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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________------------------
FORM 10-Q
(MARK ONE)
[X][ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31,SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
____________________
COMMISSION FILE NO. 33-7591
---------------------
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION & TRANSMISSION CORPORATION)
(Exact name of registrant as specified in its charter)
GEORGIA 58-1211925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
POST OFFICE BOX 1349
2100 EAST EXCHANGE PLACE
TUCKER, GEORGIA 30085-1349
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 270-7600
Indicate by check mark whether the registrantregistrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject of
such filing requirements for the past 90 days. YES X_X_ NO ----- -----___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date. THE REGISTRANT
IS A MEMBERSHIP CORPORATION AND HAS NO AUTHORIZED OR OUTSTANDING EQUITY
SECURITIES.
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- -------------------------------------------------------------------------------
OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31,SEPTEMBER 30, 1996
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of March 31,September 30, 1996 (Unaudited)
and December 31, 1995 3
Condensed Statements of Revenues and Expenses (Unaudited)
for the Three Months and Nine Months Ended March 31,September 30,
1996 and 1995 5
Condensed Statements of Cash Flows (Unaudited)
for the ThreeNine Months Ended March 31,September 30, 1996 and 1995 6
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 1215
SIGNATURES 1316
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
- -------------------------------------------------------------------------------------PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- -------------------------------------------------------------------------------
(dollars in thousands)
1996 1995
ASSETS (Unaudited)
--------------------------
ELECTRIC PLANT, AT ORIGINAL COST:
In service $5,696,887$5,719,078 $5,699,213
Less: Accumulated provision for depreciation (1,389,588)(1,458,271) (1,362,431)
---------- ----------
4,307,2994,260,807 4,336,782
Nuclear fuel, at amortized cost 96,07595,437 94,013
Plant acquisition adjustments, at amortized cost 4,9494,419 5,214
Construction work in progress 41,61740,658 35,753
---------- ----------
4,449,9404,401,321 4,471,762
---------- ----------
INVESTMENTS AND FUNDS:
Decommissioning fund, at market 77,886 74,492
Bond, reserve and construction funds, at market 53,07953,024 56,511
Decommissioning fund, at market 75,652 74,492
Investment in associated organizations, at cost 15,50215,424 15,853
---------- ----------
144,233146,334 146,856
---------- ----------
CURRENT ASSETS:
Cash and temporary cash investments, at cost 148,14695,864 201,151
Other short-term investments, at market 89,11890,375 79,165
Receivables 100,927107,572 99,559
Inventories, at average cost 86,08692,807 82,949
Prepayments and other current assets 17,32514,288 14,325
---------- ----------
441,602400,906 477,149
---------- ----------
DEFERRED CHARGES:
Premium and loss on reacquired debt, being amortized 207,663202,737 200,794
Deferred amortization of Scherer leasehold 87,99489,715 87,134
Discontinued projects, being amortized 23,79522,776 24,305
Deferred debt expense, being amortized 20,90520,900 21,135
Other 15,77222,632 9,361
---------- ----------
356,129358,760 342,729
---------- ----------
$5,391,904$5,307,321 $5,438,496
---------- ----------
---------- ----------
The accompanying notes are an integral part of these condensed statements.
3
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
- -------------------------------------------------------------------------------------OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
1996 1995
EQUITIES AND LIABILITIES (Unaudited)
-------------------------
CAPITALIZATION:
Patronage capital and membership fees (including unrealized
gainsloss of $2,488($276) at March 31,September 30, 1996 and gain of $3,570 at
December 31, 1995 on available-for-sale securities) $346,797$361,273 $338,891
Long-term debt 4,181,7794,122,458 4,207,320
Obligations under capital leases 295,779294,381 296,478
---------- ----------
4,824,3554,778,112 4,842,689
---------- ----------
CURRENT LIABILITIES:
Long-term debt and capital leases due within one year 98,485109,545 89,675
Deferred margins to be refunded within one year 21,8597,927 32,047
Accounts payable 39,75943,958 48,855
Accrued interest 72,43320,806 91,096
Accrued and withheld taxes 8,16522,486 1,785
Other current liabilities 12,77511,708 18,007
---------- ----------
253,476216,430 281,465
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Decommissioning reserve 118,970 114,049
Accumulated deferred income taxes 65,510 65,510
Gain on sale of plant, being amortized 60,28359,113 60,868
Sale of income tax benefits, being amortized 48,18644,170 50,194
Accumulated deferred income taxes 65,510 65,510
Decommissioning reserve 115,688 114,049
Other 24,40625,016 23,721
---------- ----------
314,073312,779 314,342
---------- ----------
$5,391,904$5,307,321 $5,438,496
---------- ----------
---------- ----------
The accompanying notes are an integral part of these condensed statements.
4
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF REVENUES AND EXPENSES (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- -------------------------------------------------------------------------------------OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF REVENUES AND EXPENSES (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 ------------------------------1996 1995
----------------------- ------------------------
OPERATING REVENUES:
Sales to Members $ 246,458 $ 227,849$268,939 $284,476 $771,378 $764,793
Sales to non-Members 29,243 29,698
--------- ---------17,709 33,060 61,187 91,519
-------- -------- -------- --------
TOTAL OPERATING REVENUES 275,701 257,547
--------- ---------286,648 317,536 832,565 856,312
-------- -------- -------- --------
OPERATING EXPENSES:
Fuel 48,240 47,51754,807 62,813 158,465 164,484
Production 30,369 32,24331,296 30,578 93,293 92,443
Purchased power 69,076 59,94767,217 85,706 189,443 207,220
Power delivery 3,658 3,9214,110 3,817 11,974 11,885
Depreciation and amortization 36,526 32,88436,684 35,820 109,774 102,959
Taxes other than income taxes 7,384 5,8917,035 7,181 21,761 19,601
Other operating expenses 6,880 6,462
--------- ---------10,490 8,672 26,764 24,039
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 202,133 188,865
--------- ---------211,639 234,587 611,474 622,631
-------- -------- -------- --------
OPERATING MARGIN 73,568 68,682
--------- ---------75,009 82,949 221,091 233,681
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest income 4,060 3,3128,698 4,806 17,438 12,717
Amortization of deferred margins 10,188 6,4626,966 5,229 24,120 16,649
Allowance for equity funds used during construction 47 76168 137 1,635
Other 2,642 2,834
--------- ---------2,769 3,242 7,805 9,505
-------- -------- -------- --------
TOTAL OTHER INCOME 16,937 13,369
--------- ---------18,480 13,345 49,500 40,506
-------- -------- -------- --------
INTEREST CHARGES:
Interest on long-term-debt and other obligations 82,031 83,00881,488 86,429 245,848 254,961
Allowance for debt funds used during construction (514) (9,419)
--------- ---------(507) (791) (1,485) (20,186)
-------- -------- -------- --------
NET INTEREST CHARGES 81,517 73,589
--------- ---------80,981 85,638 244,363 234,775
-------- -------- -------- --------
NET MARGIN $ 8,988 $ 8,462
--------- ---------
--------- ---------$12,508 $10,656 $26,228 $39,412
-------- -------- -------- --------
-------- -------- -------- --------
The accompanying notes are an integral part of these condensed statements.
5
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- -------------------------------------------------------------------------------------OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
1996 1995
-----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin $ 8,98826,228 $ 8,462
-------- --------39,412
--------- ---------
ADJUSTMENTS TO RECONCILE NET MARGIN TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 39,425 47,704132,565 149,588
Amortization of deferred margins (10,188) (6,462)(24,120) (16,649)
Allowance for equity funds used during construction (47) (761)(137) (1,635)
Other (859) (843)(2,998) (416)
CHANGE IN NET CURRENT ASSETS, EXCLUDING
LONG-TERM DEBT DUE WITHIN ONE YEAR AND DEFERRED MARGINS
TO BE REFUNDED WITHIN ONE YEAR:
Receivables (1,368) (1,484)(8,013) 6,524
Inventories (3,137) (8,291)(9,858) 8,736
Prepayments and other current assets (3,000) 3,46537 (1,915)
Accounts payable (9,096) (11,099)(4,897) (19,757)
Accrued interest 6,380 6,235(70,290) (19,735)
Accrued and withheld taxes (18,663) (79,781)20,701 21,121
Other current liabilities (5,232) (7,260)
-------- --------(6,299) (5,885)
--------- ---------
TOTAL ADJUSTMENTS (5,785) (58,577)
-------- --------26,691 119,977
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,203 (50,115)
-------- --------52,919 159,389
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (24,824) (36,086)(69,211) (107,989)
Net proceeds from bond, reserve and construction funds 2,397 11,7123,060 13,397
Decrease in investment in associated organizations 351 636429 1,210
Increase in other short-term investments (10,000) (17,107)(14,629) (69,239)
Increase (decrease) in decommissioning fund 729 (1,041)
-------- --------(4,970) (5,254)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (31,347) (41,886)
-------- --------(85,321) (167,875)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt proceeds, net - 88,5453,092 142,341
Debt payments (25,366) (124,534)(75,809) (139,730)
Other 505 (412)
-------- --------(168) (1,193)
--------- ---------
NET CASH USED IN(USED IN) PROVIDED BY FINANCING ACTIVITIES (24,861) (36,401)
-------- --------(72,885) 1,418
--------- ---------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (53,005) (128,402)(105,287) (7,068)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD 201,151 190,642
-------- ----------------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $148,146 $ 62,240
======== ========95,864 $ 183,574
--------- ---------
--------- ---------
CASH PAID FOR:
Interest (net of amounts capitalized) $96,769 $149,265$ 301,675 $ 239,485
Income taxes - -
The accompanying notes are an integral part of these condensed statements.
6
OGLETHORPE POWER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31,SEPTEMBER 30, 1996 AND 1995
(A) The condensed financial statements included herein have been prepared by
Oglethorpe Power Corporation (Oglethorpe), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). In
the opinion of management, the information furnished herein reflects all
adjustments (which included only normal recurring adjustments) necessary to
present fairly, in all material respects, the results for the periods ended
March 31,September 30, 1996 and 1995. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such SEC rules and regulations, although Oglethorpe believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in Oglethorpe's latest Annual Report on Form 10-K, as filed with
the SEC.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
PROPOSED RESTRUCTURING
As reported in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and in its Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996, Oglethorpe is planning to divide itself into
three specialized companies to respond to increasing competition and
deregulation in the electric industry. In June and July of 1996, the Boards
of Directors of Oglethorpe, Georgia Transmission Corporation (GTC) and
Georgia System Operations Corporation (GSOC) unanimously approved a First
Amended and Restated Restructuring Agreement (the Restructuring Agreement)
which sets forth the terms and conditions on which the restructuring and
related changes will occur. The current target date for full implementation
of the restructuring is January 1, 1997; however, such effective date may, by
the terms of the Restructuring Agreement, be extended by the three companies.
On October 1, 1996, Oglethorpe transferred its system operations assets,
consisting of its control center and related energy control and revenue
metering systems equipment to GSOC, a newly formed wholly owned subsidiary of
Oglethorpe. The purchase price of these assets totaled approximately $9.4
million and was funded by GSOC's assumption of Oglethorpe's obligations under
an existing Rural Utilities Service (RUS) note and by delivery of a purchase
money note payable to Oglethorpe. GSOC will not become fully operational
until the effective date of the restructuring. At that time, it is expected
that the Members will also become members of GSOC. GSOC will then operate
the control center as a separate entity and provide system operations
services to the Members, Oglethorpe, GTC and third parties.
Under the Restructuring Agreement, Oglethorpe will transfer its transmission
business and assets to GTC, a newly formed electric membership corporation,
which will thereafter own and operate the transmission system and provide
transmission services to the Members, Oglethorpe and third parties. In
preparation for the restructuring, Oglethorpe's Members have become members
of GTC. Oglethorpe's investment in transmission and distribution plant less
accumulated depreciation as of December 31, 1995 was approximately $650
million. The purchase price for the transmission business will be based on an
appraisal of the fair market value of such business as of the closing date as
determined by an independent appraiser. The purchase price will be paid by
GTC's assumption of a portion of Oglethorpe's long-term secured debt and by
cash obtained through third-party borrowing. Oglethorpe also will make a
special patronage capital distribution to the Members which can be used by
the Members to establish equity in and to provide initial working capital to
GTC.
In June and July of 1996, the Boards of Directors of Oglethorpe, GTC and GSOC
unanimously approved an agreement (the Member Agreement) which sets forth
those matters contemplated in the Restructuring Agreement that directly
involve the Member corporations. The Member Agreement specifies the form of
the new wholesale power contracts, transmission contracts and
8
system operations contracts to be signed by the Members. The Member
Agreement and related contracts and documents were distributed to the Members
for consideration and approval by their own Boards of Directors. All of the
Member Boards have approved these documents; however, some Members have
conditioned their approvals on implementation of a long-term power supply
swap transaction. See POWER SUPPLY ARRANGEMENTS below for the status of
implementation of a long-term power supply swap transaction.
In addition to delivery of the Member Agreement by the Members and delivery
of new wholesale power contracts, transmission contracts and system
operations contracts, the restructuring remains subject to a number of
additional conditions specified in the Restructuring Agreement, including (1)
receiving a favorable ruling from the Internal Revenue Service that
implementation of the new governance structure would not affect Oglethorpe's
status as a cooperative for federal income tax purposes, (2) RUS approval of
the restructuring, (3) governmental, lender and other third party consents,
authorizations, waivers, orders and approvals, (4) receipt by GTC of certain
capital contributions by the Members and (5) assurances from rating agencies
that the ratings on Oglethorpe's outstanding fixed rate pollution control
revenue bonds (PCBs) would not be lowered as a result of the restructuring
and that such rating agencies would assign to any comparable bonds issued by
GTC the same or better credit rating as assigned to Oglethorpe's fixed rate
PCBs. Most of these conditions can be waived by Oglethorpe's Board, subject
to RUS approval in certain instances.
Three rating agencies have recently issued new indicative ratings for secured
debt issued by or on behalf of Oglethorpe and have issued indicative credit
ratings for GTC (both to be effective subsequent to the restructuring).
Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., rated
Oglethorpe's debt A and rated GTC AA; Fitch Investors Service, Inc. rated
Oglethorpe's debt A and rated GTC A+; and Moody's Investors Service rated
Oglethorpe's debt A3 and rated GTC A3. From the rating agency reports, it is
not clear if these ratings meet the ratings condition of the Restructuring
Agreement; however, if necessary, it is expected that Oglethorpe's Board will
waive this condition. As part of the restructuring, Oglethorpe also expects
to replace the RUS Mortgage under which its existing secured debt is secured
with a new Indenture providing for a lien on substantially all of the real
and tangible personal property of Oglethorpe. A draft of the Indenture was
made available to the rating agencies before they issued the ratings stated
above. It is expected that GTC will enter into a similar Indenture. Under
Oglethorpe's existing RUS Mortgage, an indenture may be substituted for the
RUS Mortgage with the consent of RUS and certain other secured parties, but
without the consent of the trustees for certain outstanding PCB indebtedness
of Oglethorpe, so long as two rating agencies advise Oglethorpe that the
ratings on such PCB indebtedness will not be withdrawn or reduced as a result
of the substitution of the Indenture for the RUS Mortgage. Oglethorpe
expects to be able to satisfy this condition.
The Oglethorpe Board of Directors recently approved a contingent rate
mechanism that would be implemented in lieu of the rate schedules included in
the new wholesale power contract, transmission contract and system operations
contract in the event that Oglethorpe, GTC and GSOC decide to extend the
effective date of the restructuring beyond January 1, 1997. This rate would
remain in effect until such time as the restructuring becomes effective and
essentially utilizes the
9
same rate structure that is in place for 1996 applied to the approved and
somewhat lower budgeted costs for 1997.
In light of the significant conditions that remain to be satisfied, including
RUS and other governmental and third-party approvals and implementation of a
long-term power supply swap transaction, Oglethorpe cannot now predict the
actual timing of or the ultimate likelihood of full implementation of the
restructuring or the governance changes previously described in Oglethorpe's
1995 Annual Report on Form 10-K. Until the restructuring is implemented,
Oglethorpe currently anticipates that it will continue its current
operations, and until the conditions applicable to the new governance
structure have been satisfied, Oglethorpe will continue under its existing
governance structure.
POWER SUPPLY SWAP ARRANGEMENTS
As a means of reducing the cost of power provided to the Members, on January
3, 1996, Oglethorpe
entered into ais continuing to utilize short-term power supply swap agreements. The
initial agreement was with Enron Power Marketing, Inc. (EPMI). The agreement, effective and was in
place from January 4, 1996 through April 30, 1996,August 31, 1996. Effective September 1,
Oglethorpe selected Duke/Louis Dreyfus L.L.C. (DLD) for a short-term power
supply swap transaction that will supply Oglethorpe's requirements for the
remainder of 1996. Under both of the swap agreements, the power marketer was
required EPMI to sell to Oglethorpe at a favorable fixed rate all the energy
necessary to meet the Members' requirements.
Pursuant to the agreement,requirements and Oglethorpe was required to
sell to EPMIthe power marketer at cost, subject to certain limitations, upon
request all energy available from Oglethorpe's total power resources. Under
the agreement,both agreements, Oglethorpe maintained the responsibility of operatingcontinued to operate the power supply system and
continued to dispatch the generating resources to ensure system reliability.
See "OPERATING REVENUES" and "OPERATING EXPENSES" below for a discussion of
the impact of the power supply swap agreementagreements on first quarter 1996the results of operations. On April 30, 1996,operations
for the first nine months of 1996.
Oglethorpe has negotiated and EPMI entered into an
agreement which extended the term of thisobtained Board approval to sign a long-term
power supply swap agreement with
certain modifications, from May 1, 1996 through August 31, 1996.
On February 7, 1996, Oglethorpe issued a Request for Proposals (RFP) to
selected bidders for a long-term power supply arrangement. This RFP did not
seek a specific amountapproximately 50% of power; instead, it requested proposals for meeting
the combined power needs of the Membersits Members' load
requirements with term options ranging from two to
15 years. Currently, discussions are focused on proposals from EPMI, LG&E Power Marketing Inc. (LPM). This agreement is
structured to commence on January 1, 1997, initially on a short-term basis
if RUS approval of the agreement has not been received. This agreement will
convert into a long-term agreement at the time of RUS approval, if received
on or before June 1, 1997. Oglethorpe now expects to focus its negotiations
on completing a long-term contract with either EPMI or DLD for the remaining
approximately 50% of its load. Oglethorpe may enter into an additional
short-term power supply swap arrangement for the remaining approximately 50%
of its load while it finalizes and obtains RUS approval of the long-term
arrangements.
STRATEGIC ALLIANCE WITH INTELLISOURCE
In conjunction with the restructuring and as a joint proposal from Duke/Louis Dreyfus LLC &
Georgia Power Company (GPC)part of its continuing efforts
to reduce costs, Oglethorpe has signed a letter of intent to form a business
alliance between its support services division and Intellisource, Inc., a
nationally known service corporation. Under the agreement, approximately 130
employees of Oglethorpe's support services division, which provides
accounting, auditing, communications, human resources, facility management,
purchasing, telecommunications and information technology services, will be
transferred to Intellisource,
10
effective in early 1997. Oglethorpe, GTC and GSOC will be key customers and
will be served on-site by the same managers and employees.
PLANT WANSLEY AMENDMENTS
As discussed in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, RUS has now approved the amendments to the Plant Wansley
Operating Agreement which give Oglethorpe the right to dispatch separately
its ownership share of Wansley Units No. 1 and No. 2. Oglethorpe expects to
begin separately dispatching Wansley Units No. 1 and No. 2 within the next
six months.
ROCKY MOUNTAIN LEASE TRANSACTION
Oglethorpe is in the process of negotiating a lease transaction, which will
be characterized as a sale for income tax purposes and as a lease for state
law purposes, for Oglethorpe's 74.61% ownership interest in the Rocky
Mountain pumped storage hydroelectric facility (Rocky Mountain). The current four-month agreement with EPMIThis
transaction will provide a substantial up-front cash payment to Oglethorpe
which will be amortized over the energy neededterm of the lease to servereduce revenue
requirements from the Members whileMembers. Substantially all of the net cash benefit is
expected to be used by Oglethorpe finalizesto reduce long-term debt. Oglethorpe
expects to close at least a long-term power supply arrangement.portion of this transaction in late 1996 and to
close any remaining portion in early 1997.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Oglethorpe's net margin for the quarterthree months and nine months ended March 31,September
30, 1996 was $9.0$12.5 million and $26.2 million compared to $8.5$10.7 million and
$39.4 million for the first quartersame periods of 1995. Net margin was higher for the
nine month period of 1995 compared to 1996 primarily due to unbudgeted
savings in 1995 from the continued capitalization of costs of Rocky Mountain
due to the delay in commercial operation of the initial unit from April 1995
to June 1995.
OPERATING REVENUES
Member revenues for the three months ended September 30, 1996 were lower
compared to the same period of 1995 due to lower energy revenues (discussed
below). The increase in Member revenues for the threenine months ended March 31,September
30, 1996 compared to the same period of 1995 was due to the recovery of
additional fixed costs of the Rocky Mountain Project (Rocky Mountain) and the increased fixed cost
responsibility resulting from the scheduled end of Sell-back revenues from
GPCGeorgia Power Company (GPC) under the plant operating agreements (discussed
below). Energy revenues from sales to Members for the three-month period ofthree months and nine
months ended September 30, 1996 were virtually unchanged from the16.3% and 6.5% lower then same periodperiods
of the prior year despite the fact that megawatt-hour (MWh) sales were
virtually unchanged for the current quarter and increased 15.5% due7.7% year-to-date.
Under the DLD and EPMI power supply swap agreements, the power marketers sold
to prolonged colder than
normal weather. Oglethorpe achieved substantialat a favorable fixed rate all of the energy necessary to meet
the Members' requirements, which resulted in savings in energy costs of
approximately $28.6 million in the first quarter under the power supply swap agreement with EPMI whichnine months of 1996. These savings
were immediately passed through to the Members. Oglethorpe's average Member
energy
11
revenue per MWh for the first quarter ofthree months and nine months ended September 30, 1996
was 14%16.3% and 13.1% less than the same periodperiods of 1995.
8
1995, respectively.
Sales to non-Members were primarily made pursuant to three different types of
contractual arrangements with GPC and from energy sales to other non-Member
utilities. The following table summarizes the amounts of non-Member revenues
from these sources for the three months and nine months ended March 31,September 30,
1996 and 1995:
Three Months Nine Months
Ended March 31,September 30, Ended September 30,
------------------- -------------------
1996 1995 --------------------------1996 1995
---- ---- ---- ----
(dollars in thousands)
GPC- Plant operating agreements $ - $ 5,89289 $ - $10,096
GPC- Power supply arrangements 4,718 7,316
Transmission2,959 12,139 11,054 30,712
ITS transmission agreements 3,372 2,995
Other1,817 3,770 6,874 9,377
Sales to power marketers 1,150 - 8,846 -
Sales to other utilities 21,153 13,49511,783 17,062 34,413 41,334
------- ------- ------- -------
Total $29,243 $29,698
======= =======$17,709 $33,060 $61,187 $91,519
------- ------- ------- -------
------- ------- ------- -------
While totalThe first two types of non-Member revenues were derived from non-Members were virtually the same, revenues from
sales to utilities other than GPC increased significantly and revenues from
the plant operatingcontractual
agreements and power supply arrangements with GPC were
significantly lower.GPC. Under the plant operating agreements, GPC purchased
capacity and energy from Oglethorpe on a declining scale in the early years
of operation of certain co-owned generating units. As scheduled, effective
June 1, 1995, revenues from GPC pursuant to all of the plant operating
agreements ended. The second source of non-Member revenues is derived
pursuant to power supply arrangements with GPC. These revenues are derived
from energy sales arising from dispatch situations whereby GPC causes Plant
Wansley to be operated when Oglethorpe's system does not require all of its
contractual entitlement to the generation. These revenues compensate
Oglethorpe for its costs since, under the operating agreements, Oglethorpe is
responsible for its share of fuel costs any time a unit operates. Such sales
were significantly lower in the first quarter of 1996 compared to the same period of 1995.
RevenuesThe third source of non-Member revenues was primarily payments from salesGPC for
use of the Integrated Transmission System (ITS) and related transmission
interfaces. GPC compensates Oglethorpe to non-Member utilities (other than GPC) increased
substantially due to a 12.5% increase in MWh salesthe extent that Oglethorpe's
percentage of investment in the ITS exceeds its percentage use of the system.
In such case, Oglethorpe is entitled to income as compensation for the use
of its investment by the other ITS participants. The decline in these
revenues for the three months ended
March 31,month and nine month periods of 1996 compared to 1995
was the same periodresult of 1995. As discussed under
"General" above, this increase was duerelatively greater usage by Oglethorpe compared to EPMI marketing available energy
from Oglethorpe's total power resources.its
relative investment.
Under the DLD, and previously, the EPMI power supply swap agreement, sales to
the power marketers represented the net energy transmitted on behalf of DLD
and EPMI off-system on a daily basis from Oglethorpe's total resources. Such
energy was sold to DLD and EPMI at Oglethorpe's cost, subject to certain
limitations. Sales to other non-Member utilities are effectively transacted withwere initiated by DLD and
EPMI in 1996 while in 1995 these sales were made by Oglethorpe directly with
the non-Member
12
utilities. AllWhile Oglethorpe maintains the contractual relationship with
these other utilities and administers the transactions, all profits on these
sales made by EPMI to other utilities from Oglethorpe's total resources accrueaccrued to DLD and
EPMI.
OPERATING EXPENSES
The increasedecrease in operating expenses for the three months and nine months ended
March 31,September 30, 1996 compared to the same periods of 1995 was primarily
attributable to decreases in fuel and purchased power costs. The decrease in
fuel costs resulted partly from an unplanned outage during the month of July
1996 at Scherer Unit No. 1 which resulted in a 10% decrease in generation
during the third quarter of 1996 compared to the same period of 1995 was primarily attributableand
partly due to an increasethe utilization of lower price spot market coal at Plant
Wansley. The decrease in purchased power. In 1996, purchased power energy costs from 1995 to 1996
reflected offsetting cost savings and additional amounts of power purchased.
As noted under "OPERATING REVENUES" above, energy cost savings of $28.6
million were realized in the first nine months of 1996 from the DLD and EPMI
power supply swap agreements. In addition, the power marketers utilized
11.7% greater MWhs increased
by 42% and 39%, respectively, as EPMI utilizedof purchased resourcespower in the first nine months of 1996
compared to 1995 to provide for Oglethorpe's Member load and for increased sales to
other utilities.
9
Depreciation and amortization and taxes other than income taxes (property
taxes) increased due to the commercial operation of Rocky Mountain in June
1995.
OTHER INCOME
Other income for the first quarter ofthree months and nine months ended September 30, 1996
increased compared to the same period of 1995 primarily as a result of higher
income from amortization of deferred margins.margins and higher interest income.
Oglethorpe's Board of Directors authorizes the amount of deferred margins to
be returned to the Members each year. For 1996, the remaining annual amount
of $32 million was authorized as compared to $16 million for 1995. Interest
income increasedwas higher in 1996 compared to 1995 partly due to higher average cash
balances during
the first quarter of 1996 comparedand partly due to the same period of 1995.higher interest rates.
INTEREST CHARGES
The increasedecrease in net interest charges for the three months ended March 31,September 30,
1996 compared to the same period of 1995 are a result of savings from the
most recent refinancings. The increase in net interest charges for the nine
months ended September 30, 1996 compared to 1995 resulted from Rocky Mountain
becoming commercially operable in June 1995.1995 (interest was capitalized for the
first six months).
FINANCIAL CONDITION
Total assets and total equity plus liabilities as of March 31,September 30, 1996 were
$5.4$5.3 billion which was $47$131 million less than the total at December 31, 1995.1995
due to depreciation of plant and due to the decrease in cash and temporary
cash investments.
13
ASSETS
Property additions for the threenine months ended March 31,September 30, 1996 totaled $25$69.2
million and included additions, replacements and improvements to transmission
and distribution facilities and existing generation facilities.
The decrease in cash and temporary cash investments was partly due to
property additions funded from cash premiums paid on refinanced debt and scheduled debt service payments.
Other short-term investments representis composed of those investments whose maturity
periods exceed Oglethorpe's policy of three months for classification as cash
equivalents.months. During the first quarter of 1996, an additional
$10 million was transferred into investments with maturities of more than
three months.
Prepayments and other current assets increasedThe increase in inventories primarily resulted from higher coal inventories
at Plant Scherer due to a $3 million
increase in the payment made to GPC for estimates ofan unplanned outage at Scherer Unit No. 1. In
addition, coal inventories at Plant Hatch and Plant
Wansley operations and maintenance costs for April 1996 compared to the
estimate paid for January 1996.Scherer were lower than normal at
year-end.
The increase in other deferred charges primarily resulted from the deferral
of $6.3$14.7 million of nuclear refueling outage costs related to Vogtle UnitUnits
No. 1 and No. 2 and Hatch Unit No. 1 which will beare being recovered through rates
over a period of eighteen months.
10
months starting in May and November 1996.
EQUITY AND LIABILITIES
Deferred margins to be refunded within one year decreased by $10.2$24.1 million
which is the amount that was refunded to the Members for the first threenine
months of 1996.
Accounts payable declined as of March 31,June 30, 1996 as a result of normal
variations in the timing of payables activity.
Accrued interest decreased primarily due to normal payments and accruals of
interest.
Accrued and withheld taxes increased as a result of the normal monthly
accruals of property taxes, which are generally paid in the fourth quarter of
the year.
Other current liabilities decreased partly due to the year-end accrual for
employee incentive pay (subsequently paid in March 1996) and partly due to
normal activity.
11LIQUIDITY AND REFINANCING TRANSACTIONS
In anticipation of the proposed restructuring and Oglethorpe's ongoing
liquidity needs, Oglethorpe is evaluating its unsecured credit facilities.
Oglethorpe does not anticipate renewing its $70 million uncommitted line of
credit with CoBank, ACB, which expires on December 1, 1996. Prior to
year-end, Oglethorpe may defease up to $309 million of PCBs and may issue
commercial paper, on an interim basis, or refunding PCBs to finance the
defeasance.
14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A)(a) EXHIBITS
Number Description
- ---------- -----------
-----------
*10.27(a) Extension2.1(1) First Amended and ModificationRestated Restructuring Agreement, dated
August 1, 1996, by and among Oglethorpe, Georgia
Transmission Corporation (An Electric Membership
Corporation) and Georgia System Operations Corporation.
3(ii) Bylaws of Oglethorpe as amended September 9, 1996.
10.5.2(a) Amendment, dated as of January 15, 1995, to the Plant Hal
Wansley Operating Agreements by and among Georgia Power
Company, Oglethorpe, Municipal Electric Authority of Georgia
and City of Dalton, Georgia.
10.29(2) Master Power Purchase and Sale Agreement between Enron Power
Marketing, Inc.Duke/Louis
Dreyfus L.L.C. and Oglethorpe, dated as of April 30,August 31, 1996.
27.1 Financial Data Schedule (for SEC use only).
_______________________
*- ----------------
(1) Pursuant to 17 C.F.R. 229.601(b)(2), the schedules and exhibits to
this document are identified on a list of schedules and exhibits included within
this document and are not filed herewith; however, the registrant hereby agrees
that such schedules and exhibits will be provided to the Commission upon
request.
(2) Certain portions of this document have been omitted as confidential
and filed separately with the SEC.
(B)Commission.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended March
31,September
30, 1996.
1215
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.
Oglethorpe Power Corporation
(An Electric Membership
Generation & Transmission
Corporation)
Date: MayAugust 14, 1996 By: /s/ T. D. Kilgore
-----------------------------------------------------------
T. D. Kilgore
President and Chief Executive Officer
(Principal Executive Officer)
Date: MayAugust 14, 1996 /s/ Gary M. Bullock
-----------------------------------------------------------
Gary M. Bullock
Secretary-Treasurer
(Principal Financial Officer)
Date: MayAugust 14, 1996 /s/ Eugen Heckl
---------------------------------
Eugen Heckl
Senior Vice President and Chief
Financial OfficerLarry N. Brownlee
--------------------------
Larry N. Brownlee
Controller
(Principal FinancialAccounting Officer)
1316