FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 23, 2002
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Caithness Coso Funding Corp.
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(Exact name of registrant as specified in its charter)
Delaware 333-83815 94-3328762
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Coso Finance Partners California 68-0133679
Coso Energy Developers California 94-3071296
Coso Power Developers California 94-3102796
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(Exact names of Registrants as (State or other (IRS Employer
specified in their charters) jurisdiction of Identification No.)
incorporation)
565 Fifth Avenue, 29th Floor, New York, New York 10017-2478
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 921-9099
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Not Applicable
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(Former name or former address, if changed Since last report.)
Item 5. Other Events.
The Coso projects consist of three 80 MW geothermal power plants, called Navy I,
BLM and Navy II (together, the "Coso Partnerships"), their transmission lines,
wells, gathering system and other related facilities. The Coso projects are
located near one another in the Mojave Desert approximately 150 miles northeast
of Los Angeles, California, and have been generating electricity since the late
1980's. The Coso Partnerships sell 100% of the electrical energy generated at
the plants to Southern California Edison ("Edison") under three long-term
Standard Offer No. 4 power purchase agreements (the "Purchase Agreements").
Caithness Coso Funding Corp. ("Funding Corp.") is a single-purpose Delaware
Corporation formed to issue senior secured notes ("Notes") for its own account
and as an agent acting on behalf of the Coso Partnerships. On May 28, 1999,
Funding Corp. sold $413,000,000 of senior secured notes. Pursuant to separate
credit agreements between Funding Corp. and each partnership, the net proceeds
from the offering of the Notes were loaned to the Coso Partnerships. Payment of
the Notes is provided for by payments made by the Coso Partnerships to Funding
Corp. under their respective project loans. Funding Corp. has no material
assets, other than the project loans, and does not conduct any operations apart
from issuing the Notes and making the project loans to the partnerships.
Settlement Agreement between Edison and the California Public Utilities
Commission
Unprecedented increases in natural gas prices and imbalances between supply and
demand, among other factors, led to significant increases in wholesale
electricity prices in California during 2000. At the time of such increases,
Edison had fixed tariffs with their retail customers that were significantly
below the wholesale prices it paid in California. Edison's resulting shortfall
in collections materially and adversely affected its liquidity.
Edison filed a complaint in the United States District Court for the Central
District of California in November 2000 against the commissioners of the
California Public Utilities Commission (the "CPUC"), alleging that their refusal
to allow Edison to recover its wholesale costs of purchasing power in its retail
rates violated federal law. The CPUC and Edison entered into a Settlement
Agreement on October 2, 2001 to resolve this litigation, and the district court
entered a stipulated judgment incorporating the Settlement Agreement on October
5, 2001.
On September 23, 2002, the United States Court of Appeals for the Ninth Circuit
issued an opinion and order on appeal from the district court's stipulated
judgment which affirmed the stipulated judgment in part and referred questions
based on California state law to the Supreme Court of California. The appeals
court stated that if the settlement agreement violated California state law then
the appeals court would be required to void the stipulated judgment. Pending a
response from the California Supreme Court the settlement agreement remains in
full force and effect.
Funding Corp cannot predict the final outcome of these proceedings or any other
judicial, legislative, regulatory or other governmental action related to this
matter or what affect the outcomes of these proceedings or other actions will
have on Edison. Should Edison fail to satisfy its future obligations to the Coso
Partnerships, such failure will have a material adverse effect on the Coso
Partnerships ability to make debt service payments to Funding Corp. and, in
turn, Funding Corp.'s ability to make its debt service payments.
Court of Appeal Decision on Line Loss Factor
The payments Edison makes to the Coso Partnerships under the Purchase Agreements
are calculated based on "line losses", among other factors, which are
unavoidable losses that occur when electricity is transmitted from the point of
generation to the point of consumption. In January 2001, the CPUC adopted a new
methodology for calculating the transmission line loss factor and also adopted a
"floor" for the transmission line loss factor that applies to generating
facilities powered by renewable resources, including those owned by the Coso
Partnerships. Under this "floor" provision, transmission line loss factors for
renewable generators may not be less than 0.95.
Edison filed a petition for a writ of review of the January 2001 CPUC decision,
claiming that the "floor" line loss factor of 0.95 for renewable generators
violated PURPA. Subsequently, the California Court of Appeal issued a decision
on August 20, 2002 in response to the writs affirming the January 2001 CPUC
decision except for the 0.95 "floor", which it rejected as an abuse of
discretion by the CPUC. The Coso Partnerships plan to appeal this decision in
the California Court of Appeal.
If the decision of the California Court of Appeal on August 20, 2002 is not
modified, it could be determined that payments between January 2001 and May 2002
that applied the 0.95 minimum line loss factor resulted in overpayments to the
Coso Partnerships and that the Coso Partnerships either have to repay those
amounts to Edison or have future payments offset by such overpayments. Note that
the Purchase Agreements, through recent amendments, set a 1.0 line loss factor
for all payments between May 2002 and May 2007.
Funding Corp. cannot predict whether the appeal of the August 20, 2002 decision
of the California Court of Appeal will be successful.
Court of Appeal Decision on Retroactive Application of Short Run Avoided
Cost Rates
On March 27, 2001, the CPUC instituted a new formula to measure Edison's short
run avoided costs ("SRAC"), which is the basis for a portion of the payments
that Edison makes to the Coso Partnerships under the Purchase Agreements. In a
decision dated September 4, 2002, the California Court of Appeal ruled that the
CPUC erred in not considering the possible retroactive application of the
revised SRAC formula to deliveries beginning on December 1, 2000. The California
Court of Appeal remanded the matter back to the CPUC to make such a
consideration.
If the CPUC determines that retroactively will apply to the SRAC formula for
payments made between December 1, 2000 and March 27, 2001, then energy payments
from Edison to the Coso Partnerships would be decreased during that period.
Funding Corp does not believe the proceedings will impact prior payments made to
the Coso Partnerships based on their settlement with Edison as embodied in
recent amendments to the Purchase Agreements.
Funding Corp. cannot predict the final outcome of these proceedings, including
whether the CPUC will make such a determination as to whether the revised SRAC
formula should be applied retroactively, what the appropriate SRAC formula would
be during such period, or whether any of such determinations would withstand
challenge. Funding Corp. also cannot predict what affect, if any, the decision
of the Court of Appeal will have on the relationship between Edison and the Coso
Partnerships, including under the Purchase Agreements.
Certain information included in this report contains forward-looking statements
made pursuant to the Private Securities Litigation Reform act of 1995 ("Reform
Act"). Such statements are based on current expectations and involve a number of
known and unknown risks and uncertainties that could cause the actual results
and performance of the Coso Partnerships to differ materially from any expected
future results or performance, expressed or implied, by the forward-looking
statements including expectations regarding the future results of operations of
the Coso Partnerships. In connection with the safe harbor provisions of the
Reform Act, the Coso Partnerships have identified important factors that could
cause actual results to differ materially from such expectations, including
resolution of the energy crisis in California, operating uncertainty,
uncertainties relating to geothermal resources, uncertainties relating to
economic and political conditions and uncertainties regarding the impact of
regulations, changes in government policy, judicial decisions, industry
deregulation and competition. Reference is made to all of the Registrants' SEC
filings incorporated herein by reference, for a description of such factors. The
Registrants assume no responsibility to update forward-looking information
contained herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 3, 2002 CAITHNESS COSO FUNDING CORP.,
a Delaware corporation
By: /S/ CHRISTOPHER T. MCCALLION
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Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
COSO FINANCE PARTNERS
a California general partnership
By: New CLOC Company, LLC,
its Managing General Partner
By: /S/ CHRISTOPHER T. MCCALLION
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Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
COSO ENERGY DEVELOPERS
a California general partnership
By: New CHIP Company, LLC,
its Managing General Partner
By: /S/ CHRISTOPHER T. MCCALLION
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Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
COSO POWER DEVELOPERS
a California general partnership
By: New CTC Company, LLC,
its Managing General Partner
By: /S/ CHRISTOPHER T. MCCALLION
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Christopher T. McCallion
Executive Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)