be liable for state and local income taxes
payable in the state or locality in which the Investor is a
resident or doing business or in a state or locality in which the
Trust conducts or is deemed to conduct business. Thus each
Investor may be required to file multiple state income tax
returns as a result of his or her investment in the Trust.
The state of California has instituted a withholding
requirement for distributions from organizations taxed as
partnerships (such as the Trust and limited partnerships or
limited liability companies used by the Trust to invest in
Projects) to tax partners located outside California. If the
Trust earns income in California, the portion of each
distribution to a non-California, taxable Investor that is
attributable to California is subject to a withholding tax of 7%,
whether or not the Investor files a California income tax return.
The Trust believes that other states may follow California's
example, in which case much of the income component of
distributions to an Investor would be subject to state
withholding taxes.
Each prospective Investor is urged and expected to consult
with his personal tax advisor with respect to the tax
consequences connected with an investment in the Trust.
(3) Business Plan and Development of Projects
Business Plan
The Trust will try to invest in Projects that provide long-
term cash flows. Its investments will be structured for federal
income tax purposes as "direct participation" investments, so
that income, gains, losses, deductions and credits flow through
to each Investor's personal tax return, and are subject to tax
only once. Investors will generally have limited liability for
the Trust's obligations and those of the Projects. See Item
11(e).
As deregulation of the electricity industry in the United
States progresses, the uncertainties and the financial stresses
that deregulation may create may have the effect of depressing
the stock price of companies that have long-term value.
Opportunities may arise to invest in undervalued industry
participants or in other businesses having unique technological
advantages. If so, the Trust may invest its Trusts in acquiring
majority or minority equity stakes in those companies. The
deregulation of transmission may benefit the Trust in the future
in that deregulated transmission may give Projects in which the
Trust participates access to customers that are not
geographically located near the Projects.
Generating facilities with existing long-term contracts may
have unique advantages for an investment by the Trust in that
those contracts are for extended terms at rates that are often
equal to or higher than current spot rates for electricity. In
limited situations, facilities without long-term power purchase
contracts may also be attractive investments for the Trust.
Deregulation is encouraging electric utilities to sell off many
of their existing generating plants. In many cases, state
regulators are requiring electric utilities to sell many of their
plants to separate electric generating companies, so that a
competitive market for buying and selling electricity can be
created. In other cases, electric utilities are voluntarily
selling their generating plants because they believe they can
obtain power on the open market more efficiently. As a result,
there is a large number of generating plants for sale today and
it is expected that many more will be on the market soon. This
tends to depress the price of all existing plants. Further, small
electric generating plants may be less attractive purchases for
large corporations and investment groups with large amounts of
capital to invest, which may further depress their current
prices. The Trust believes that these market conditions may allow
it to acquire small independent power plants at attractive
prices.
Finally, the uncertainties caused by deregulation and by
past failures of demand to meet projections have deterred
investments in new generating capacity. Further, as a competitive
market in generating capacity is created, market forces are
discouraging many utilities and generators from keeping as much
generating capacity in reserve as they did in prior years. While
some power marketing groups are claiming that efficiencies
created by deregulation will meet needs for additional capacity,
many electric industry engineers and consultants have expressed
fears that there will be shortages of generating capacity within
the next 10 years in many areas of the United States. It should
also be noted that as deregulation forces electricity prices
lower, demand for electricity should rise, other things being
equal. In addition, many nuclear-powered and conventional
electric generating plants are coming to the end of their useful
lives.
With these factors shaping the future market, a few large
independent electric power companies and their backers have
announced plans to build large new generating stations without
long term power purchase contracts. They apparently think by the
time those large investments in power plants go into operation
(currently estimated from late 1998 through 2002) those plants
will be needed.
The Trust instead will follow a diversified strategy that
does not attempt to compete head-on with these types of
competitors. The Trust does not intend to join in building large
new power generating facilities without firm contracts for sale
of the electricity, although if an attractive opportunity existed
it would do so. In addition, the Trust believes that in many
cases emphasis on scale and purchasing market share may lead to
suboptimal returns.
Instead, the Trust believes that if it economically and
efficiently operates and maintains small generating Projects,
those Projects will increase in value from their current somewhat
depressed levels if reserve capacity tightens in the industry.
The Trust will also seek to develop niche markets, to engage in
ventures with large utilities or other participants that need its
investments for financial or regulatory reasons or to acquire
equity interests in undervalued companies. Where possible, the
Trust may invest in existing Projects with long-term Power
Contracts that are less exposed to competitive forces, or in
Projects with regulatory or tax advantages. There can be no
assurance, however, that these strategies will be successful or
that the Trust will not be competitively disadvantaged by its
relatively small size. See Item 1(c)(6)(ii) at New Generating
Technologies and New Industry Participants and at Initial Effects
of Trends.
In addition, many small independent power projects have
environmentally beneficial features. For example, some small
independent power projects use landfill gas to power their
generators. Instead of having the methane gas produced by rotting
garbage flow into the atmosphere, where it may have powerful
"greenhouse" effects that increase global warming, the methane is
burned to produce electricity and water and carbon dioxide, which
are less environmentally destructive. Small independent
cogeneration power Projects can save fuel. The Trust will look
for small Projects that have these kinds of environmental
benefits, not only because of the benefit to the environment but
also because it believes that its experience with these kinds of
small Projects can make them good investments.
Advantages to Investing in Other Capital Facilities
Environmentally beneficial independent power projects often
have similar, non-electric power facilities related to them. For
example, a trash-to energy power plant may have a waste transfer
station nearby. In investigating small independent power
projects, Ridgewood Power has found that there are other capital
projects that are similar to independent power projects and that
often (but not necessarily) have environmental benefits. These
may meet the Trust's goals for investment because they are
expected to provide long-term, reliable cash flows and have
potential for long-term appreciation. Some of the types of
Projects that may fit this profile include:
Projects to convert waste fuel or biomass into useful fuels
or chemicals;
Projects to generate electricity or heat to process or
destroy harmful industrial wastes;
Projects that provide pumping power or other motive power
more efficiently than electric or other motors;
infrastructure facilities such as waste transfer stations;
or
other types of capital projects, such as fuel plants,
processing facilities and recycling facilities, that are expected
to have consistent cash flows similar to those from Independent
power projects.
Types of Projects
The Trust intends to seek investment opportunities in the
following types of Projects, subject to availability, pricing
terms and other considerations. See also -Project Selection and
Oversight.
Cogeneration. Cogeneration provides an efficient use of the
total energy content of a fuel source by allowing the generation
of two or more forms of useful energy from the fuel source. When
conventional electricity generating techniques are used, most of
the fuel's energy content is dispersed into the environment in
the form of heat, such as hot exhaust and condenser discharge.
Cogeneration technology couples electrical generation to a
process that can use the heat that would normally be wasted after
the generation of electricity or allows the generation of
electricity using waste heat (usually in the form of steam) from
another activity that uses heat. Substantially all cogeneration
Projects in which the Trust participates are expected to be
Qualifying Facilities. Although some cogeneration Projects in
which the Trust participates may not be Qualifying Facilities,
the Trust intends to participate only in cogeneration Projects
that avoid the restrictions of the Holding Company Act and most
state regulation.
Other Independent Power Plants. The Trust intends to also
seek investment opportunities in Projects which produce
electricity from the fuel and renewable energy fuel sources
described below. Such Projects are expected to be predominantly
Qualifying Facilities.
Natural Gas, Oil and Coal. These fuels are used in
conventional electric power generation plants to produce steam
for generators, or, in the case of natural gas, to run gas
turbines similar to jet engines.
Biomass and Other "Waste" Fuels. Biomass and other waste
fuels come from a variety of sources, including wastes from
agricultural production and industrial food processing plants;
methane gas from landfill areas; municipal solid waste and
sewage; animal wastes; wood from logging operations, and waste
coal from coal mining operations. Industrial wood and wood waste
is the most prevalent form of biomass energy used by non-
utilities. The industries that produce paper, wood, and
agricultural products are increasing their use of biomass to
improve the efficiency of their operations and to contribute to
their on-site energy requirements.
Hydroelectric. Hydroelectric power, historically a source of
relatively inexpensive and reliable energy, is generated without
the creation of air pollutants or solid wastes as by-products.
The Trust may make investments in existing hydroelectric power
plants or newly-constructed hydroelectric power plants at
existing dam or river sites that do not have such facilities. The
Trust expects that such Projects will not generally require the
construction of new dams. The Trust believes that it is likely
that any hydroelectric project in which the Trust may invest
would sell its energy output to utilities and power authorities
rather than to an on-site direct consumer.
Geothermal. Geothermal energy sources, which take the form
of steam, hot water or brine, are created by the earth's internal
heat and are typically found 5,000 to 10,000 feet beneath the
earth's surface. The energy source is reached by drilling, and
the hot steam or fluid is harnessed by on-site electric
generating plants utilizing several different technologies.
Geothermal resources are typically found in greatest quantities
in the western United States in areas designated by the Federal
Government as "Known Geothermal Resource Areas." Typically these
geothermal Projects generate electric power, but, if the Project
is sufficiently close to urban areas or an industrial user, heat
energy in the form of hot water or steam may also be generated.
Environmental Cleanup and Remediation Projects
The Trust may also invest in Projects which will generate
the large amount of electricity and/or heat energy that will be
required to power equipment designed to treat environmentally
harmful industrial waste products and in other environmental
cleanup and reclamation activities. Industry is under increasing
pressure from federal, state and local legislation to develop
alternatives to current methods of disposing of harmful
industrial waste and/or reclaiming useful materials. Technology
requiring large amounts of electricity and/or thermal energy has
been developed to process certain types of industrial waste so
that substantially all harmful materials are eliminated and
useful materials are recovered and recycled. Such technology has
been developed for treatment of harmful waste resulting from oil
refining, paper manufacturing and chemical processing. Such
Projects may or may not be Qualifying Facilities under PURPA.
These Projects are often located on the site of the manufacturing
activity and thus are also called "inside-the-fence" projects.
Because in many such Projects the bulk of the power generated
will be used or purchased on site to run the cleanup facilities,
the Trust expects that the regulatory advantages of PURPA may be
less critical to the success of these types of Projects. It
should be noted, however, that PURPA's requirements for utilities
to interconnect with Independent Power Plants can make utility
backup power and sales of surplus power feasible.
Electricity Substitution Projects
Certain of the Prior Programs have invested in irrigation
service Projects in which engines provide power directly to
irrigation pumps as a substitute for electric power purchased
from utilities. These types of Projects, in which the Trust may
be able to provide engine service more efficiently than the user
can purchase electricity for producing motive power, present
opportunities for energy efficiency comparable to those of
independent power projects.
Other Project Types
Although the Trust expects that its investments will be
largely concentrated in independent power Projects, the Trust may
also invest a portion of its capital in other capital facilities
that may have cash flow profiles similar to those of independent
power Projects. These types of Projects typically would be
structured around long-term contracts for the sale of the
facility's output, thus giving them some of the characteristics
of electric power plants. Some types of these facilities that the
Trust believes would warrant further investigation include energy
or environmental Project investments that would not be subject to
PURPA and that would not need to rely on any of its regulatory
advantages. Other types of such facilities could include
processing plants for industrial or environmental purposes, or
infrastructure facilities such as pumping and irrigation
facilities, waste transfer stations and other facilities related
to the efficient operation of Projects or that operate on a
stand-alone basis.
Basic Investment Approach
When the Trust makes investments in independent power
Projects and in other capital Projects, it concentrates on
smaller Projects in which it can buy at least a controlling
equity interest (either together or with another program
sponsored by the Managing Shareholder). Those investments should
be small enough for the Trust to make several investments and to
diversify its purchases. Therefore, these types of investments
are expected to be in the range of $2 to $20 million per
investment. Many institutional investors will not make
investments of less than $10 to $15 million, which may reduce
competition for the investments the Trust is focusing on. Also,
larger companies may want to sell their smaller Projects so they
can focus their capital and other resources on other investments.
In some cases, electric utilities may wish to sell all or a
portion of their interest in a Project so that they can comply
with federal requirements limiting their investment in certain
facilities regulated under PURPA to 50% of the equity.
By making equity investments, the Trust often deleverages
Projects. This decreases risk to Investors and reduces financing
expenses for the Projects, and usually frees up funds held in
amortization, maintenance or debt service reserves that lenders
required. This can make more cash flow available for distribution
to Investors and in the long term if the Trust is successful in
improving the operating results of the Project. After a period of
successful operation, or based on other factors, the Trust might
conclude that the balance of returns and risks to Investors would
be improved if a Project was leveraged. In that case, the strong
equity position of the Trust might make such financing easier to
obtain.
Where possible, the Trust prefers to invest in Projects that
are already operating to reduce development risks and delays in
earning cash flow. If the Trust commits money to develop a
Project, it prefers to invest in smaller Projects or Projects
with short development periods.
Where possible, the Trust will seek to have operating
control over a Project (or share operating control with another
program sponsored by the Managing Shareholder). The Prior
Programs (the four prior electric power business trusts organized
by the Managing Shareholder) now own interests in over 40
Projects, primarily in California, New York and New England. Over
half of these Projects (by number and by revenues) are managed by
RPMC, which is also wholly owned by Robert E. Swanson.
RPMC has over 35 employees, including engineering,
operating, accounting and legal specialists. See Item 5(g). The
Managing Shareholder has found that hiring other participants in
or developers of Projects to manage the Projects, or hiring third
party managers, often leads to inefficient management and lesser
total returns to the Trusts. Further, common management allows
savings in fuel purchasing, cash management and personnel,
creates incentives for efficiency over the entire portfolios of
Projects, and allows RPMC to gain valuable operating and industry
experience. RPMC is only reimbursed for its costs, with no profit
factor.
The Trust may hire other persons to manage Projects,
typically in cases where the Projects are small and difficult to
manage centrally. In some cases the prior owner or developer may
retain a significant ownership interest or insist on continuing
to operate Projects as a condition for selling them. In those
situations, the Trust will seek to obtain a preferred right to
net cash flow from the Project before the other owner or
developer is entitled to cash flow or compensation materially in
excess of its costs.
The Trust will also attempt to include incentive provisions
in any management contract that will encourage the manager or
operator to maximize the return to the Trust. These types of
provisions often give the manager a bonus if it exceeds
performance targets while reducing compensation somewhat (or
allowing the Trust to fire the manager) if the Project's
performance does not meet specified minimums.
Finally, in acquiring a Project, the Trust ordinarily will
create a subsidiary with limited liability for its owners to hold
the Project or a small group of similar Projects. This should
reduce the Trust's liability for its subsidiaries' operations and
should isolate each Project to a reasonable extent from
liabilities of other Projects.
Investment Approach for Larger Projects
The Trust might be able to invest in Projects larger than
the $20 million size described above. If it participated with
larger companies in buying or developing a Project, the Trust
would probably buy a minority, non-control equity interest. These
types of transactions are heavily negotiated and there is no
typical structure for the Trust.
However, the Trust believes that it could be an attractive
participant in a purchase of a larger facility, because its
investment objective is long-term appreciation for its Investors
and because it has ready cash for investment. The Trust thus can
participate quickly and effectively in negotiations. Moreover, it
can enter into complicated arrangements such as partnerships with
special allocations of accounting earnings or tax benefits, where
the Trust can receive cash flow while other participants are
allocated disproportionate amounts of earnings or tax items that
may be more valuable to them. Further, because the Trust is not
related to any electric utilities, when it invests in a Project
it can help any electric utility co-owners to comply with the 50%
utility ownership limitation for certain Projects.
Investment Structure
The Trust expects that substantially all of its investments
will be in the form of limited partner interests in limited
partnerships (or interests in other limited liability entities)
organized to own the assets of a Project. The Trust may
alternatively structure some investments as leases of facilities
or equipment, in which the Trust finances the acquisition of
property for a user and in some cases provides operation or
maintenance services. These arrangements might be employed where
state regulatory positions inhibit or prohibit ownership of
Projects directly by the Trust or where tax considerations
encourage such a structure.
In certain circumstances where appropriate, the Trust may
enter into joint ventures or general partnerships with other
entities for the purpose of developing and owning Projects or may
acquire interests in the general partners of Project owners. In
these cases, the Trust normally would become liable without limit
for the activities and obligations of the Project. However, in
the event it acquires such interests, the Trust expects to reduce
exposure to these risks by all or any of the following:
interposing a limited partnership or other limited liability
entity between the Trust and the Project; requiring that material
financial or other obligations of the Project be made on a non-
recourse basis; or causing the Project to obtain insurance in
commercially reasonable amounts and scope to protect the Project
and the Trust.
In limited cases, a portion of the Trust's investments in
Projects, especially those investments made before a Project
owner applies for construction financing, might be made as loans
carrying a rate of interest with an equity kicker, which is an
additional equity-related interest in a Project granted to a
lender as part of the loan transaction. Some of these loans may
be interest-deferred loans. Equity kickers might take the form of
an equity interest in a Project (for which the Trust would pay
nothing or a nominal amount), a warrant to purchase an equity
interest, or rights to convert the debt into equity.
The Trust expects that any Project loans or investments it
makes to Projects would be made on a non-recourse basis under
which the other participants in the Project would not be
responsible for the debt or investment and the Trust would be
able to look only to the unencumbered assets of the Project for
repayment of debt or return on investment. In some cases, the
Trust may obtain a security interest in Project assets. Prior to
completion, a Project's assets are unlikely to have significant
value as collateral for any loans made by the Trust in the event
the Project is not completed.
Where the Trust deems it advisable, the Trust may supply
capital to Projects by guaranteeing Project debt, supplying
security for loans to the Project or for the issuance of letters
of credit to the Project or otherwise acquiring goods and
services for the benefit of the Project. In such cases, the Trust
will seek to structure the transaction to provide for repayment
of the Trust's capital with an appropriate return and an Equity
Kicker.
Goals for Returns to Investors
Timetable for Trust Investments
The Trust purchased its first interest in a project about
eight months after its offering of Shares began. Although the
amount of time needed to invest all the Trusts raised varies
significantly from program to program, the Trust estimates that
it will substantially complete its investments between 12 and 18
months after the offering closes.
These time estimates for the length of the offering and the
amount of time needed to complete buying Projects may change
significantly depending upon the progress of the offering, the
success of the Early Investor Incentive, the amount of funds
raised and the availability of attractive investments. Two of the
Prior Programs had a total of approximately $7 million of
uninvested funds as of the date of this Registration Statement
and one or more of them may not have invested all of their
available funds at times after that date. As described at Item
1(c)(2) - Potential Conflicts of Interest, the Managing
Shareholder's policy is to present investment opportunities first
to the earliest-organized program with available funds.
Therefore, the Trust may have to wait until Prior Programs are
fully invested before its funds can be applied to Project
investments. See Item 1(c)(2) - Identifying Projects for
additional factors that may affect the Trust's ability to invest
funds quickly.
Until funds from the offering of Shares are invested, they
will be deposited in bank accounts or other short-term bank
obligations, in securities issued by or guaranteed by the U.S.
Government or its agencies or in money market funds or other
funds invested in those securities.
Distributions from Operating Projects
Until the Trust has invested in a significant amount of
operating Projects, it generally will make distributions of
available cash flow from interim investments and initial Projects
quarterly to Investors. When cash flow available from operating
Projects reaches an appropriate level, the Trust will seek to
make monthly distributions. The Trust anticipates doing so at or
after the spring of 1999, but its ability to do so depends on
whether it can promptly invest additional funds and whether the
investments it makes will rapidly earn cash flow. If the Trust
invests in development projects such as those described at Item
1(c)(4)(iii), earnings from those Projects will be delayed until
sometime after completion of construction, the placing of the
Project in service, and receipt of payment for output all occur.
Distributions of available cash flow can vary depending upon
Project operating performance, fuel prices, unexpected operating
or administrative costs, environmental requirements, scheduled
and unscheduled maintenance and costs of equipment, fees and
expenses payable to outside operators or Project participants and
Trust operating costs and liabilities.
Subject to the other factors described in this Registration
Statement on Form 10, the Trust's primary goal is to provide
Investors with annual distributions of net cash flow, as defined
in the Declaration of Trust, of 14% of their Capital
Contributions to the Trust. Because the Trust's policy is to
distribute net cash flow, a substantial portion of many
distributions will include funds that represent depreciation and
amortization charges against assets. Occasionally, distributions
may include funds derived from the release of operating or debt
service reserves or proceeds of sales of Projects. A secondary
goal is to provide a capital appreciation opportunity for
Investors, both by investing in assets with appreciation
potential and by positioning itself for a future public offering,
merger or other corporate event. For purposes of generally
accepted accounting principles, amounts of distributions in
excess of income may be considered to be capital in nature, even
though the Trust is organized to return net cash flow rather than
income to Investors.
Under current law and conditions independent power projects
have a relatively assured source of revenues for the length of
their power purchase contracts. But see the factors described at
Item 1(c)(2) - Threats to Power Contracts and Other Aspects of
Power Contracts. When those contracts expire or terminate, or if
the independent power projects do not have fixed or formula price
contracts, the cash flow prospects for the Projects will depend
on market conditions and are not predictable at this time.
Sale or Disposition of Projects
The Trust's business plan is not currently geared toward
selling or otherwise disposing of Projects before the expiration
or termination of existing power purchase contracts. The Trust
believes that at or before the termination of those contracts
there may be opportunities to sell or otherwise dispose of
Projects at a positive return for Investors and two Prior
Programs have done so. However, any estimate at this time of
potential returns is speculative.
Lack of Liquidity
Under current federal income tax law, because the Trust has
more than 500 Investors and if a market is allowed to develop for
its Shares, it will lose its status as a "direct participation
program" (allowing income and gains to be taxed only once, on the
Investors' tax returns rather than twice at the Trust level and
at the Investor level). Therefore, even after federal and state
securities law restrictions on sale of Shares by Investors
expire, the Trust cannot permit any substantial market for Shares
to develop. As a result, Shares in the Trust would continue to be
highly illiquid investments. See also Item 9(a) as to the
possibility of a conversion of the Trust into a publicly traded
vehicle.
The Trust will seek to make the Investor Shares more liquid
as described below at Item 9(a), but there can be no assurance
that it can do so. Even if the Trust succeeds in increasing the
liquidity of the Shares, there is no assurance that the Investor
Shares will increase in value or not fall in value, or that there
will be a market for the Investor Shares at the time an Investor
wants to sell them.
Potential Investments
The Managing Shareholder anticipates that the Trust will
review and enter into preliminary investigations or indications
of interest for a significant number of potential investments
that in fact the Trust will decline to pursue or that will not be
available for the Trust to invest in. This is a necessary part of
the process of winnowing potential investments to those that the
Managing Shareholder believes are the most advantageous for the
Trust. Thus, the identification of any potential investment is
not an assurance that the Trust will acquire the investment or
that it will even enter into negotiations to effect the purchase.
Further, in the Managing Shareholder's experience, as a result of
investigations of the investment and the process of negotiating
an acquisition, the terms of the transaction tend to change
frequently and unpredictably. There is no assurance that any
proposed investment or any variant will occur, that the terms of
the investment will be the same or similar to those proposed by
any party from time to time or that any investment will be
economically advantageous to the Trust. Investors must be aware
that the final terms and conditions of the transaction may differ
from those described in this Registration Statement or elsewhere.
Project Selection and Oversight
The Trust investigates and evaluates proposals to
participate in a Project through a variety of means, including,
without limitation, inquiries and analysis by the Managing
Shareholder, contacts with participants in the independent power
industry and the engagement of engineering, legal, investment
banking and other professional consultants. See Management.
The following is a typical list of the elements which the
Trust would seek to evaluate for a potential Project:
Project economics
Quality of Project sponsors
Prior experience and success rate of Project sponsors
Size of Project
Specific market requirement for power
Power Contract, applicable tariffs for power supply or
similar payment arrangements
Fuel supply agreements and other power sources
Creditworthiness of customers
Quality of engineering
Engineering report and analysis
Site agreement
Permit requirements and quality of permits
Relevant regulatory issues
Legal issues
Equipment and technology
Project development costs and prior cost experience of
Project sponsors
Quality of construction contractor
Construction and performance testing agreements
Availability of fuel and quality of fuel suppliers
Quality of operator and maintenance contractor
Operation and maintenance agreement
Historical operating data
Financial structure
Environmental and regulatory compliance.
The Trust will rely on the Managing Shareholder and
consultants and advisors to evaluate these elements, to review
proposals for additional development or financing as required, to
review proposals to sell the Trust's Properties in the future, to
consider liquidity alternatives and otherwise to represent the
Trust's interests.
Insurance
The Projects and Project development companies in which the
Trust may participate will seek to obtain hazard, property,
general liability, boiler and machinery and other insurance in
commercially reasonable amounts to cover the Projects, as well as
general liability and similar coverage for the Trust's business
operations. Such insurance does not cover liability for
securities-related matters. There can be no assurance, however,
that insurance on the Projects will be adequate in scope or
amount to protect the Trust from material losses related to the
Projects. In particular, coverage for environmental risks is
difficult to obtain in desirable amounts and scope.
(4) 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, the remaining 50% interest was purchased by
Ridgewood Power IV, a similar investment program organized in
1995 by the Managing Shareholder. 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 partnership was credited with all
income relating to the projects from July 1, 1996 to the closing
date and the seller was credited with interest on the purchase
price at annual rates of 6% to 8.5%
during that period.
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 or Bangor Hydro-electric Company
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 Trust's net equity in the income of the Maine Hydro
Projects for 1997 was $521,000.
The Trusts have entered into a five year operating and
maintenance agreement with Consolidated Hydro, Inc. under which a
subsidiary of Consolidated Hydro will manage and administer 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. In 1997, the operator was paid a total
of $429,000 for operating and incentive fees.
(ii) Maine Biomass Projects
On July 1, 1997, the Trust and Ridgewood Power IV purchased
a preferred membership interest in Indeck Maine Energy, L.L.C.,
an Illinois limited liability company ("Indeck Maine") that owns
two electric power generating stations fueled by waste wood at
West Enfield and at Jonesboro, Maine. The Trust and Ridgewood
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 Ridgewood Power IV provided an equal
amount of the total purchase price.
The original members of Indeck Maine, who continue as equity
members subject to the preferred membership interest, are seven
individuals. In connection with the transaction, Indeck Maine
distributed $9,143,000 of the purchase price to its original
members. The preferred membership interest entitles the Trust
and Ridgewood Power IV to receive all net cash flow from
operations each year until they receive a 18% annual cumulative
return on their capital contributions to Indeck Maine. Any
additional net operating cash flow in that year is paid to the
remaining Indeck Maine members until the total paid to them
equals the amount of the 18% preferred return for that year,
without cumulation. Any remaining net operating cash flow for
the year is payable 25% to the Trust and Ridgewood Power IV
together and 75% to the other Indeck Maine members unless the
Trust and Ridgewood Power IV recover 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 Ridgewood Power IV and (b) the remaining Indeck Maine
members.
Under its amended operating agreement, the original Indeck
Maine members designate a majority of the managers of Indeck
Maine and thus have management control, although approval of the
Trust and Ridgewood Power IV jointly is required for many
significant decisions. If the Trust and Ridgewood Power IV do
not receive annual distributions at least equal to the 18%
preferred return requirement or if Indeck Maine after a cure
period fails to make distributions to them in accordance with the
operating agreement, they have the right to designate a majority
of the managers of Indeck Maine. The other Indeck Maine members
may regain control if Indeck Maine satisfies the cumulative
preferred return requirement within the next five calendar
quarters. Indeck Operations, Inc., an affiliate of the original
Indeck Maine members, currently manages the plant under a
renewable agreement and is reimbursed for its costs. In
addition, the three managers nominated by the original Indeck
Maine members will receive aggregate annual fees of $300,000 and
certain other fees are payable to Indeck Maine affiliates. The
management agreement may be terminated on notice if the Trust and
Ridgewood Power IV obtain the right to designate a majority of
the managers of Indeck Maine. The Trust anticipates that it and
Ridgewood Power IV will have the right to do so and to terminate
the management agreement at the end of 1998, at which time it
anticipates that RPMC will assume management of the projects.
Each of the projects has a 24.5 megawatt rated capacity and uses
steam turbines to generate electricity. The fuel is waste wood
chips, bark, brush and similar biomass. Both projects are
Qualifying Facilities.
The Indeck Maine projects operated for five months in 1997
selling electricity to participants in the New England Power Pool
or to Bangor Hydro-electric Company on monthly contracts. The
contracts were not renewed in 1998 and the projects were shut
down in January 1998. Later in January 1998, during a severe ice
storm, local officials requested an emergency restart of the
projects. A dispute ensued between Bangor Hydro-electric Company
and the Indeck Maine projects, caused by the high costs of
restarting the plants on an emergency basis. Bangor
Hydroelectric Company accused the projects of price-gouging in
the emergency. Indeck Maine responded that Bangor Hydro-electric
was distorting the facts to divert attention from other matters
and that it would sell the emergency energy at cost. The matter
is being informally reviewed by the Maine Attorney General's
office, and no action has been taken to date. The Trust does not
anticipate any material adverse effect from the dispute, but
there can be no assurance that an adverse effect will not occur.
The cost to the owners of Indeck Maine for maintaining the
facilities in operable condition and for fixed costs such as
taxes and insurance is approximately $100,000 per month for both
projects, which is being funded 25% by the Trust, 25% by
Ridgewood Power IV and 50% by the other Indeck Maine owners.
Beginning in April 1998, ISO-New England, Inc. (the "ISO"),
an independent, non-profit organization in which Indeck Maine and
substantially all generators and distribution utilities in New
England are members, began an auction process as part of the
deregulation of the New England electricity market. See Item
1(c)(6) --Trends in the Electric Utility and Independent Power
Industries, for an explanation of the deregulatory process. The
first commodity to be auctioned is "installed capability," a
measurement of the rated ability of a generating plant to create
electric power. Plants are credited with installed capability
whether or not they run. For an additional discussion of
installed capability and other concepts related to electricity
pricing, see (5) - Project Operation, below. Beginning April 1,
1998 each distribution utility that is a member of the ISO 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 may auction it through the ISO.
The Maine Biomass plants have sold installed capability for
April 1998 under contract to a distribution utility and expect to
sell installed capability for the rest of 1998 either through
short or long-term contracts or the auction process.
The ISO has announced that later in 1998 and 1999, it will add
additional commodities to the auction process, such as operating
capability (the amount of power that can be delivered by
generating plants that are operating or can be placed in
operation on short notice) and energy (the actual energy
delivered by operating plants). The Trust hopes that the prices
for energy or operating capability during the remainder of
1998, either through the auction process or through short-term or
long-term contracts, will be sufficient to allow the plants to be
restarted and operate.
The Trust believes that as utilities sell off generating
assets, as state regulators require purchase of "renewable power"
as described further at Item 1(c)(6)(ii) - Trends in the Electric
Utility and Independent Power Industries - Maine Biomass and
"Merchant Power Plants" - Renewable Power and as the market in
New England for generation becomes more competitive, the Maine
Biomass Projects will be able to sell their future output
profitably. However, there can be no assurance that they can do
so consistently and earn a satisfactory return in the rapidly
deregulating electricity industry. See generally Item
1(c)(6)(ii) for further discussion of the opportunities and
problems related to the deregulated industry.
Neither Indeck Maine, its original members nor Indeck
Operations, Inc. is affiliated with or has any material
relationship with the Trust, Ridgewood Power IV, their Managing
Shareholder or their affiliates, directors, officers or
associates of their directors and officers. The sales price
and the terms of the acquisition were determined in arm's
length negotiations between the Managing Shareholder of the
Trust and representatives of the original Indeck Maine
members. The source of the Trust's funds was proceeds of its
private placement offering of Investor Shares.
The Trust's net equity in the losses of the Maine Biomass
Projects for 1997 was $680,000.
(iii) Proposed Investments.
In January 1998 the Managing Shareholder executed a letter
of intent under which the Trust and Ridgewood Power IV would
invest up to $32.3 million collectively in 17 small landfill-gas
fueled generating plants being developed by NEO Corporation, a
subsidiary of NRG Energy, Inc., of Minneapolis, Minnesota. The
plants are to be located at public landfills in California,
Washington, New Jersey, New York, Massachusetts, Virginia and
Florida and range in capacity from .9 Megawatt to 20 Megawatts.
As currently contemplated, Ridgewood Power IV would first invest
up to $9 million of its funds in a limited liability company and
the Trust would invest the remaining $23 million. As projects
were completed and received long-term debt financing from a bank
financing source, the limited liability company would advance
equity funds to the operating company and would receive a
preferred right to distributions from the operating company and
approximately a 50% interest on dissolution. The funds invested
by the limited liability company would come first from the
Trust's contribution and then from Ridgewood Power IV's
contribution. Unexpended funds would be returned to the Trust
providing them. As of the date of this Registration Statement,
the Trust has not entered into a definitive agreement and has not
invested any funds in the venture (although it has made
expenditures for due diligence, engineering and legal services
for its own account), but it expects to enter into an agreement
to do so by the end of May. At completion of the investment
process (expected by November 1998) the Trust and Ridgewood Power
IV would have undivided interests in each plant in proportion to
their net capital contributions to the limited liability company.
The Trust is also participating in the development of and
may operate an approximately 20 Megawatt capacity cogeneration
station at the INCEHSA cement works in Comayagua, Honduras. A
letter of intent to do so is pending. The estimated cost of the
Project is $24 million, of which the Trust might fund up to $15
million. Completion is scheduled for first quarter 1999.
Financing extended by equipment suppliers is expected to cover
the remaining cost. At this point, only preliminary work is
being funded and there can be no assurance that the final
investment, if any, will be on the terms described. As of March
31, 1998, a total of $292,000 had been expended by the Trust for
due diligence and a small amount of development expenses.
The Trust is actively seeking additional Projects for
investment, either by itself or in conjunction with other
programs sponsored by the Managing Shareholder if such programs
are authorized to do so.
If the Trust and another program with similar investment
objectives have funds available at the same time for investment
in the same or similar Projects, and a conflict of interest thus
arises as to which program will make the investment, the Managing
Shareholder will review the investment portfolio of each program.
It will make the investment decision on the basis of such
factors, among others, as the effects of the investment on the
diversification of each program's portfolio, potential
alternative investments, the effects investment by either program
would have on the program's risk-return profile, the estimated
tax effects of the investment on each program, the amount of
funds available and the length of time those funds have been
available for investment. If more than one program has funds
available for investment and the factors discussed above and
other considerations indicate that the Project has approximately
equal benefit for each program, the Managing Shareholder will
generally allocate the opportunity to each program in order of
its organization date. In that event, the Managing Shareholder
will cause the oldest program to commit all of its reasonably
available funds to that opportunity; if those funds are
insufficient, the remainder of the opportunity will be offered to
each successive program with reasonably available funds until the
investment opportunity is exhausted. A similar process would be
followed for divestiture opportunities or competitive electricity
sales.
An additional conflict could arise where the entities make
investments in different forms, which would be the case where one
entity's investment took the form of equity and the other's took
the form of debt. Although it anticipates that this situation is
unlikely to arise, the Managing Shareholder, if practicable,
would attempt to resolve any conflict of this type by reference
to the terms negotiated by other debt or equity participants in
the relevant Project or similar Projects. Although the Managing
Shareholder believes these practices may reduce potential
conflicts of interest of this type, there can be no assurance
that the interests of the entities will not diverge.
(5) Project Operation.
The Maine Hydro Projects are Qualifying Facilities under
PURPA and have entered into long-term Power Contracts with their
local distribution utilities. Under the Power Contracts for the
Maine Hydro Projects, the local utilities are obligated to
purchase the entire output of the Projects (up to rated levels)at
formula prices.
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 Projects
have a very limited ability to store water during high flows for
use at low flow periods. As a result, these Projects are unable
to earn capacity payments and are often unable to produce high
output in the peak summer and winter months when spot electricity
rates are highest. Instead, they produce electric energy and
sell it as generated at the fixed rates provided in the Power
Contracts. No separate payments are made for capacity or
capability.
The Maine Biomass Projects do not have long-term Power
Contracts and will be selling their capability and output
competitively. The Projects have sold all their installed
capability (approximating 49.5 megawatts) under one month
contracts for April 1998 at an average price of $2,330 per
megawatt of capability and are entertaining offers for May 1998
and future months.
The Trust's decisions to purchase Projects in New England
have been driven in part by the relatively high prices paid for
energy in the region and a shortage of generating capacity caused
in large part by the forced shutdown of four large nuclear power
plants owned by Northeast Utilities, Inc. and other utilities for
regulatory and safety violations. See the discussion at Items
1(c)(6) - Trends in the Electric Utility and Independent Power
Industries and 1(c)(7) - Competition below for information
regarding proposed capacity additions and cost factors that may
offset that shortage.
Customers of Projects that accounted for more than 10% of
annual revenues from operating sources to the Trust in each of
the last two fiscal years are:
Calendar year
1997 1996
Central Maine Power Company 80%<F1> <F2>
(Maine Hydro Projects)
Bangor Hydro-electric Co. 20%<F1> <F2>
(Maine Hydro Projects)
<FN>
<F1>Estimated.
<F2>Not meaningful. Trust owned Maine Hydro Projects only
for period from December 23 -December 31, 1996.
</FN>
The major costs of a Project while in operation will be debt
service (if applicable), fuel, taxes, maintenance and operating
labor. The ability to reduce operating interruptions and to have
a Project's capacity available at times of peak demand are
critical to the profitability of a Project. Accordingly, skilled
management is a major factor in the Trust's business.
The Maine Hydro Projects are managed by their former owner,
Consolidated Hydro, Inc., which owns other hydroelectric
facilities in the region, and the Maine Biomass Plants are
currently managed by their former owner, Indeck Maine.
Electricity produced by a Project is typically delivered to
the purchaser through transmission lines which are built to
interconnect with the utility's existing power grid, or in the
case of the Maine Biomass Projects, via utility lines to the
ISO's transmission facilities.
The overall demand for electrical energy is somewhat
seasonal, with demand usually peaking in the summertime as a
result of the increased use of air conditioning. As described
above, peak periods in New England generally are limited to
daytime and evening hours in the summer months (with a smaller
peak in Maine for light and heating during the winter) and power
prices are significantly higher during those periods.
The technology involved in conventional power plant
construction and operations as well as electric and heat energy
transfers and sales is widely known throughout the world. There
are usually a variety of vendors seeking to supply the necessary
equipment for any Project. So far as the Trust is aware, there
are no limitations or restrictions on the availability of any of
the components which would be necessary to complete construction
and commence operations of any Project. Generally, working
capital requirements are not a significant item in the
independent power industry. The cost of maintaining adequate
supplies of fuel is usually the most significant factor in
determining working capital needs.
The Maine Hydro Projects owned by the Trust use
hydroelectric energy and 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 and output has
varied in the range of 30% over or 25% below the average output
from 1987 through 1997. Output is generally lowest in the summer
months and in the winter and highest in the spring and fall.
The Maine Biomass Projects burn wood waste, including brush
and chips from woodcutting or processing of raw wood at paper
mills or sawmills. The price of wood waste fluctuates 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 and the plants were unable to run
profitably during the winter of 1997-1998. It is not possible to
determine whether this cost will jeopardize long-term
profitability of the plants until the new competitive wholesale
market for electric energy begins (expected no earlier than late
1998) and revenues can be estimated.
In order to commence operations, 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.
Although the capital costs and other expenses of environmental
protection may constitute a significant portion of the costs of a
Project, the Trust believes that those costs as imposed by
current laws and regulations have been and will continue to be
largely incorporated into the prices of its investments and that
it accordingly has adjusted its investment program so as to
minimize material adverse effects. If future environmental
standards require that a Project spend increased amounts for
compliance, such increased expenditures could have an adverse
effect on the Trust to the extent it is a holder of such
Project's equity securities.
Of the 14 Maine Hydro Projects, six operate under existing
hydroelectric project licenses from the Federal Energy Regulatory
Commission ("FERC") and two have license applications pending.
Changes to the six other, unlicensed Projects (which are
currently exempt from licensing) may trigger a requirement for
FERC licensing. FERC licensing requirements have become
progressively more stringent and often require that output of a
Project that is being licensed or relicensed be restricted in
order to allow a more natural flow of water, that archaeological
and historical surveys be undertaken, that public access to
waterways be provided (sometimes requiring purchase of property
rights by the hydroelectric licensee) and that various site
improvements be made. These requirements can materially impair a
project's profitability. See Item 1(c)(8) - Business - Narrative
Description of Business - Regulatory Matters.
(6) Trends in the Electric Utility and Independent Power
Industries
There are numerous references for further information on the
electric power industry. Interested persons may particularly wish
to refer to the U.S. Department of Energy's Annual Energy
Outlooks and special studies, prepared by the department's Energy
Information Administration (the "EIA"). Much of this information
is available on EIA's World Wide Web site at
http://www.eia.doe.gov under the "Electric" heading. Neither the
Department of Energy nor EIA nor any other agency of the United
States Government has endorsed or approved the Trust or the
Investor Shares and the Trust takes no responsibility for the
preparation or content of the Department of Energy's
publications.
(i) Qualifying Facilities with long-term Power Contracts
The Trust is somewhat insulated from recent deregulatory
trends in the electric industry because the Maine
Hydro Projects are Qualifying Facilities 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 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 causing owners of independent power plants to bear some
of the costs of deregulation. Further, there are federal
constitutional provisions restricting actions to impair existing
contracts.
To date, the Federal Energy Regulatory Commission and state
authorities have ruled that existing Power Contracts will not be
affected by their deregulation initiatives. The regulators have
so far rejected the requests of a few utilities to invalidate
existing Power Contracts. Instead, most state plans for
deregulation of the electric power industry (including those in
Maine) treat the value of long-term Power Contracts that are
above current and anticipated market prices as "stranded costs"
of the utilities. The utilities are to be allowed to recover
those costs during a transition period. This is typically done
by imposing a transition fee or surcharge on rates that is paid
to the utility.
No material action has yet been taken by federal or state
legislators to date to impair independent power projects'
existing power sales contracts, and. There can not be any
assurance, however, that the rapid changes occurring in the
industry and the economy as a whole would not cause regulators or
legislative bodies to attempt to change the regulatory structure
in ways harmful to Independent Power Projects or to attempt to
impair existing contracts. In particular, some regulatory
agencies have urged utilities to construe Power Contracts
strictly and have required utilities to police independent power
projects' compliance with those Power Contracts (and in
California, fuel supply contracts) vigorously.
Predicting the consequences of any legislative or regulatory
action is inherently speculative and the effects of any action
proposed or effected in the future may harm or help the Trust.
Because of the consistent position of the regulatory authorities
to date and the other factors discussed here, the Trust believes
that so long as it performs its obligations under the Power
Contracts, it will be entitled to the benefits of the contracts.
In recent years, many electric utilities have attempted to
exploit all possible means of terminating Power Contracts with
independent power projects, including requests to regulatory
agencies and alleging violations of even immaterial terms of the
Power Contracts as justification for terminating those contracts.
If such an attempt were to be made, the Trust might face material
costs in contesting those utility actions. Other utilities have
from time to time made offers to purchase and terminate Power
Contracts for lump sums. No such offer has been suggested or made
to the Trust, although the Trust would entertain such an offer.
Finally, the Power Contracts are subject to modification or
rejection in the event that the utility purchaser enters
bankruptcy. There can be no assurance that the utility purchaser
will stay out of bankruptcy.
After the Power Contracts for the Maine Hydro Projects
expire at varying times from 2008 to 2017 or those contracts
terminate for other reasons, those Projects under currently
anticipated conditions would be free to sell their output on the
competitive electric supply market, either in spot, auction or
short-term arrangements or under long-term contracts if those
Power Contracts could be obtained. There is no assurance that
the Projects could then sell their output or do so profitably.
The Maine Hydro Projects may have diseconomies of small scale
and, because they are run-of-river projects, they cannot commit
to producing fixed amounts of electricity on schedule. This
might significantly restrict demand for their output after their
Power Contracts terminate. The Trust is unable to anticipate
whether the Maine Hydro Projects would have cost disadvantages or
advantages after their Power Contracts expire. It is thus
impossible to predict the profitability of those Projects after
termination of the Power Contracts.
(ii) Maine Biomass and "Merchant Power Plants"
The Maine Biomass Projects do not have long-term Power
Contracts and are exposed to the newly-deregulating market for
electricity generation. Those Projects and other similar plants
without long-term Power Contracts that the Trust may acquire are
sometimes described as "merchant power plants" because they sell
their output on the open market. As a consequence of federal and
state moves to deregulate large areas of the electric power
industry and the existence, spurred by PURPA, of private
competitors to electric utilities in the market for generating
electricity, a number of interrelated trends are occurring that
will affect merchant power plants.
Continued Deregulation of the Generating Market
The Comprehensive Energy Policy Act of 1992 (the "1992
Energy Act") encourages electric utilities to expand their
wholesale generating capacity by removing some, but not all, of
the limitations on their ownership of new generating facilities
that qualify as "exempt wholesale generators" ("EWG's") and on
their ability to participate in merchant power plants. Many
state electric utility regulators are considering plans to
further encourage investment in wholesale generators and to
facilitate utility decisions to spin off or divest generating
capacity from the transmission or distribution businesses of the
utilities. As a result, merchant power plants in the future will
face competition not only from other independent power plants
seeking to sell electricity on a wholesale basis but also from
EWG's, electric utilities with excess capacity and independent
generators spun off or otherwise separated from their parent
utilities.
Wholesale-level Access to Transmission Capacity
Without access to transmission capacity, an independent
power plant or other wholesale generator can only sell to the
local electric utility or to a facility on which it is located
(or, in some states, which adjoins its location). The most
important changes occurring in the electric power industry are
the efforts of FERC to compel utilities and power pools to
provide nationwide access to transmission facilities to all
wholesale power generators. When combined with the increased
competition in the generating area, this is likely to create an
electricity supply market that may profoundly change the
operations of electric utilities, consumers and independent power
plants.
The 1992 Energy Act empowered FERC to require electric
utilities and power pools to transmit electric power generated by
other wholesale generators to wholesale customers. This process
is referred to as "wheeling" the electric power. Essentially, the
generator contributes power to a utility or power pool and is
credited with that contribution, and the utility or power pool
serving the wholesale customer makes available that amount of
electric power to the customer and debits the generator. Wheeling
is effected between power pools on a similar basis.
On April 24, 1996 the Federal Energy Regulatory Commission
adopted Order 888, which requires electric utilities and power
pools to provide wholesale transmission facilities and
information to all power producers on the same terms, and
endorses the recovery by utilities of uneconomic capital costs
from wholesale customers who change suppliers. The utilities
would also be required to furnish ancillary services, such as
scheduling, load dispatch, and system protection, as needed.
These rights, however, would apply only to sales of new electric
power over and above existing utility supply arrangements. Non-
utility wholesale deliveries of electricity have grown vigorously
and according to the EIA have grown at the rate of 21% per year
in the ten years from 1986 to 1996.
The Maine Biomass Projects are dependent on wheeling power
in order to sell their capacity or energy to purchasers other
than Bangor Hydro-electric Company. Currently, they access the
ISO's facilities through transmission lines owned by Bangor
Hydroelectric Company and would pay material tariff charges for
transmitting energy to the ISO's lines. Indeck Maine and the
Trust are pursuing regulatory and engineering measures to either
have the Bangor Hydro-Electric lines reclassified as ISO
facilities (which would greatly reduce transmission costs) or to
connect directly to ISO facilities. It may be possible for the
Penobscot Project (which is located approximately 1.5 miles from
the ISO's nearest transmission facility) to have its current link
redesignated as an ISO facility or to be directly connected
to ISO facilities by the end of 1998. The Trust anticipates
significant opposition from competing utilities that are also
members of the ISO for its applications. The Jonesboro Project,
which is currently located approximately 35 miles from the
nearest ISO transmission facility and which uses Bangor
Hydro-electric Company facilities to link with the ISO, may
not be able to obtain direct access to the ISO at an economic
cost under current conditions. If it were to operate and
transmit its energy over Bangor Hydro-electric's lines, the costs
of transmission under current tariffs would seriously impair
the Project's anticipated operating margin and might render
operation inadvisable or unprofitable.
Order 888 takes no action to modify existing Power
Contracts. The order intends to create a competitive national
market in electricity generation and thus may create additional
pressure on electric utilities to seek changes to long-term power
purchase contracts, as described further below. State public
utility regulatory agencies must also review and approve certain
aspects of wholesale power deregulation, and those agencies are
currently holding proceedings and making determinations.
In addition to the FERC order or other Congressional or
regulatory actions that may result in freer access to
transmission capacity, agreements with Canada, and to a lesser
extent with Mexico, are leading toward access for those
countries' generators to U.S. markets. In particular, certain
Canadian suppliers, such as HydroQuebec (the Quebec provincial
utility) are already offering substantial amounts of electricity
in New England, and more may be offered if sufficient
generation or transmission capacity can be approved and built.
These agreements may also afford access to those countries'
markets in the future for independent power plants. As a result,
there is the possibility that a North American wholesale market
will develop for electricity, with additional competitive
pressures on U.S. generators.
Retail-level Competition
An even more radical prospect for the electric power
industry is retail-level competition, in which generators would
be allowed to sell directly to customers by using (and paying a
fee for) the local utility's distribution facilities. Retail-
level competition presupposes the ability to wheel power in the
appropriate amounts at economic costs from the generating plant
to the electric utility whose wires link to the retail customer
(typically a large industrial, commercial or governmental unit)
and the ability to use the local utility's facilities to deliver
the electricity to the customer. In addition to the business and
regulatory issues arising from wholesale wheeling, retail-level
competition raises fundamental concerns as to the ability of
utilities to recover stranded costs at the generating and
distribution levels, the possibility that smaller customers will
have less ability to demand pricing concessions, incentives for
governmental agencies to act as intermediaries for consumers and
the functions of state-level regulatory agencies in a price-
competitive environment which may be inconsistent with their
traditional price-setting and service-prescribing roles.
Although retail deregulation is being implemented currently
on a state-by-state basis, there are some common elements which
are expected to be included in the Maine and Massachusetts
deregulation plans. First, most deregulating states will require
that local utilities will be the "suppliers of last resort,"
which are required to serve any customers in their existing
territories who do not purchase generated electricity from
another source and which are required to obtain adequate
generating capacity to meet those needs. Second, most
deregulating states are requiring that utilities and other
suppliers of electricity work through "independent system
operators" such as the ISO, which coordinate purchase,
transmission and sale of electricity between generators and
distribution utilities. Independent system operators will have
significant responsibility for supply reliability.
Third, most deregulating states are requiring that utilities
be compensated for stranded costs (which include long-term Power
Contracts with Independent power projects that are above current
and anticipated market prices) for a transition period. This is
typically done by imposing a transition fee or surcharge on rates
that is paid to the utility. In some states, utilities are being
encouraged or ordered to issue bonds or other financial
instruments to retire stranded cost assets or contracts,
supported by transition charges. Fourth, many states are
requiring local utilities to divest a large portion or all of
their generating assets or to sell their rights under long-term
Power Contracts. The states have cited concerns such as the anti-
competitive effects of allowing the utilities, which retain a
monopoly over the wires that take electricity the last stages to
the customer, to own generating assets. Further, the sale of
assets (or above-market Power Contracts) sets a market price for
those assets and allows a somewhat objective computation of the
stranded costs related to those assets or contracts. For example,
the true stranded cost of a nuclear plant is approximately the
difference between the value assigned to it under state
regulation and the price someone will pay for it at auction.
Fifth, utilities having stranded costs are expected to
mitigate those costs by buying out contracts or selling costly
assets. Finally, many states are attempting to protect generators
who use "renewable fuels" or that are considered to have
environmental or social benefits. As discussed below, Maine and
Massachusetts are doing so.
Price and Cost Pressures
The pricing pressures that retail and wholesale deregulation
are bringing are expected to decrease the marginal cost of
electricity. Competition will force utilities and generators to
reduce overhead and administrative costs, to trim operation and
maintenance costs and to more efficiently buy and use fuel.
Further, wholesale and retail deregulation and new generating
technologies discussed below are expected to significantly reduce
capital costs. For example, electric utilities currently maintain
large amounts of generating capacity in reserve to meet peak
loads (for example, to serve customers during a heat wave in
July). According to the EIA, competition may lead
to pricing strategies that reduce these peak loads. Competition
may also force utilities to stop maintaining high-cost reserve
capacity and to take greater risks. Finally, the widening
wholesale market for electricity may increase efficiency by
allowing utilities and power consumers to obtain distant, lower-
cost capacity for reserve purposes rather than maintain local,
higher cost, underutilized reserve capacity. For these and other
reasons, the EIA currently estimates that national
average electricity rates in real terms (adjusted for inflation)
will decline to about 6.3 cents per kilowatt-hour in 2015 from
the 1996 average level of 7.1 cents per kilowatt-hour.
As these trends continue, high-cost generators will be
disadvantaged and may fail. The Trust's small-scale generating
plants have tended to have higher per-kilowatt hour costs (except
for fuel) than new, large scale generating plants. The fuel cost
advantages, if any, of landfill gas, hydroelectricity or waste
biomass are thus critical to the competitiveness of the Trust's
merchant power plants.
New Generating Technologies and
New Industry Participants
Recent improvements in turbine technology, coupled with what
is seen as the ample supply and relative cheapness of natural
gas, have made gas turbines the favored technology for new
electric generating plants. The EIA estimates that
80% of the new electric generating capacity to be added from 1995
to 2015 will be fueled by natural gas and that the amount of
generation fueled by natural gas will increase from the current
10% to 29%. According to the EIA, new gas turbines
only need 15 days per year of maintenance, on the average,
compared with 30 days a year for steam turbines. Although gas
turbines historically have been used to meet peak demand rather
than baseload demand, new "combined cycle" units (which use heat
from the turbine's exhaust to drive a second steam or gas
turbine) have thermal efficiencies approaching 60% (60% of the
theoretical maximum heat from the burning gas is converted to
electricity) and can be used as baseload units. In contrast,
steam turbines fired by coal have efficiencies in the 36% range
and have operating and maintenance costs higher than those of
combined cycle plants. Further, natural gas-fired turbines emit
relatively low levels of sulfur dioxide, particulates and complex
carbon compounds and thus may have lower environmental compliance
costs than coal-fired or oil-fired plants. The EIA estimates
that combined cycle gas turbine plants alone
will account from 96,000 to 143,000 Megawatts of the 319,000
Megawatts of additional capacity to be added in the next 17
years.
The new emphasis on natural gas-fired generation is causing
large natural gas transmission or brokering companies to enter
the electricity generation market rapidly. They have access to
large volumes of gas and have the ability to raise large amounts
of capital. Accordingly, most new investment in combined cycle
gas Projects and other large-scale gas turbine Projects is being
made by these natural gas/energy companies or by large utilities
that are entering the competitive generation industry.
A number of large participants in the independent generating
industry have announced their intentions to build large gas
turbine merchant power plants in Connecticut, Massachusetts and
Maine in sizes from 250 to 750 Megawatts. The capacity of the
proposed plants exceeds three-quarters of the total deficit in
capacity caused by the shutdown of the Northeast Utilities
nuclear power plants. If all or many of the announced plants
were built, there might be a material increase in low-cost
generation capacity in the New England area. There have also
been reports, especially from the northeastern states, that large
non-utility generating companies and utilities entering the
competitive generating market outside their existing service
territories are buying large numbers of older plants from local
utilities with the intention of replacing them on site with new,
large, natural gas-fueled plants. It is unclear whether many of
the announced merchant power plants will actually be built, given
the uncertainties of the market for electricity and the
possibility that there may be insufficient gas pipeline capacity
or supplies to fuel all of the recently announced plants. There
have been recent announcements that the capacity of pipelines
under construction might be increased to serve the proposed
electric generating plants.
Many companies, including affiliates of fuel suppliers and
utilities, have applied to FERC to act as electric power
marketers, because they anticipate that if wholesale wheeling
becomes significant there will be strong demand for brokers or
market makers in electric power. It is uncertain whether power
marketers will become significant factors in the electric power
market. A related development is the creation of derivative
contracts for hedging of and speculation in electricity supplies,
which may offer generators, utilities and large industrial or
commercial consumers the ability to reduce the volatility of
competitive prices. To date, the effects of derivative contracts
on the market for electricity in the Northeast have not been
material.
Renewable Power
The pressures of competition are expected to harm the
"renewable power" segment of the industry, which includes the
Maine Biomass Projects and the Maine Hydro Projects. "Renewable
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. Many observers believe that renewable power plants
without existing Power Contracts (with the possible exception of
biomass, hydroelectric and geothermal plants with very low or
zero fuel costs) will be non-competitive in the new markets
unless they are given governmental protection. A number of
states, including Massachusetts and Maine, are requiring that
retailers of electricity purchase a certain minimum amount of
electricity (often between 5% to 30% of their total requirements)
from renewable power sources. Unless there is a shortage of
renewable capacity these state requirements may still not raise
the price for renewable power high enough to make the Maine
Biomass Projects profitable.
Initial Effects of Trends
With these conditions in mind, the Trust sees two
primary strategies for non-utility generating plants to succeed
in the United States: first, Projects that have existing, firm,
long-term Power Contracts may do well so long as regulatory or
legislative actions do not abrogate the contracts. Second,
Projects that are low-cost producers of electricity, either from
efficiencies or good management or as the result of successful
cogeneration technologies, will have advantages in the market.
Finally, there have been industry-wide moves toward
consolidation of participants and divestiture of Projects. A
number of utilities and equipment suppliers have proposed or
entered into joint ventures to reduce risks and mobilize
additional capital for the more competitive environment, while
many electric utilities are in the process of combining, either
as a means of reducing costs and capturing efficiencies, or as
a means of obtaining regional market power, or as a
means of increasing size as an organizational survival tactic.
This consolidation tends to create additional competitive
pressures in the electric power industry that may disadvantage
the Trust; however, this trend may also encourage the divestiture
of smaller Projects or Projects that are deemed less central to
the operations of large, consolidated businesses.
(7). 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 Trust is unable to accurately estimate the number of
competitors but believes that there are many competitors at all
levels and in all sectors of the industry. Many of those
competitors, especially affiliates of utilities and equipment
manufacturers, may be far better capitalized than the Trust.
Please also review the discussion of changes in the industry
above at (6) - Trends in the Electric Utility and Independent
Power Industries.
(8). Regulatory Matters.
Projects are subject to energy and environmental laws and
regulations at the federal, state and local levels in connection
with development, ownership, operation, geographical location,
zoning and land use of a Project and emissions and other
substances produced by a Project. These energy and environmental
laws and regulations generally require that a wide variety of
permits and other approvals be obtained before the commencement
of construction or operation of an energy-producing facility and
that the facility then operate in compliance with such permits
and approvals.
(i) Energy Regulation.
(A) PURPA. The enactment in 1978 of PURPA and the adoption of
regulations thereunder by FERC provided incentives for the
development of cogeneration facilities and small power production
facilities meeting certain criteria. Qualifying Facilities under
PURPA are generally exempt 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, state laws
regarding rate or financial regulation. In order to be a
Qualifying Facility, a cogeneration facility must (a) produce not
only electricity but also a certain quantity of heat energy (such
as steam) which is used for a purpose other than power
generation, (b) meet certain energy efficiency standards when
natural gas or oil is used as a fuel source and (c) not be
controlled or more than 50% owned by an electric utility or
electric utility holding company. Other types of Independent
Power Projects, known as "small power production facilities," can
be Qualifying Facilities if they meet regulations respecting
maximum size (in certain cases), primary energy source and
utility ownership. Recent federal legislation has eliminated the
maximum size requirement for solar, wind, waste and geothermal
small power production facilities (but not for hydroelectric or
biomass) for a fixed period of time.
In addition, PURPA requires electric utilities to purchase
electricity generated by Qualifying Facilities at a price equal
to the purchasing utility's full "avoided cost" and to sell back
up power to Qualifying Facilities on a non discriminatory basis.
Avoided costs are defined by PURPA as the "incremental costs to
the electric utility of electric energy or capacity or both
which, but for the purchase from the Qualifying Facility or
Qualifying Facilities, such utility would generate itself or
purchase from another source." While public utilities are not
required by PURPA to enter into long-term Power Contracts to meet
their obligations to purchase from Qualifying Facilities, PURPA
helped to create a regulatory environment in which it has become
more common for such contracts to be negotiated until recent
years.
The exemptions from extensive federal and state regulation
afforded by PURPA to Qualifying Facilities are important to the
Trust and its competitors. The Trust believes that the Maine
Hydro and Maine Biomass Projects, which sell electricity to
public utilities, are Qualifying Facilities. Maintaining the
Qualified Facility status of an electric generating Project is of
utmost importance to the Trust. Such status may be lost if a
Project does not meet the operational or ownership requirements
of PURPA. For small power production facilities such as the
Maine Hydro and Maine Biomass Projects, the requirements are
limited to maximum size, fuel use and ownership requirements that
are currently unlikely to be violated. If the Trust acquires
interests in cogeneration Projects that are Qualifying
Facilities, those facilities must meet more stringent
requirements, such as minimum operating efficiency standards and
minimum use of thermal energy by customers of a cogeneration
Project.
The Trust endeavors to comply with applicable PURPA
requirements and does not believe that the Maine Biomass and
Maine Hydro Projects are subject to any requirement that could
jeopardize their statuses as Qualified Facilities. If the Trust
were to invest in cogeneration Projects or certain other types of
Qualifying Facilities, the PURPA standards could raise material
compliance questions. In any event, there can be no assurance
that a Project will maintain its Qualified Facility status. If a
Project loses its Qualifying Facility status, the utility can
reclaim payments it made for the Project's non-qualifying output
to the extent those payments are in excess of current avoided
costs (which are generally substantially below the Power Contract
rates) or the Project's Power Contract can be terminated by the
electric utility. States may require utilities to institute
monitoring systems under which electric utilities continuously
meter a cogeneration Project's performance.
(B) The 1992 Energy Act. The Comprehensive Energy Policy Act of
1992 (the "1992 Energy Act") empowered FERC to require electric
utilities to make available their transmission facilities to and
wheel power for Independent power projects under certain
conditions and created an exemption for electric utilities,
electric utility holding companies and other independent power
producers from certain restrictions imposed by the Holding
Company Act. Although the Trust believes that the exemptive
provisions of the 1992 Energy Act will not materially and
adversely affect its business plan, the act may result in
increased competition in the sale of electricity.
The 1992 Energy Act created the "exempt wholesale generator"
category for entities certified by FERC as being exclusively
engaged in owning and operating electric generation facilities
producing electricity for resale. Exempt wholesale generators
remain subject to FERC regulation in all areas, including rates,
as well as state utility regulation, but electric utilities that
otherwise would be precluded by the Holding Company Act from
owning interests in exempt wholesale generators may do so. Exempt
wholesale generators, however, may not sell electricity to
affiliated electric utilities without express state approval that
addresses issues of fairness to consumers and utilities and of
reliability.
(C) The Federal Power Act. The FPA grants FERC exclusive rate-
making jurisdiction over wholesale sales of electricity in
interstate commerce. The FPA provides FERC with ongoing as well
as initial jurisdiction, enabling FERC to revoke or modify
previously approved rates. Such rates may be based on a cost-of-
service approach or determined through competitive bidding or
negotiation. While Qualifying Facilities under PURPA are exempt
from the rate-making and certain other provisions of the FPA,
non-Qualifying Facilities are subject to the FPA and to FERC
rate-making jurisdiction.
Companies whose facilities are subject to regulation by FERC
under the FPA because they do not meet the requirements of PURPA
may be limited in negotiations with power purchasers. However,
since such projects would not be bound by PURPA's heat energy use
requirement for cogeneration facilities, they may have greater
latitude in site selection and facility size. If any of the
Trust's electric power Projects failed to be a Qualifying
Facility, it would have to comply with the FPA.
The FPA also provides that any hydroelectric facility that
is located on a navigable stream or that affects public lands or
water from a government dam may not be constructed or be operated
without a license from FERC. Certain facilities that were
operating before 1935 are exempt, if the waterway is non-
navigable, or "grandfathered" and do not require licenses so long
as the facilities are not modernized or otherwise materially
altered. Licenses are granted for 30 to 50 year terms. All but
six of the Maine Hydro Projects (with a rated capacity of 2.1
Megawatts) are subject to licensing. Of these eight Projects,
six (with a rated capacity of 6.4 Megawatts) have current
licenses that expire from time to time between the years 2019 and
2037 and two (1.5 Megawatts) are currently in the licensing
process, which can take from three to five years. The Trust
believes that it will obtain licenses for each of these.
The proposed conditions for one pending license, at the
Pittsfield Project on the Kennebec River (1.1 Megawatt), have
been received. The Project will have to provide upstream fish
passages no earlier than 2002 or, if later, the time when all
dams further upstream have provided passage. The Project will
also have to provide interim fish passage both upstream and
downstream to the extent warranted by fishery studies; downstream
mitigation measures may require the Project to restrict flow
through its turbines during certain spring peak flow periods that
could materially impair electricity output. Until studies are
complete, it is not possible to estimate the effects of these
conditions. Further, as noted above at Item 1(c)(3) - Business -
Narrative Description of Business - Project Operation, the
licenses may include other onerous conditions. The Trust is a
member of the Kennebec Hydro Developers Group, which is
negotiating with Maine agencies and environmental groups for
watershed-wide studies and remediation programs.
(D) Fuel Use Act. Projects that may be developed or acquired
may also be subject to the Fuel Use Act, which limits the ability
of power producers to burn natural gas in new generation
facilities unless such facilities are also coal-capable within
the meaning of the Fuel Use Act.
(E) State Regulation. State public utility regulatory
commissions have broad jurisdiction over Independent Power
Projects which are not Qualifying Facilities 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 Qualifying Facilities 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. Although FERC generally
has exclusive jurisdiction over the rates charged by a non-
Qualifying Facility to its wholesale customers, state public
utility regulatory commissions have the practical ability to
influence the establishment of such rates by asserting
jurisdiction over the purchasing utility's ability to pass
through the resulting cost of purchased power to its retail
customers. In addition, states may assert jurisdiction over the
siting and construction of non-Qualifying Facilities and, among
other things, issuance of securities, related party transactions
and sale and transfer of assets. The actual scope of
jurisdiction over non-Qualifying Facilities by state public
utility regulatory commissions varies from state to state.
(ii) Environmental Regulation.
The construction and operation of independent power projects
and the exploitation of natural resource properties are subject
to extensive federal, state and local 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 and local 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 which comply with federal, state and local
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.
The Clean Air Act Amendments of 1990 contain provisions
which regulate the amount of sulfur dioxide and oxides of
nitrogen which may be emitted by a Project. These emissions may
be a cause of "acid rain." Qualifying Facilities are currently
exempt from the acid rain control program of the Clean Air Act
Amendments. However, non-Qualifying Facility Projects will
require "allowances" to emit sulfur dioxide after the year 2000.
Under the Amendments, these allowances may be purchased from
utility companies then emitting sulfur dioxide or from the
Environmental Protection Agency ("EPA"). Further, an Independent
Power Project subject to the requirements has a priority over
utilities in obtaining allowances directly from the EPA if (a) it
is a new facility or unit used to generate electricity; (b) 80%
or more of its output is sold at wholesale; (c) it does not
generate electricity sold to affiliates (as determined under the
Holding Company Act) of the owner or operator (unless the
affiliate cannot provide allowances in certain cases) and (d) it
is non-recourse project-financed. The market price of an
allowance cannot be predicted with certainty at this time. In
recent years, supply of allowances has tended to exceed demand,
primarily because of improved control technologies and the
increased use of natural gas.
Title V of the Clean Air Act Amendments added a new
permitting requirement for existing sources that requires all
significant sources of air pollution to submit new applications
to state agencies. Title V implementation by the states
generally does not impose significant additional restrictions on
the Trust's Projects, other than requirements to continually
monitor certain emissions and document compliance. The
permitting process is voluminous and protracted and the costs of
fees for Title V applications, of testing and of engineering
firms to prepare the necessary documentation have increased. The
Trust believes that all of its facilities will be in compliance
with Title V requirements with only minor modifications such as
the installation of an additional catalytic converter on some
engines.
In July 1997 the Environmental Protection Agency adopted
more stringent standards for levels of ozone and small
particulate matter (particles less than 25 microns in diameter)
in geographic areas. These new standards may cause some areas in
which Projects are located to be classified as non-attainment
areas. If so, states will be required to impose additional
requirements for industries to reduce emissions. It is uncertain
whether or how any reductions would be applied to small
facilities such as the Trust's Projects. If reductions were
required, the Trust might have to make significant capital
investments to install new control technology or might have to
reduce operations. In addition, many eastern states, including
Maine, have organized in the Ozone Transport Assessment Group to
require further restrictions on emissions of nitrogen oxides.
The Environmental Protection Agency is considering the Group's
recommendations as well as other proposals to reduce emissions of
nitrogen oxides and other ozone-forming chemicals. If adopted,
new regulations could required the Trust to install additional
equipment to reduce those emissions or to change operations.
Nitrogen oxide reductions can be difficult to achieve with add-on
equipment and often require decreases in operating efficiency,
both of which could cause material cost to the Trust. It is not
possible at this time to estimate whether or not any potential
regulatory changes would materially affect the Trust.
The Clean Air Act Amendments empower states to impose annual
operating permit fees of at least $25 per ton of regulated
pollutants emitted up to $100,000 per pollutant. To date, no
state in which the Trust operates has done so. If a state were
to do so, such fees might have a material effect on the Trust's
costs of generation, in light of the relatively small size of the
Trust's facilities as opposed to large utility generation plants
that might benefit from the cap on fees.
The Trust's Projects must comply with many federal and state
laws and regulations governing wastewater and stormwater
discharges from the Projects. These are generally enforced by
states under "NPDES" permits for point sources of discharges and
by stormwater permits. Under the Clean Water Act, NPDES permits
must be renewed every five years and permit limits can be reduced
at that time or under re-opener clauses at any time. The
Projects have not had material difficulty in complying with their
permits or obtaining renewals. The Projects use closed-loop
engine cooling systems which do not require large discharges of
coolant except for periodic flushing to local sewer systems under
permit and do not make other material discharges.
In 1998, the Trust's Projects will become subject to the
reporting requirements of the Emergency Planning and Community
Right-to-Know Act that require the Projects to prepare toxic
release inventory release forms. These forms will list all toxic
substances on site that are used in excess of threshold levels so
as to allow governmental agencies and the public to learn about
the presence of those substances and to assess potential hazards
and hazard responses. The Trust does not anticipate that this
will result in any material adverse effect on it.
Based on current trends, the Managing Shareholder expects
that environmental and land use regulation will become more
stringent. The Trust and the Managing Shareholder have developed
limited expertise and experience in obtaining necessary licenses,
permits and approvals, which in the case of the Maine Hydro
Project are the responsibility of Consolidated Hydro, Inc. andin
the case of the Maine Biomass Projects are the responsibility of
Indeck Operations, Inc. The Trust will rely upon qualified
environmental consultants and environmental counsel retained by
it or by Project sponsors to assist in evaluating the status of
Projects regarding such matters.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales.
The Trust has invested its funds to date only in Projects
located in Maine. The NEO Projects that the Trust may invest in
are located in California, Washington, New Jersey, Florida,
Virginia and Massachusetts.
The Trust is considering an investment in a Project in
Honduras and from time to time has investigated potential
investments in East Asia, Eastern Europe and South America. No
material operations or income have yet been taken or earned
outside the United States.
(e) Employees.
The Trust has no employees. The persons described below at
Item 5 - 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.
Item 2. Financial Information
(a) Selected Financial Data.
The following data is qualified in its entirety by the
financial statements presented elsewhere in this Registration
Statement on Form 10.
Supplemental Information As of and for the
Schedule Period from Commencement
Selected Financial of Share Offering
Data As of and for the Year (April 12, 1996)
December 31, through
1997 December 31, 1996
Total Fund Information:
Interest income $ 1,003,276 $ 158,236
Total revenue 844,877 257,460
Net income (loss) (1,345,153) (114,375)
Net assets (shareholders'
equity) 53,046,118 14,501,931
Investments in Project
development limited
partnerships, power
generation equipment
and developmental costs 13,466,706 7,133,340
Total assets 54,469,925 14,945,301
Long-term obligations 0 0
Per Share of Trust
Interest:
Revenues 1,108 1,418
Net income (loss) (1,763) (630)
Net asset value 69,342 79,856
Distributions to Investors 1,833 1,466
(b) 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 financial statements and the notes
thereto presented below. The financial statements include only
the accounts of the Trust. The Trust uses the equity method of
accounting for its investments in the Maine Hydro Projects and
the Maine Biomass Projects. Dollar amounts in this discussion
are generally rounded to the nearest $1,000, except per share
data.
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 2004, 2007 and 2014.
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
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 the months of July, August, October, November
and December 1997. The Projects are currently shut down and will
not be operated unless sales arrangements are obtained which
would provide sufficient revenue to cover the Projects' fixed and
variable costs. Under current legislation, the electricity
market in the State of Maine will be deregulated on March 1,
2000. If biomass fuel can be purchased at reasonable prices in
the year 2000 and beyond, the Maine Biomass Projects could be
among the low cost producers of electricity in Maine and could be
able to operate profitably in a competitive market environment.
In the meantime, the Trust intends to keep the Projects in an
idle mode until market conditions become more favorable, and the
Project operator will seek short-term contracts to sell energy,
installed capacity and operable capacity.
All 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.
Industry trends that may affect results of operations in
1998 and beyond are discussed above at Item 1(c)(6) - Business -
Trends in the Electric Utility and Independent Power Industries.
Results of Operations
The year ended December 31, 1997 compared to the period April 12,
1996 to December 31, 1996.
In 1997, the Trust had total revenue of $845,000 as compared
to total revenue of $257,000 in 1996. The interest income
component of revenue increased by $845,000 to $1,003,000 in 1997
from $158,000 in 1996 as a result of the higher average balance
of cash and cash equivalents. The 1997 revenue includes equity
in the full year's net income from the Maine Hydro Projects of
$522,000 and equity in the net loss of the Indeck Maine Biomass
Projects of $680,000 since their acquisition in July 1997. The
1996 revenue includes equity in the net income of the Maine Hydro
Projects of $99,000.
Trust level expenses increased by $1,818,000 to $2,190,000
in 1997 from $372,000 in 1996. The expense related to the 2%
investment fee charged on new contributions increased by $812,000
due to the higher level of contributions. The 1997 expenses
include $393,000 of reimbursements to the Managing Shareholder.
Due diligence costs increased $599,000 due to the costs of
investigating potential projects that were ultimately rejected
and reserving for the potential uncollectibility of advances to
such projects.
Liquidity and Capital Resources
As of December 31, 1997, the Trust had raised approximately
$56,187,000 of funds from its offering, net of offering fees and
expenses. The Trust has invested $7,080,000 in the Maine Hydro
Projects and $7,298,000 in the Maine Biomass Project.
At December 31, 1997, the Trust had $40,822,000 of cash
available for investment in Projects. Cash flow used in
operating activities in 1997 amounted to $231,000 and the Trust
had received $1,006,000 of distributions from the Maine Hydro
Projects. Distributions to Shareholders amounted to $1,412,000.
During the fourth quarter of 1997, the Trust and Fleet Bank,
N.A. (the "Bank") entered into a revolving line of credit
agreement, whereby the Bank provides a three year committed line
of credit facility of $750,000. Outstanding borrowings bear
interest at the Bank's prime rate or, at the Trust's choice, at
LIBOR plus 2.5%. The credit agreement requires the Trust to
maintain a ratio of total debt to tangible net worth of no more
than 1 to 1 and a minimum debt service coverage ratio of 2 to 1.
The credit facility was obtained in order to allow the Trust to
operate using a minimum amount of cash, maximize the amount
invested in Projects and maximize cash distributions to
Investors. There were no borrowings under line of credit in
1997.
Other than investments of available cash in power generation
Projects, obligations of the Trust are or will be generally
limited to payment of Project operating expenses, payment of a
management fee to the Managing Shareholder, payments for certain
accounting and legal services to third persons and distributions
to shareholders of available operating cash flow generated by the
Trust's investments. The Trust's policy is to distribute as much
cash as is prudent to Shareholders. Accordingly, the Trust has
not found it necessary to retain a material amount of working
capital. The amount of working capital retained is further
reduced by the availability of the line of credit facility.
The Trust anticipates that, during 1998, its cash flow from
operations, unexpended offering proceeds and line of credit
facility will be adequate to fund its obligations.
Financial instruments
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.
Currently the Trust invests only in bank obligations. Because
the Trust invests only in short-term instruments for cash
management, its exposure to interest rate changes is low.
Year 2000 Remediation
The Managing Shareholder and its affiliates began year 2000
review and planning in early 1997. After initial remediation was
completed, a more intensive review discovered additional issues
and the Managing Shareholder began a formal remediation program
in late 1997. The Managing Shareholder has assessed problems,
has a written plan for remediation and is implementing the plan
on schedule.
The accounting, network and financial packages for the
Ridgewood companies are basically off-the-shelf packages that
will be remediated, where necessary, by obtaining patches or
updated versions. The Managing Shareholder expects that updating
will be complete before the end of 1998 with ample time for
implementation, testing and custom changes to some modifications
made by Ridgewood to those programs.
The marketing and investor relations functions rely on
custom-written software and the Managing Shareholder has hired a
specialist to remedy that software. The year 2000 changes in the
distribution system, which is used to send checks to Investors,
have been completed and are being tested. The effort is on
schedule to complete remediation and testing by December 31, 1998
and the Managing Shareholder believes that all material systems
will be year 2000 compliant by early 1999. Some systems are
being remediated using the "sliding window" technique. Although
this will allow compliance for several years beyond the year
2000, eventually those systems will have to be rewritten again or
replaced.
The Managing Shareholder and its affiliates do not
significantly rely on computer input from suppliers and customers
and thus are not directly affected by other companies' year 2000
compliance. However, if customers' payment systems or suppliers'
systems were adversely affected by year 2000 problems, the Trust
could be affected. Because the Trust and the Managing
Shareholder are extremely small relative to the size of their
material customers and suppliers and are paid or supplied using
the same systems as larger companies, requests for written
assurances of compliance from those customers or suppliers are
not cost-effective.
Although the total cost associated with year 2000 compliance
is not yet determined, the Trust does not believe that the costs
will be material to its financial position or results of
operation.
Item 3. 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
in Maine Owned n/a 24 n/a Hydro-
by joint electric
venture* facilities
Maine West Enfield Owned n/a less 18,000 Wood waste-
Bio- and Jonesboro, by joint than fired genera-
mass Maine venture** 25 tion facil-
ities
*Joint venture equally owned by Trust and Ridgewood Power IV.
** Joint venture owned by Indeck Maine former members, the Trust
and Ridgewood Power IV.
The Trust believes that these properties are currently
adequate for current operations at those sites.
Item 4. Security Ownership of Certain Beneficial Owners and
Management.
The Managing Shareholder purchased for cash 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
executive officers of the Trust acquired Investor Shares in the
Trust's offering and neither the executive officers nor the
Independent Panel Members nor the Corporate Trustee beneficially
own any securities of the Trust. 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).
Mr. Swanson has beneficial ownership of the Management Share
issued to the Managing Shareholder. No other Management Shares
are issuable and neither any other executive officer nor the
Independent Panel Member nor the Corporate Trustee beneficially
owns any Management Share.
The management rights of the Managing Shareholder are
described in further detail above at Item 1 - Business and below
in Item 5 - 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 7 -- Certain Relationships and
Related Transactions. The Management Share does not have voting
rights but the consent of the Managing Shareholder is required
for certain actions affecting it as described at Item 11(b) -
Voting Rights.
Item 5. Directors and Executive Officers of the Registrant.
(a) General.
As Managing Shareholder of the Trust, Ridgewood Power
Corporation 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 Energy Holding Corporation ("Ridgewood Holding"),
a Delaware corporation incorporated in April 1992, is the
Corporate Trustee of the Trust.
(b) Managing Shareholder.
The Managing Shareholder 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 which are organized to
participate in the development, construction and ownership of
Independent power projects.
The Managing Shareholder has also organized the Prior
Programs and The Ridgewood Power Growth Fund (organized in 1997)
as Delaware business trusts to participate in the independent
power industry. The business objectives of these five trusts are
similar to those of the Trust.
The Managing Shareholder is an affiliate of Ridgewood Energy
Corporation ("Ridgewood Energy"), which has organized and
operated 46 limited partnership funds and one business trust over
the last 16 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 Corporation ("Ridgewood Securities"), an NASD member
which has been the placement agent for the private placement
offerings of the six trusts sponsored by the Managing Shareholder
and the funds sponsored by Ridgewood Energy; Ridgewood Power
Capital Corporation ("Ridgewood Capital"), organized in 1998,
which assists in offerings made by the Managing Shareholder; and
Ridgewood Power VI Corporation ("Power VI Corp."), which is a
managing shareholder of the Growth Fund, and RPMC. Each of these
corporations is wholly owned by Robert E. Swanson, who is their
sole director.
Robert E. Swanson has been the President, sole director and
sole stockholder of the Managing Shareholder since its inception
in February 1991. Set forth below is certain information
concerning Mr. Swanson and other executive officers of the
Managing Shareholder.
Robert E. Swanson, age 51, has also served as President of
the Trust since its inception in November 1992 and as President
of RPMC, Ridgewood Power I, Ridgewood Power II, Ridgewood Power
III, Ridgewood Power IV and the Growth Fund, 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. 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 40, has served as Executive Vice
President of the Managing Shareholder, RPMC, Ridgewood Power,
the Trust, Ridgewood Power II, Ridgewood Power III, Ridgewood
Power IV and the Growth Fund since their respective inceptions,
with primary responsibility for marketing and acquisitions. He
has been President of Ridgewood Power Capital Corporation since
its organization in 1998. 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.
Thomas R. Brown, age 43, joined the Managing Shareholder in
November 1994 as Senior Vice President and holds the same
position with the Trust, RPMC and each of the other trusts
sponsored by the Managing Shareholder. He became Chief Operating
Officer of the Trust, the Managing Shareholder, RPMC and the
Prior Programs in October 1996, and is the Chief Operating
Officer of the Growth Fund. Mr. Brown has over 20 years'
experience in the development and operation of power and
industrial projects. From 1992 until joining the Managing
Shareholder he was employed by Tampella Services, Inc., an
affiliate of Tampella, Inc., one of the world's largest
manufacturers of boilers and related equipment for the power
industry. Mr. Brown was Project Manager for Tampella's Piney
Creek project, a $100 million bituminous waste coal fired
circulating fluidized bed power plant. Between 1990 and 1992 Mr.
Brown was Deputy Project Manager at Inter-Power of Pennsylvania,
where he successfully developed a 106 megawatt coal fired
facility. Between 1982 and 1990 Mr. Brown was employed by
Pennsylvania Electric Company, an integrated utility, as a Senior
Thermal Performance Engineer. Prior to that, Mr. Brown was an
Engineer with Bethlehem Steel Corporation. He has an Bachelor of
Science degree in Mechanical Engineering from Pennsylvania State
University and an MBA in Finance from the University of
Pennsylvania. Mr. Brown satisfied all requirements to earn the
Professional Engineer designation in 1985.
Martin V. Quinn, age 50, assumed the duties of Chief
Financial Officer of the Managing Shareholder, the Trust, the
other four trusts organized by the Managing Shareholder and RPMC
in November 1996 under a consulting arrangement. He became a
full-time officer of the Managing Shareholder and RPMC in April
1997 and is now also Chief Financial Officer of the Growth Fund.
Mr. Quinn has 29 years of experience in financial management
and corporate mergers and acquisitions, gained with major,
publicly-traded companies and an international accounting firm.
He formerly served as Vice President of Finance and Chief
Financial Officer of NORSTAR Energy, an energy services company,
from February 1994 until June 1996. From 1991 to March 1993, Mr.
Quinn was employed by Brown-Forman Corporation, a diversified
consumer products company and distiller, where he was Vice
President-Corporate Development. From 1981 to 1991, Mr. Quinn
held various officer-level positions with NERCO, Inc., a mining
and natural resource company, including Vice President-
Controller and Chief Accounting Officer for his last six years
and Vice President-Corporate Development. Mr. Quinn's
professional qualifications include his certified public
accountant qualification in New York State, membership in the
American Institute of Certified Public Accountants, six years of
experience with the international accounting firm of Price
Waterhouse, and a Bachelor of Science degree in Accounting and
Finance from the University of Scranton (1969).
Mary Lou Olin, age 45, has served as Vice President of the
Managing Shareholder, RPMC, Ridgewood Capital, the Trust,
Ridgewood Power I, Ridgewood Power II, Ridgewood Power III,
Ridgewood Power IV and the Growth Fund 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 under the terms of the Declaration.
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
operation 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 (except that
Ridgewood Program Transactions require the approval of the
Independent Panel Members as described below).
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,
expenses of operating Projects and costs incurred by the Managing
Shareholder in so doing and other expenses properly payable by
the Trust. The Trust will reimburse the Managing Shareholder for
all such Trust and other 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, beginning on the
Termination Date of the offering of Investor Shares (April 15,
1998) as described below at Item 7 -- Certain Relationships and
Related Transactions.
The responsibilities of the Managing Shareholder and the
fees and reimbursements of expenses it is entitled to are set out
in the Declaration. Each Investor consented to the terms and
conditions of the Declaration by subscribing to acquire Investor
Shares in the Trust.
The Trust has relied and will continue to rely on the
Managing Shareholder and engineering, legal, investment banking
and other professional consultants (as needed) and to monitor and
report to the Trust concerning the operations of Projects in
which it invests, to review proposals for additional development
or financing, and to represent the Trust's interests. The Trust
will rely on such persons to review proposals to sell its
interests in Projects in the future.
(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, with the addition
of Joseph A. Heyison, Senior Vice President and General Counsel.
Mr. Heyison, age 43, joined RPMC in January 1996. He was
previously of counsel to the law firm of De Forest & Duer,
concentrating in corporate finance, banking, environmental law
and securities. He is a member of the bars of New Jersey, New
York and Ohio and was graduated from the University of
Pennsylvania Law School in 1979.
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.
(e) The Independent Panel Members.
The Declaration provides for an Independent Review Panel
(the "Panel"), with responsibility for independently reviewing
and approving material transactions ("Ridgewood Program
Transactions") between the Trust and any other investment
programs sponsored by the Managing Shareholder or its Affiliates
("Ridgewood Programs").
All Ridgewood Program Transactions (which include material
transactions between the Trust or entities in which the Trust
invests, on the one hand, and other Ridgewood Programs or
entities in which they invest or have control, on the other),
must be approved by a majority of the Panel Members (if there are
only two Panel Members, both must approve) or by a Majority of
the Investors. In reviewing and approving a Ridgewood Program
Transaction, the Panel Members are be guided by the provisions of
Delaware law regarding the responsibilities of directors of a
business corporation who pass upon a transaction with an
affiliated corporation. In so doing, the Panel Members are
subject to duties of loyalty to the Trust and its Investors and
care in reviewing the transaction, and are obligated to consider
the entire fairness of the transaction to the Trust. There is no
requirement, however, that the Trust participate in the
transaction on identical terms with the other Ridgewood Programs.
The Declaration specifies, in addition, that the Panel Members
will be entitled to the benefits of the "business judgment rule"
of Delaware law, which exonerates directors for their negligence
or mistaken decisions in the absence of bad faith or clear
conflicts of interest.
The Independent Review Panel provisions were included in the
Declaration in recognition that the Trust's investment program
anticipates significant co-investment by the Trust in Projects in
which other Ridgewood Programs will invest. In particular, the
investment in the Maine Hydro Projects involved a $7 million co-
investment with Ridgewood Power IV and the investment in the
Maine Biomass Projects also involved a $7 million co-investment
with Ridgewood Power IV. The proposed investment in the NEO
Projects may involve a $23 million investment by the Trust
together with a $9 million investment by Ridgewood Power IV, and
it is possible that future projects might involve co-investment
with the Growth Fund. The Managing Shareholder concluded that
given the potential conflicts of interest and the additional
complexities and responsibilities that characterize co-investment
decisions, the Trust should create a mechanism for independent
review and approval of co-investments.
The Managing Shareholder has designated the initial Panel of
two Panel Members. All incumbent Panel Members must consent for
the Panel to take action. A majority of the Managing Shareholder
and the incumbent Panel Members, acting together, may authorize
an increase to no more than eight Panel Members (or a decrease to
not fewer than two) and may fill vacancies on the Panel within
180 days. If there is no incumbent Panel Member, however,
vacancies must be filled by the Managing Shareholder with the
approval of a Majority of the Investors. A Panel Member may not
be an Affiliate of the Trust and may not be an investment advisor
or underwriter for the Trust, a person beneficially owning five
percent or more of the Investor Shares, an entity in which the
Trust beneficially owns five percent or more of the outstanding
equity securities, an agent or employee of the Trust or its
subsidiaries, a member of the immediate family of any individual
described above, or a person who served at any time after the
beginning of the second-to-last full calendar year as legal
counsel to the Trust or the Managing Shareholder, or a partner,
principal or employee of that legal counsel.
The Panel is not required to review other transactions that
might involve the Managing Shareholder or its Affiliates and the
Trust, such as the Management Agreement or temporary advances of
funds by the Managing Shareholder to the Trust. The Managing
Shareholder, in its sole discretion, may refer such other
transactions to the Panel for advice, and the Panel, in its sole
discretion, may elect to review and report to the Managing
Shareholder on the referred transaction, or to decline to review
it. Neither the Managing Shareholder nor the Panel Members shall
incur liability to the Trust or any Shareholder by their
decisions to refer or not to refer, or to review or not to
review, any transaction that is not a Ridgewood Program
Transaction.
The Panel Members are not trustees of the Trust, have no
general fiduciary responsibility for the Trust's investments or
operations, and have no continuing oversight responsibilities for
the Trust. The Panel meets only on the call of the Managing
Shareholder. Panel Members may resign and may be removed either
for cause by action of at least two-thirds of the remaining Panel
Members or for any reason by action of the holders of at least
two-thirds of the Investor Shares.
Compensation of the Panel Members is set in the Declaration
at $5,000 per year, plus out-of-pocket expenses incurred.. If
the Managing Shareholder certifies in the Trust's records that
there is no reasonable probability that the Trust will engage in
further Ridgewood Program Transactions, the Panel will be
suspended and will take no further action. During that period,
the Panel Members' compensation will cease. A suspended Panel
may be reinstated by the Managing Shareholder at any time.
The current Panel Members are Ralph O. Hellmold and Jonathan
C. Kaledin, who also serve as independent trustees of two Prior
Programs, Ridgewood Power II and Ridgewood Power III. Both are
independent power programs sponsored by The Managing Shareholder.
Independent panel members must approve transactions between their
program and the Managing Shareholder or companies affiliated with
the Managing Shareholder, but have no other responsibilities.
Neither Mr. Hellmold nor Mr. Kaledin is otherwise affiliated with
the Trust, any of the Trust's officers or agents, the Managing
Shareholder, any other Trustee, any affiliates of the Managing
Shareholder and any other Trustees, or any director, officer or
agent of any of the foregoing.
Ralph O. Hellmold, age 57, is founder, sole shareholder and
President of Hellmold Associates, Inc., an investment banking
firm, broker-dealer and investment adviser specializing in
working with troubled companies or their creditors to raise
capital, divest businesses and restructure liabilities, whether
in or outside bankruptcy. Other financial advisory services
provided by Hellmold Associates, Inc. include mergers and
acquisitions advice, valuations, fairness opinions and expert
witness testimony. In addition to working with troubled
companies or their creditors, Hellmold Associates, Inc. also acts
as general partner of funds which invest in the securities of
financially distressed companies.
From 1987 to 1990, when he formed Hellmold Associates, Inc.,
Mr. Hellmold was a Managing Director at Prudential-Bache Capital
Funding, where he served as co-head of the Corporate Finance
Group, co-head of the Investment Banking Committee and head of
the Financial Restructuring Group. From 1974 to 1987, Mr.
Hellmold was a partner at Lehman Brothers and its successors,
where he worked in the General Corporate Finance Group and co-
founded the Financial Restructuring Group. Prior thereto, he was
a research analyst at Lehman Brothers and at Francis I. du Pont &
Company. He received his undergraduate degree magna cum laude
from Harvard College and an M.I.A. from Columbia University. He
is a Chartered Financial Analyst and a member of the New York
Society of Security Analysts. Mr. Hellmold is the holder of one-
half share in each of Ridgewood Power I and Ridgewood Power III,
a shareholder of one-half Share in the Trust and a limited
partner or shareholder in numerous limited partnerships and a
business trust sponsored by Ridgewood Energy to invest in oil and
gas development and related businesses. Mr. Hellmold is a
director of Core Materials Corporation, Columbus, Ohio and of
International Aircraft Investors, Torrance, California.
Jonathan C. Kaledin, age 39, has been New York Regional
Counsel of The Nature Conservancy, the international land
conservation organization, since September 1995. From 1990 to
June 1995, he was founder and Executive Director of the National
Water Funding Council ("NWFC"), an advocacy and public affairs
organization representing municipalities, businesses, financial
institutions and others on federal Clean Water Act and Safe
Drinking Water Act funding issues. Prior to forming the NWFC in
1990, Mr. Kaledin was an attorney with the Boston law firm of
Wright & Moehrke. There he specialized in wetlands, water,
environmental review, zoning and hazardous and solid waste
matters, representing clients in state and federal court and
before state and federal agencies and local boards and
commissions. From 1987 through 1990, Mr. Kaledin was Assistant
Regional Counsel for the New England office of the Environmental
Protection Agency ("EPA"). His responsibilities at the EPA
included administrative and judicial environmental enforcement
under the Clean Water Act and other federal water protection
legislation. Mr. Kaledin received his undergraduate degree magna
cum laude from Harvard College and a law degree from New York
University.
(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 Ridgewood Power
I, Ridgewood Power II, Ridgewood Power III, Ridgewood Power IV,
the Growth Fund 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) RPMC.
Like the Managing Shareholder, RPMC is wholly owned by
Robert E. Swanson. For Projects for which the Trust decides to
take operating responsibility itself, the Trust will cause the
Trust's subsidiary that owns the Project to enter into an
"Operation Agreement" under which RPMC, under
the supervision of the Managing Shareholder, will provide the
management, purchasing, engineering, planning and administrative
services for the Project. RPMC will charge the Trust
at its cost for these services and for the Trust's allocable
amount of certain overhead items. RPMC shares space and
facilities with the Managing Shareholder and its affiliates. To
the extent that common expenses can be reasonably allocated to
RPMC, the Managing Shareholder may, but is not required to,
charge RPMC 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 RPMC for the full amount of rent, utility supplies and
office expenses allocable to RPMC. As a result, both initially
and on an ongoing basis the Managing Shareholder believes that
RPMC'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. RPMC 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 RPMC; and
allocations will be made in a manner consistent with generally
accepted accounting principles.
RPMC 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.
RPMC 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 will not have a fixed term and will
be terminable by RPMC, 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 RPMC; however, no amendment that
materially increases the obligations of the Trust or that
materially decreases the obligations of RPMC 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 RPMC are Mr. Swanson (President),
Mr. Gold (Executive Vice President), Mr. Brown (Senior Vice
President and Chief Operating Officer), Mr. Quinn (Senior Vice
President and Chief Financial Officer), Ms. Olin (Vice President)
and Mr. Heyison, (Senior Vice President and General Counsel).
Douglas V. Liebschner, Vice President - Operations, is a key
employee.
Douglas V. Liebschner, age 50, joined RPMC in June 1996 as
Vice President of Operations. He has over 27 years of experience
in the operation and maintenance of power plants. From 1992
until joining RPMC, he was employed by Tampella Services, Inc.,
an affiliate of Tampella, Inc., one of the world's largest
manufacturers of boilers and related equipment for the power
industry. Mr. Liebschner was Operations Supervisor for
Tampella's Piney Creek project, a $100 million bituminous waste
coal fired circulating fluidized bed ("CFB") power plant. Between
1989 and 1992, he supervised operations of a waste to energy
plant in Poughkeepsie, N.Y. and an anthracite-waste-coal-burning
CFB in Frackville, Pa. From 1969 to 1989, Mr. Liebschner served
in the U.S. Navy, retiring with the rank of Lieutenant Commander.
While in the Navy, he served mainly in billets dealing with the
operation, maintenance and repair of ship propulsion plants,
twice serving as Chief Engineer on board U.S. Navy combatant
ships. He has a Bachelor of Science degree from the U.S. Naval
Academy, Annapolis, Md.
Item 6. Executive Compensation.
The Trust reimburses RPMC at cost for services provided by
RPMC's employees and reimburses the Managing Shareholder at
allocated cost for services outside the scope of the Management
Agreement; no such reimbursement per employee exceeded $60,000 in
1996 or 1997. Information as to the fees payable to the Managing
Shareholder and certain affiliates is contained at Item 13 -
Certain Relationships and Related Transactions.
As compensation for services rendered to the Trust, pursuant
to the Declaration, each Independent Panel Member is entitled to
be paid by the Trust the sum of $5,000 annually and to be
reimbursed for all reasonable out-of-pocket expenses relating to
attendance at Board meetings or otherwise performing his duties
to the Trust. Accordingly in August 1996, January 1997 and
following years the Trust paid each Independent Panel Member
$5,000 for his services. The Independent Panel Members and the
Managing Shareholder are entitled to review the compensation
payable to the Independent Panel Members annually and increase or
decrease it as they see reasonable. The consent of a majority of
the Panel Members and the consent of the Managing Shareholder is
necessary for a change in compensation. The Trust is not
entitled to pay the Independent Panel Members compensation for
consulting services rendered to the Trust outside the scope of
their duties to the Trust without similar approval.
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 7. 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
Shareholders from time to time as the Trust deems appropriate.
The allocation of distributions between the Investors and the
Managing Shareholder is described at Item 11(a) - Description of
Registrant's Securities to be Registered - Distribution and
Dissolution Rights.
The Trust did not make any distributions in 1995 to the
Managing Shareholder (which is a member of the Board of the
Trust) or any other person and made distributions in 1996 as
stated at Item 9 - 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 1997 1996
Investment fee Managing
Shareholder $1,145,212 $ 333,346
Placement agent fee Ridgewood
and sales commis- Securities
sions Corporation 572,606 166,673
Organizational, Managing
distribution and Shareholder
offering fee 3,435,636 1,000,038
Due diligence Managing
expenses Shareholder 603,639 4,500
Reimbur- Managing
sements Shareholder 392,752 0
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 RPMC 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 6. Executive Compensation, which information
is incorporated by reference into this Item 7.
Item 8. Legal Proceedings.
There are no legal proceedings involving the Trust.
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters.
(a) Market Information.
The Trust has sold 907.09 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 Registration Statement on Form 10, 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, as well as under federal and state laws
regulating securities. See Item 11(d) - Description of
Registrant's Securities to be Registered - Restrictions on
Transfer of Investor Shares. 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. As of the date of this Registration Statement, no Investor
Shares are sellable under Rule 144 because the requirements of
Rule 144(c) have not been met.
The Managing Shareholder is considering the possibility of a
combination of the Trust and four other investment programs
sponsored by the Managing Shareholder (Ridgewood Electric Power
Trusts I, II, III and IV) 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,
compliance with the "rollup" rules of the Securities and Exchange
Commission and other regulations, 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.
(b) Holders
As of the date of this Registration Statement on Form 10,
there are 1,560 record holders of Investor Shares.
(c) Dividends
The Trust made distributions as follows in 1997 and 1996:
Year ended December 31,
1997 1996
Total distributions to Investors $1,398,357 $ 266,210
Distributions per Investor Share 1,833 1,466
Distributions to Managing Shareholder $14,124 2,689
Distributions have been made on a quarterly basis since
April 1997.. The Trust's ability to make future distributions to
Investors and their timing will depend on the net cash flow of
the Trust and retention of reasonable reserves as determined by
the Trust to cover its anticipated expenses. See also Item
1(c)(3) above as to considerations affecting the Trust's ability
to increase the frequency of distributions to a monthly basis.
Item 10. Recent Sales of Unregistered Securities.
(a) Securities sold. The Trust sold a total of 907.09
Investor Shares in a best-efforts offering under Rule 506 of
Regulation D that began April 12, 1996 and ended April 15, 1998.
The Trust also issued a total of 532.42 Preferred Participation
Rights for no additional consideration to certain Investors in
connection with their purchases of Investor Shares that occurred
prior to January 1, 1997. The Trust also granted the Managing
Shareholder a single Management Share representing the Managing
Shareholder's management rights and rights to distributions of
cash flow.
(b) Underwriters and other purchasers. Ridgewood
Securities Corporation, an affiliate of the Trust and the
Managing Shareholder, was the placement agent for the best
efforts offering. The Regulation D offering was limited to
accredited investors and to a limited number of persons described
in Rule 501(e) under Regulation D.
(c) Consideration. All Investor Shares were sold for cash
at a price of $100,000 per Investor Share. No additional
consideration was paid for Preferred Participation Rights.
Aggregate offering price
of Investor Shares $90,708,770
Aggregate sales commissions 7,256,702
Placement agent fees 907,088
The Management Share was issued in exchange for the Managing
Shareholder's services under the Declaration.
(d) Exemption from registration claimed. The offering of
the Investor Shares and associated Preferred Participation Rights
was exempt under Section 4(2) of the Securities Act of 1933, as
provided by Rule 506 of Regulation D under that Act. The
offering was made only to accredited investors and a limited
number of persons described in Rule 501(e) of Regulation D,
without the use of general advertising or solicitation.
The issuance of the Management Share was exempt under
Section 4(2) of the Securities Act of 1933 as an issuance to the
organizer and sponsor of the Trust.
(e) Not applicable
(f) Use of proceeds. Although this subitem is required
under Item 701(f) of Regulation S-K only for offerings registered
under the Securities Act of 1933, the Trust is voluntarily
including this information.
The offering of Investor Shares closed April 15, 1998.
Amounts Paid to
Related Persons* Other
Source or use Amount of Trust Persons
of proceeds
Sale of 907.09
Investor Shares $90,708,770 n/a n/a
Less:
Sales
commissions 7,256,702 124,300 7,132,402
Placement
agent fee 907,088 $ 907,088 $ 0
Organizational,
offering and
distribution fee 5,422,546 5,422,546 $ 0
Investment fee 1,814,175 1,814,175 0
Net offering
proceeds to Trust 75,288,279 n/a n/a
Acquisitions of other
businesses 14,378,000 0 14,378,000
Temporary investments** 58,756,007 0 58,756,007
Reimbursement of out-
of pocket expenses
of Managing Shareholder 392,752 392,752 0
Due diligence expenses 603,639 603,639
Investment fee 1,145,212 1,145,212 0
Accounting and legal fees 30,130 30,130
Other expenses 18,297 18,297
* Related persons are the following: the Managing Shareholder,
Ridgewood Securities Corporation, RPMC, Ridgewood Energy
Corporation, the director and officers of each of those
corporations and their associates, and all other affiliates of
the Trust. No other person beneficially owns 10% or more of any
class of the equity securities of the Trust.
** As of April 21, 1998. All temporary investments mature less
than one year from the date of issuance. Temporary investments
are limited to U.S. Treasury securities and obligations of banks
with at least $5 billion in assets.
Item 11. Description of Registrant's Securities to be
Registered.
The Trust is registering Investor Shares, which are shares
of beneficial interest in the Trust having no par value.
(a) Distribution and dissolution rights.
Net Cash Flow of the Trust, defined as the Trust's gross
receipts less cash operating expenses and other cash expenditures
of the Trust, less debt service, if any, and less reasonable
reserves as determined by the Trust to cover its anticipated
expenses, will be distributed to the Shareholders to the extent
and at such times as the Trust deems advisable.
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%.
Net Cash Flow that the Trust determines to distribute from
the proceeds of a sale or other disposition of Trust Property
that (a) is not in the ordinary course of the operation of the
Trust Properties and (b) is not from the sale or exchange of
temporary investments will be distributed as follows: until
Payout, 99% of this Net Cash Flow will be distributed to the
Investors and 1% to the Managing Shareholder, and after Payout,
80% of this Net Cash Flow will be distributed to Investors and 20%
to the Managing Shareholder.
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, to the Investors entitled to declared but unpaid
distributions under the 14% priority return provisions, in
proportion to the amounts due to them, until all such accrued but
unpaid distributions are satisfied and then to the Shareholders,
in proportion to their respective positive capital accounts, after
taking account of all adjustments thereto through the time of
dissolution. See -Capital Accounts and Allocations below.
General Provisions
Distributions to Investors under the foregoing provisions
will be apportioned among them in proportion to their ownership of
Investor Shares, as the case may be. The Managing Shareholder has
the sole discretion to determine the amount and frequency of any
distributions; provided, however, that a distribution may not be
made selectively to one Shareholder or group of Shareholders but
must be made ratably to all Shareholders entitled to that type of
distribution at that time. The Managing Shareholder in its
discretion nevertheless may credit select persons with a portion
of its compensation from the Trust or distributions otherwise
payable to it.
Because distributions, if any, will be dependent upon the
earnings and financial condition of the Trust, its anticipated
obligations, the Managing Shareholder's discretion and other
factors, there can be no assurance as to the frequency or amounts
of any distributions that the Trust may make.
If the Trust creates additional classes or series of Shares,
distributions of net cash flow generated by Trust Properties
acquired with the proceeds of those additional classes or series
of Shares will be made as provided in the instruments creating
those classes or series.
Return of Capital
If the Trust for any reason at any time does not find it
necessary or appropriate to retain or expend all Capital
Contributions, in its sole discretion it may return any or all
such excess Capital Contributions ratably to Investors. The
Investors will be notified of the source of the payment and as to
the amounts of fees charged against the original Capital
Contributions that are being returned therewith. Any such
return of capital will decrease the Investors' Capital
Contributions and thus will affect the computation of Investor
preferences to distributions.
Capital Accounts and Allocations
Each Shareholder will have a capital account, which will have
an initial balance equal to the Shareholder's Capital
Contribution. Capital accounts will be adjusted in accordance
with Regulations under Internal Revenue Code Section 704. The
capital account balance will be increased by any additional
Capital Contributions by the Shareholder and by profits allocated
to the Shareholder; it will be decreased by the amount of
distributions to the Shareholder, returns of capital and by
losses allocated to the Shareholder. An Investor's Capital
Contribution includes the amount of any fees or commissions on the
sale of Shares to the Investor that are waived or reduced by the
Trust, the Managing Shareholder or their Affiliates.
Contributions of property by a Shareholder, if any, or
distributions of property to a Shareholder, if any, are valued at
fair market value, net of liabilities. The Trust does not
currently anticipate that any contributions or distributions of
property will be made. Certain additional adjustments to capital
accounts will be made if necessary to account for the effects of
non-recourse debt incurred by the Trust or contributions of
property, if any, to the Trust.
For any fiscal period, all net profits, if any, earned by the
Trust will be allocated first 100% to the Managing Shareholder
until the profits so allocated in that period and all prior
periods in which there were profits equal the cumulative
distributions payable to the Managing Shareholder for those
periods. Then, 100% of such net profits will be allocated to the
Investors, first ratably among holders of Rights until such
allocations cumulatively equal total distributions in respect of
those Rights, and then ratably among Investors in proportion to
their ownership of Shares. If the Trust has net losses for a
fiscal period, the losses will be allocated 99% to the Investors
and 1% to the Managing Shareholder, except that if an allocation
of a loss would cause an Investor to have a negative amount in the
Investor's capital account, the loss will be allocated to the
Managing Shareholder instead in the amount necessary to prevent
the creation of a negative balance in the Investor's capital
account. Allocations in respect of additional series of Shares
will be made in accordance with the terms thereof.
If, however, the application of the allocation rules causes
or would cause the Managing Shareholder to have a negative capital
account balance at the end of any fiscal period, gains from any
concurrent or subsequent sale or disposition of Trust Property
outside the normal course of operation will be allocated 100% to
the Managing Shareholder until the deficit is eliminated, and
thereafter in accordance with the rules described above. Gain or
loss allocable to Shareholders from such sales or dispositions
will be adjusted accordingly. For federal income tax purposes
only, any deduction allowed to the Trust on the ground that the
Managing Shareholder received its Trust interest as compensation
for services will be allocated solely to the Managing Shareholder.
Preferred Participation Rights and Early Investment Incentive.
In recognition of the benefits the Trust will receive from
early subscriptions for Investor Shares, the Trust provided
Investors who subscribed promptly with an "Early Investment
Incentive." The Early Investment Incentive was given to each
Investor whose subscription was fully completed and paid for and
accepted prior to December 31, 1996. Investor Shares subscribed
to after such date are not eligible for the incentive. An
Investor qualifying for the incentive (an "Early Investor") was
entitled to preferred distributions payable out of the Trust's
distributable operating net cash flow (which includes investment
interest on unapplied funds) beginning in 1997. The amount of the
Early Investment Incentive was determined by the number of
"Preferred Participation Rights" granted to each Early Investor.
Each Right entitled the holder to an aggregate distribution
priority of $1,000 (i.e., 1% of the purchase price of one $100,000
Investor Share). The number of Rights earned by each Early
Investor was determined by multiplying the number of whole or
fractional Investor Shares subscribed to by the Investor by the
number of whole or partial months from the date of the acceptance
of the subscription to December 31, 1996, except that
subscriptions from November 1 through December 31, 1996 were
treated on the same basis as subscriptions received in October
1996.
During calendar years 1997 and 1998, all distributable
operating net cash flow of the Trust was distributed 99% to the
Early Investors and 1% to the Managing Shareholder until the
Qualifying Investors received in each year distributions equal to
$500 for each Right earned. Thereafter, all distributable
operating net cash flow was distributed to all Shareholders in
accordance with the normal distribution allocation provisions of
the Declaration. The full amount of the Rights was paid to
Investors by January 1998 and no further amounts are due under the
Rights, which have terminated.
(b) Voting rights.
The Trust does not have a board of directors or trustees
elected by Investors and the Investors have no rights to vote on
the management of the Trust except through amending the
Declaration or removing the Managing Shareholder as described
below.
The Managing Shareholder may amend the Declaration without
notice to or approval of the Investors for the following purposes:
to cure ambiguities or errors; to conform the Declaration to the
description in the Confidential Memorandum for the offering of
Investor Shares, to equitably resolve issues arising under the
Declaration so long as similarly situated Investors are not
treated materially differently; to comply with law; to make other
changes that will not materially and adversely affect any
Investor's interest; to maintain the federal income tax status of
the Trust; or to make modifications to the computation of items
affecting the Investors' capital accounts to comply with the Code
or to reflect the creation of an additional class or series of
Shares and the terms thereof.
Other amendments to the Declaration may be proposed either by
the Managing Shareholder or holders of at least 10% of the
Investor Shares, either by calling a meeting of the Shareholders
or by soliciting written consents. The procedure for such meetings
or solicitations is found at Section 15.2 of the Declaration.
Such proposed amendments require the approval of a majority in
interest of the Investors given at a meeting of Shareholders or by
written consents. Any amendment requiring Investor action may
not increase any Shareholder's liability, change the Capital
Contributions required of him or her or the Investor's rights in
interest in the Trust's profits, losses, deductions, credits,
revenues or distributions in more than a de minimis matter, or
change his rights on dissolution or any voting rights without the
Shareholder's consent. Any amendment which changes the Managing
Shareholder's management rights requires its consent.
The consent of all Investors is required for the following
additional actions by the Trust: actions contravening the
Declaration or the Certificate of Trust of the Trust; actions
making it impossible to carry on ordinary business; confessing a
judgment in excess of 10% of the Trust's assets; dissolving or
terminating the Trust, other than as provided by the Declaration;
allowing the Managing Shareholder to possess or hold Trust
Property for other than a Trust purpose or adding a new Managing
Shareholder except as described below.
Removal of Managing Shareholder
The holders of at least 10% of the Investor Shares may
propose the removal of a Managing Shareholder, either by calling a
meeting or soliciting consents in accordance with the terms of the
Declaration. Removal of a Managing Shareholder requires the
affirmative vote of a majority of the Investor Shares (excluding
Investor Shares held by the Managing Shareholder which is the
subject of the vote or by its affiliates). Removal of a Managing
Shareholder causes a dissolution of the Trust unless any remaining
Managing Shareholder and a majority in interest of the Investors
(or if there is no remaining Managing Shareholder, a majority in
interest of the Investors) elect to continue the Trust. The
Investors may replace a removed Managing Shareholder or fill a
vacancy by vote of a majority in interest of the Investors.
If a Managing Shareholder is removed, resigns (other than
voluntarily without cause) or is unable to serve, it may elect to
exchange its Management Share for a series of cash payments from
the Trust in amounts equal to the amounts of distributions to
which the Managing Shareholder would otherwise have been entitled
under the Declaration in respect of investments made by the Trust
prior to the date of any such removal, resignation or other
incapacity. The Managing Shareholder would continue to receive
its pro rata share of all allocations to Investors as provided in
the Declaration which are attributable to Investor Shares owned by
the Managing Shareholder.
Alternatively, the Managing Shareholder may elect to engage a
qualified independent appraiser and cause the Trust to engage
another qualified independent appraiser (at the Trust's expense in
each case) to value the Trust Property as of the date of such
removal, resignation or other incapacity as if the property had
been sold at its fair market value so as to include all unrealized
gains and losses. If the two appraisers cannot agree on a value,
they would appoint a third independent appraiser (whose cost would
be borne by the Trust) whose determination, made on the same
basis, would be final and binding.
Based on the appraisal, the Trust would make allocations to
the Managing Shareholder's capital account of Profits, Losses and
other items resulting from the appraisal as of the date of such
removal, resignation or other incapacity as if the Trust's fiscal
year had ended, solely for the purpose of determining the Managing
Shareholder's capital account. If the Managing Shareholder has a
positive capital account after such allocation, the Trust would
deliver a promissory note of the Trust to the Managing
Shareholder, the principal amount of which would be equal to the
Managing Shareholder's capital account and which would bear
interest at a rate per annum equal to the prime rate in effect at
Chase Manhattan Bank, N.A. on the date of removal, resignation or
other incapacity, with interest payable annually and unpaid
principal payable only from 20% of any available cash before any
distributions thereof are made to the Investors under the
Declaration.
If the capital account of the Managing Shareholder has a
negative balance after such allocation, the Managing Shareholder
would be obligated to contribute to the capital of the Trust in
its sole discretion either cash in an amount equal to the negative
balance in its capital account or a promissory note to the Trust
in such principal amount maturing five years after the date of
such removal, resignation or other incapacity, bearing interest at
the rate specified above. If the Managing Shareholder chose to
elect the appraisal alternative, its entire interest in the Trust
would be terminated other than the right to receive the promissory
note and payments thereunder as provided above.
(c) Other rights and obligations.
The Investor Shares have no preemptive rights. The Trust
intends but is not required to give existing Investors the first
opportunity for a limited time to purchase any additional Shares
offered unless, in the sole discretion of the Trust, market
conditions or the need to raise additional capital on an expedited
basis precludes an offering to all Investors. In those cases, the
Trust shall determine, in its sole discretion, the persons to whom
additional Shares will be offered and sold. Investors have no
liability for further calls for capital or to assessment by the
Trust. No liabilities of the Trust can be generally imposed on
its Shareholders under Delaware law. See - Liability of
Investors below.
(d) Restrictions on Transfer of Investor Shares
No Investor may assign or transfer all or any part of his
interest in the Trust and no transferee will be deemed a
substituted Investor or be entitled to exercise or receive any of
the rights, powers or benefits of an Investor other than the right
to receive distributions attributable to the transferred interest
unless (i) such transferee has been approved and accepted by the
Trust, in its sole and absolute discretion, as a substituted
Investor, and (ii) certain other requirements set forth in the
Declaration have been satisfied. As explained below at - Tax
Aspects, the Trust does not intend to allow free transferability
of Investor Shares or to allow the creation of a trading market in
Investor Shares.
(e) Liability of Investors
Assuming compliance with the Declaration and applicable
formative and qualifying requirements in Delaware and any other
jurisdiction in which the Trust conducts its business, an Investor
will not be personally liable under Delaware law for any
obligations of the Trust, except to the extent of any unpaid
Capital Contributions that he or she agrees to contribute to the
Trust and except for indemnification liabilities arising from any
misrepresentation made by him or her in the Investor Subscription
Booklet submitted to the Trust. The Trust will, to the extent
practicable, endeavor to limit the liability of the Investors in
each jurisdiction in which the Trust operates.
The law governing whether a jurisdiction other than Delaware
will honor the limitation of liability extended under Delaware law
to the Investors is uncertain. A number of states have adopted
specific legislation permitting business trusts to limit the
liability of their beneficiaries and it is likely that those
states would similarly honor the Trust's limitations on liability
of Investors. In other states, there has been no authoritative
legislative or judicial determination as to whether the limitation
of liability would be honored and in some states the courts have
held that the beneficiaries of a business trust could be liable
for the trust's activities, regardless of their lack of
participation in its management. The Trust intends to make all
investments in Projects through subsidiaries, such as limited
partnerships or limited liability companies, that afford their
owners limited liability in the relevant jurisdictions. Therefore,
regardless of the local treatment of business trusts, the Trust
believes that the Investors will not be subject to personal
liability for Project liabilities and that with regard to the
operation of the Trust itself the limitation of Investors'
liability under Delaware law will govern.
Under certain federal and state environmental laws of general
application, entities that own or operate properties contaminated
with hazardous substances may be liable for cleanup liabilities
regardless of other limitations of liability. The Trust is not
aware of any case where such environmental liabilities were
imposed on non-management participants in a business trust.
The Delaware Act does not contain any provision imposing
liability on an Investor for participation in the control of the
Trust, although no Investor has any rights to do so except through
the rights to propose and vote on matters described above. The
Delaware Act does not require an Investor who receives
distributions that are made when the Trust is or would be rendered
insolvent to return those distributions under equitable principles
enforced by courts. Under Delaware decisions, a trust beneficiary
who receives overpayments from a trust is obligated to return
those payments, with interest, subject to equitable defenses. The
application of these cases to beneficiaries of a business trust is
uncertain.
(f) Issuance of additional classes of shares.
The Trust intends that all of its activities will be funded
from the proceeds of this offering and earnings thereon. In the
future, the Trust may deem it to be necessary or in the Trust's
best interests, however, for the Trust to commit additional funds
to Projects in which it has previously participated or to further
diversify its activities by participating in new Projects. If the
Trust determines that these additional commitments should not be
financed from Trust earnings, and, as is currently anticipated,
the Trust does not borrow funds for these purposes, the Trust may
sell additional Shares.
Beginning six months and one day after the Termination Date,
the Trust from time to time may create and sell additional
Investor Shares or additional classes or series of Shares if the
Managing Shareholder determines that the best interests of the
Trust so require. Additional classes or series may but are not
required to be limited to the assets and cash flow of Projects or
Project Entities that represent less than all of the entire Trust
Property. The Managing Shareholder is authorized to determine or
alter any or all of the powers, preferences and rights, and the
qualifications, limitations or restrictions granted to or imposed
upon any unissued class or series of additional Shares, and to
fix, alter or reduce the number of Shares comprising any such
class or series and the designation thereof, or any of them, and
to provide for the rights and terms of redemption or conversion of
the Shares of any such class or series. The Managing
Shareholder's designation of the Shares and the terms and
conditions of any new class or series of Shares shall be deemed an
amendment of the Declaration and shall be effective without any
notice to, action by or approval of the Investors. Any Shares so
designated or any additional Investor Shares may be offered to
such persons and on such terms and conditions as the Trust may
determine.
Any additional Shares or classes or series of Shares shall
have voting rights as designated by the Managing Shareholder;
however, no such Share shall have more than one vote per $100,000
of Capital Contributions for that Share on matters in which the
holders of those Shares vote with the holders of Investor Shares,
without the consent of the holders of a Majority of the Investor
Shares.
All Profits, Losses and other items attributable to
additional classes or series of Shares shall be allocated as
specified in the determination of the Managing Shareholder
creating those Shares, except that any such allocation shall not
unreasonably reduce allocations to existing Investors of Profits,
Losses, Net Cash Flow and other items to the extent attributable
to their Capital Contributions. The Managing Shareholder's
election in good faith of allocation methods (which may include
subjective elements) shall be conclusive in the absence of willful
misconduct or gross negligence.
If the Trust does not raise sufficient additional capital to
participate in additional activities or does not choose to do so,
the Trust may offer the Managing Shareholder, its affiliates or
partnerships or funds organized by any of them the right to so
participate in place of the Trust.
(g) Tax matters. There are many material tax aspects to
the Investor Shares. The Trust is an entity treated as a
partnership for federal income tax purposes and under many state
income tax laws. As such, its income is not taxed separately and
its income, gains, losses, deductions and tax credits are passed
through to the Investors and the Managing Shareholder as
described at -- Distribution and Liquidation Rights above. The
Trust would lose partnership status for federal income tax
purposes if it became a "publicly traded partnership."
In order not to become a publicly traded partnership,
the Trust may not permit any of the following to occur:
(i) Interests in the partnership are regularly quoted
by any person, such as a broker or dealer, making a market
in the interests;
(ii) Any person regularly makes available to the
public (including customers or subscribers) bid or offer
quotes with respect to interests in the partnership and
stands ready to effect buy or sell transactions at the
quoted prices for itself or on behalf of others;
(iii) the holder of an interest in the partnership has
a readily available, regular and ongoing opportunity to sell
or exchange the interest through a public means of obtaining
or providing information of offers to buy, sell, or exchange
interests in the partnership; or
(iv) Prospective buyers and sellers otherwise have the
opportunity to buy, sell or exchange interests in the
partnership in a time frame and with the regularity and
continuity that is comparable to that described in the other
provisions of this paragraph . . . .
The Managing Shareholder has represented to its tax counsel
that it will not allow any transfer of Shares which, in the
opinion of its counsel, will cause the Trust's Shares to be
treated as readily tradable on such market without the consent of
a Majority of the Investors.
(i) Provisions that might impede a change of control.
As discussed above at -- Voting Rights, the Investors do
not have the right to vote routinely upon the management of the
Trust. Any amendment to the Declaration that would modify the
Managing Shareholder's management rights requires the Managing
Shareholder's consent. A decision to remove the Managing
Shareholder requires the calling of a special meeting or
solicitation of consents from Investors, a majority vote of the
Investor Shares. Removal of the Managing Shareholder causes a
dissolution of the Trust unless a new Managing Shareholder is
concurrently elected. Because the removed Managing Shareholder
is entitled to compensation for its equity interest in the Trust,
it might be difficult for the Trust to offer a new Managing
Shareholder a comparable equity interest in the Trust. All these
provisions may have the effect of impeding a change of control of
the Trust.
Item 12. Indemnification of Directors and Officers.
Under the Declaration, the Trust's officers and agents, the
Managing Shareholder, RPMC, the Corporate Trustee, the Panel
Members and other Ridgewood Managing Persons when acting on behalf
of the Trust (provided they act within the scope of the
Declaration) may be indemnified by the Trust as determined by the
Managing Shareholder in its sole discretion, which may be
exercised at any time, regardless of whether or not a claim is
pending or threatened, against liability for errors in judgment or
other acts or omissions taken in good faith and not amounting to
recklessness or willful misconduct. The Managing Shareholder may
make such determination regardless of the existence of a conflict
of interest.
Expenses of defense or settlement may be advanced to a
Ridgewood Managing Person in advance of a determination that
indemnification will be provided if (i) the Ridgewood Managing
Person provides appropriate security for the undertaking; (ii) the
Ridgewood Managing Person is insured against losses or expenses of
defense or settlement so that the advances may be recovered or
(iii) independent legal counsel in a written opinion determines,
based upon a review of the then readily-available facts, that
there is reason to believe that the Managing Person will be found
to be entitled to indemnification. Counsel may rely as to matters
of business judgment or as to other matters not involving
determinations of law upon the advice of a committee of persons
not affiliated with the Trust that may be appointed by the
Managing Shareholder for that purpose.
In addition, the Placement Agent will be indemnified and
held harmless by the Trust against any losses or claims, based
upon the assertion that the Placement Agent has any continuing
duty or obligation, subsequent to any offering of Shares, to the
Trust, the Panel Members, the Corporate Trustee or any
Shareholder or otherwise to monitor Trust operations or report to
Investors concerning Trust operations.
It is the position of the Securities and Exchange Commission
and certain state securities administrators that any attempt to
limit the liability of a general partner or persons controlling an
issuer under the federal securities laws or state securities laws,
respectively, is contrary to public policy and, therefore,
unenforceable.
The Managing Shareholder is not required to take action on
behalf of the Trust unless the Trust has sufficient funds to meet
obligations that might arise from that action. The Managing
Shareholder is not required to advance or expend its own funds for
ordinary Trust business but is entitled to reimbursement from the
Trust if it does so consistent with the Declaration. The Managing
Shareholder is not required to devote its time exclusively to the
Trust and may engage in any other venture.
The Managing Shareholder is applying for directors' and
officers' liability insurance covering the Trust, the Managing
Shareholder and all other Ridgewood Managing Persons.
Item 13. Financial Statements and Supplementary Data.
Index to Financial Statements
Report of Independent Accountants F-2
Balance Sheets at December 31, 1997 and 1996 F-3
Statement of Operations for Year Ended
December 31, 1997 and for Period
from Commencement of Share Offering
(April 12, 1996) through December 31, 1996 F-4
Statement of Changes in Shareholders'
Equity for Year Ended December 31, 1997
and for Period from Commencement of Share Offering
through December 31, 1996 F-5
Statement of Cash Flows for Year Ended
December 31, 1997 and for Period
from Commencement of Share Offering
through December 31, 1996 F-6
Notes to Financial Statements F-7 to F-12
Financial Statements for Maine Hydro Projects *
Financial Statements for Maine Biomass Projects*
*To be supplied by amendment.
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
The financial statements are presented in accordance with
generally accepted accounting principles for operating companies,
using consolidation and equity method accounting principles.
Item 14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Neither the Trust nor the Managing Shareholder has had an
independent accountant resign or decline to continue providing
services since their respective inceptions and neither has
dismissed an independent accountant during that period. During
that period of time no new independent accountant has been
engaged by the Trust or the Managing Shareholder, and the
Managing Shareholder's current accountants, Price Waterhouse LLP,
have been engaged by the Trust.
Item 15. Financial Statements and Exhibits
(a) Financial Statements.
See the Index to Financial Statements in Item 13 hereof.
(b) Exhibits
3.A. Certificate of Trust of the Registrant. Page 112
3.B. Amended Declaration of Trust of
the Registrant. Page 114
3.C. Amendment No. 2 to Declaration of Trust. Page 169
3.D. Amendment No. 3 to Declaration of Trust. Page 170
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. Letter of Intent, dated January 8, 1998, between
Ridgewood Power Corporation and NEO Corporation. Page 178
The Registrant agrees to furnish supplementally a copy of any
omitted exhibit or schedule to agreements filed as exhibits to
the Commission upon request.
21. Subsidiaries of the Registrant Page 187
24. Powers of Attorney Page 188
27. Financial Data Schedule Page 189
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.
Signature Title Date
RIDGEWOOD ELECTRIC POWER TRUST IV (Registrant)
By:/s/ Robert E. Swanson President and Chief April 30, 1998
Robert E. Swanson Executive Officer
Ridgewood Electric Power Trust V
Financial Statements
December 31, 1997 and period April 12, 1996 -
December 31, 1996
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
Price Waterhouse LLP [logo]
Report of Independent Accountants
April 2, 1998
To the Shareholders and Trustees of
Ridgewood Electric Power Trust V
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of Ridgewood Electric Power
Trust V at December 31, 1997 and 1996, and the results of their operations and
their cash flows for the year ended December 31, 1997 and the period April 12,
1996 (commencement of share offering) through December 31, 1996, in conformity
with generally accepted accounting principles. 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 generally accepted auditing
standards 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 the opinion expressed above.
/s/Price Waterhouse LLP
Ridgewood Electric Power Trust V
Balance Sheet
December 31,
1997 1996
Assets:
Cash and cash equivalents $40,821,582 $7,654,619
Due from affiliates 14,467 127,342
Interest receivable 167,170 30,000
Total current assets 41,003,219 7,811,961
Investment in hydro projects 6,694,826 6,913,421
Investment in biomass projects 6,617,862 ---
Deferred due diligence costs 154,018 219,919
Total assets $54,469,925 $14,945,301
Liabilities and shareholders' equity:
Accounts payable and accrued expenses $1,101,285 $397,904
Due to affiliates 322,522 45,466
Total current liabilities 1,423,807 443,370
Commitments and contingencies
Shareholders' equity:
Shareholders' equity (762.8 and 181.6
shares issued and outstanding at
December 31, 1997 and 1996) $53,077,526 $14,505,764
Managing shareholder's accumulated
deficit (31,408) (3,833)
Total shareholders' equity 53,046,118 14,501,931
Total liabilities and shareholders'
equity $54,469,925 $14,945,301
See accompanying notes to the financial statements.
Ridgewood Electric Power Trust V
Statement of Operations
Commencement of
Share Offering
For the (April 12, 1996)
Year Ended Through
December 31, 1997 December 31, 1996
Revenue:
Interest income $ 1,003,276 $ 158,236
Income from hydro projects 521,710 99,224
Loss from biomass projects (680,109) ---
Total revenue 844,877 257,460
Expenses:
Investment fee 1,145,212 333,346
Project due diligence costs 603,639 4,500
Allocated management costs 392,752 ---
Accounting and legal fees 30,130 31,356
Other expenses 18,297 2,633
Total expenses 2,190,030 371,835
Net loss $ (1,345,153) $ (114,375)
See accompanying notes to the financial statements.
Ridgewood Electric Power Trust V
Statement of Changes in Shareholders' Equity
For The Year Ended December 31, 1997 and The Period
April 12, 1996 To December 31, 1996
Managing
Shareholders Shareholder Total
Initial capital
contributions, net
(181.6 shares) $ 14,885,205 $ --- $ 14,885,205
Cash distributions (266,210) (2,689) (268,899)
Net loss for the period (113,231) (1,144) (114,375)
Shareholders' equity,
December 31, 1996
(181.6 shares) 14,505,764 (3,833) 14,501,931
Capital contributions,
net (581.2 shares) 41,301,821 --- 41,301,821
Cash distributions (1,398,357) (14,124) (1,412,481)
Net loss for the year (1,331,702) (13,451) (1,345,153)
Shareholders' equity,
December 31, 1997
(762.8 shares) $53,077,526 $(31,408) $53,046,118
See accompanying notes to the financial statements.
Ridgewood Electric Power Trust V
Statement of Cash Flows
Commencement of
Share Offering
For the (April 12, 1996)
Year Ended Through
December 31, 1997 December 31, 1996
Cash flows from
operating activities:
Net loss $ (1,345,153) $ (114,375)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Income from unconsolidated
hydro projects (521,710) (99,224)
Loss from unconsolidated
biomass projects 680,109 ---
Changes in assets and
liabilities:
Increase in interest
receivable (137,170) (30,000)
Increase in accounts
payable and accrued
expenses 703,381 397,904
Increase in due to/from
affiliate, net 389,931 (81,876)
Total adjustments 1,114,541 186,804
Net cash (used in) provided
by operating activities (230,612) 72,429
Cash flows from investing
activities:
Investment in hydro projects (265,952) (6,814,197)
Investment in biomass
projects (7,297,971) ---
Distribution from
hydro projects 1,006,257 ---
Deferred due diligence
costs 65,901 (219,919)
Net cash used in
investing activities (6,491,765) (7,034,116)
Cash flows from financing
activities:
Proceeds from shareholders'
contributions 52,580,637 17,553,004
Selling commissions and
offering costs paid (11,278,816) (2,667,799)
Cash distributions to
shareholders (1,412,481) (268,899)
Net cash provided by
financing activities 39,889,340 14,616,306
Net increase in cash and
cash equivalents 33,166,963 7,654,619
Ridgewood Electric Power Trust V
Statement of Cash Flows (continued)
Cash and cash equivalents,
beginning of period 7,654,619 ---
Cash and cash equivalents,
end of period $ 40,821,582 $ 7,654,619
See accompanying notes to financial statements.
Ridgewood Electric Power Trust V
Notes to 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
Power Corporation. The Trust began offering shares on April 12, 1996 and
discontinued its offering on April 15, 1998.
The Trust has been organized to invest in independent power generation
facilities and in the development of these facilities. 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).
2. Summary Of Significant Accounting Policies
Accounting for investment in power generation projects
The Trust uses the equity method of accounting for its investments in
affiliates which are 50% owned because the Trust has the ability to exercise
significant influence over the operating and financial policies of the
affiliate but does not control the affiliates. The Trust's share of the
earnings of the affiliates is included in the results of operations.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
Cash and cash equivalents
The Trust considers all highly liquid investments with maturities when
purchased of three months or less as cash and cash equivalents.
Income taxes
No provision is made for income taxes in the accompanying 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.
Offering costs
Costs associated with offering Trust shares (selling commissions,
distribution and offering costs) are reflected as a reduction of the
shareholders' capital contributions.
Due diligence costs relating to potential power projects
Costs relating to the due diligence performed on potential power project
investments are initially deferred, until such time as the Trust determines
whether or not it will make an investment in the respective project. Costs
relating to completed projects are capitalized and costs relating to rejected
projects are expensed at the time of rejection.
Subscription receivable
Capital contributions are recorded upon receipt of the appropriate
subscription documents. Subscriptions receivable from shareholders are
reflected as a reduction of shareholders' equity, not as an asset. At
December 31, 1997 and 1996, the Trust has subscriptions receivable of
$8,604,653 and $610,000, respectively.
3. Investments
The Trust has the following investments in power generation projects:
Nature of Ownership
Project Name Ownership Interest 1997 1996
Maine Hydro Projects Partnership 50% $6,694,826 $6,913,421
Maine Biomass Projects Limited Liability
Companies 50% 6,617,862 ---
Maine Hydro Projects
On September 5, 1996, Ridgewood Maine Hydro Partners, L.P. was formed as
a Delaware limited partnership ("Ridgewood Hydro L.P."). The Trust made
investments totaling $6,748,256 and owns a 50% limited partnership interest in
Ridgewood Hydro L.P. In addition, Ridgewood Maine Hydro Corporation was
formed as a Delaware corporation ("RMHCorp."). The Trust invested $65,941 and
owns 50% of the outstanding common stock of RMHCorp., which is the sole
general partner of Ridgewood Hydro L.P.
On December 23, 1996, in a merger transaction, Ridgewood Hydro L.P.
acquired 14 hydroelectric projects, located in Maine (the "Maine Hydro
Projects"), from a subsidiary of 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. In addition, Ridgewood Hydro L.P. assumed a
long-term lease obligation of $1,004,679. The Trust's 50% share of the cash
consideration paid was $6,814,198. The remaining 50% was paid by Ridgewood
Electric Power Trust IV ("Trust IV"). Ridgewood Power Corporation is the
managing partner of 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 have been included in the financial statements since
December 23, 1996.
The Maine Hydro Projects are operated by a subsidiary of Consolidated
Hydro, Inc., under an Operation, Maintenance and Administrative Agreement.
The annual operator's fee is $307,500, adjusted 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 $429,430 and $3,070 of expense under this
arrangement during the periods ended December 31, 1997 and 1996, respectively.
The agreement has a five year term and can be renewed for two additional five
year terms by mutual consent.
Summarized financial information for the Maine Hydro Projects are as
follows:
Balance Sheet Information
December 31, 1997 December 31, 1996
Current assets $1,757,908 $ 2,115,375
Electric power sales contract 12,225,765 13,286,920
Other non-current assets 634,952 800,000
Total assets $14,618,625 $16,202,295
Current liabilities $ 291,911 1,370,774
Non-current liabilities 937,062 1,004,679
Partners' equity 13,389,652 13,826,842
Total liabilities and equity $14,618,625 $16,202,295
Statement of Operations Information
For the Period
December 23, 1997
For the Year Ended (date of acquisition)
December 31, 1997 to December 31, 1996
Revenue $4,113,065 $192,152
Operating expenses 2,952,589 50,340
Net Income 1,043,420 198,447
Maine Biomass Projects
On July 1, 1997, through a subsidiary, the Trust purchased a 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 and includes transaction costs of
$297,971. 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 Maine Biomass Projects had a
power sales contract with the New England Power Pool, which expired on August
31, 1997. The facilities were shut down in September 1997 and were
reactivated in November 1997 to sell capacity and energy to Bangor Hydro-
Electric Company, a local utility ("BHC") on a month-to-month basis. The
facilities were again shut down in January 1998. The cost of maintaining the
idled facilities in good condition is approximately $100,000 per month.
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.
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 for the period July 1, 1997 to December 31, 1997 was
$680,109.
The Penobscot and Eastport projects are operated by Indeck Operations,
Inc., an affiliate of the members of Indeck Maine. The annual operator's fee
is $300,000, of which $200,00 is payable contingent upon the Trusts receiving
their cumulative annual return. The management agreement has a term of one
year and automatically continues for successive one year terms, unless
canceled by either the Maine Biomass Projects or Indeck Operations, Inc. The
Trusts can also cancel the contract effective December 31, 1998 if certain
preferred membership interest payments have not been made.
Summarized financial information for the Maine Biomass Projects is as
follows:
Balance Sheet Information at December 31, 1997
Current assets $861,677 Current liabilities $912,683
Non-current assets 3,524,356 Members' equity 3,473,350
Total assets $4,386,033 Total liabilities
and equity $4,386,033
Statement of Operations Information for the Period July 1, 1997 (date of
acquisition) to December 31, 1997
Revenue $2,991,793
Operating expenses 4,278,506
Depreciation & Amortization 97,952
$(1,384,665)
4. Electric Power Sales Contracts
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
three more five-year periods. The two power purchase agreements with BHC
expire December 2014 and February 2017.
5. Line of Credit Facility
During the fourth quarter of 1997, the Trust and its principal bank
executed a revolving line of credit agreement, whereby the bank will provide a
three year committed line of credit facility of $750,000. At December 31,
1997, there were no borrowing outstanding under the facility. Outstanding
borrowings bear interest at the bank's prime rate or, at the Trust's choice,
at LIBOR plus 2.5%. The credit agreement will require the Trust to maintain a
ratio of total debt to tangible net worth of no more than 1 to 1 and a minimum
debt service coverage ratio of 2 to 1.
6. Fair Value of Financial Instruments
At December 31, 1997, the carrying value of the Trust's cash, receivables
and accounts payable approximates their fair value.
7. Transactions With Managing Shareholder and Affiliates
The Trust pays to the managing shareholder a distribution and offering
fee up to 6% of each capital contribution made to the Trust. This fee is
intended to cover legal, accounting, consulting, filing, printing,
distribution, selling and closing costs for the offering of the Trust. For
the period ended December 31, 1997 and 1996, the Trust paid fees for these
services to the managing shareholder of $4,562,147 and $1,082,038,
respectively. These fees are recorded as a reduction in the shareholders'
capital contribution.
The Trust also pays to the managing shareholder an investment fee up to
2% of each capital contribution made to the Trust. The fee is payable to the
managing shareholder for its services in investigating and evaluating
investment opportunities and effecting transactions for investing the capital
of the Trust. For the period ended December 31, 1997 and 1996, the Trust paid
investment fees to the managing shareholder of $1,145,212 and $333,346,
respectively.
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. In addition, the
managing shareholder provides certain project management services to the
Trust. The managing shareholder charges the Trust at its cost for the
services and for the allocable amount of certain overhead items. For the year
ended December 31, 1997, the managing shareholder charged $392,752 to 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.
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, 1997.
The managing shareholder purchased one share of the Trust for $83,000 in
1996. Through December 31, 1997, commissions and placement fees of $761,808
were earned by Ridgewood Securities Corporation, an affiliate of the managing
shareholder.
Under an Operating Agreement with the Trust, Ridgewood Power Management
Corporation ("Ridgewood Management"), an entity related to the managing
shareholder through common ownership, provides management, purchasing,
engineering, planning and administrative services to the Trust's power
generation 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 managed by Ridgewood
Management. During the period ended December 31, 1997 and 1996, Ridgewood
Management did not charge any amounts to the Maine Hydro projects or Maine
Biomass projects.