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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(MARK ONE)(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERFor the quarterly period ended June 30, 19961997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROMFor the transition period from ___________ TOto _____________
COMMISSION FILE NO.Commission File No. 33-7591
---------------------
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP GENERATION & TRANSMISSION CORPORATION)------------
Oglethorpe Power Corporation
(An Electric Membership Corporation)
(Exact name of registrant as specified in its charter)
GEORGIAGeorgia 58-1211925
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
POST OFFICE BOXPost Office Box 1349
2100 EAST EXCHANGE PLACE
TUCKER, GEORGIAEast 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 registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject ofto such
filing requirements for the past 90 days. YES _X_ NO ___Yes 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.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 SEPTEMBERJUNE 30, 1996
PAGE NO.1997
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of SeptemberJune 30, 19961997 (Unaudited)
and December 31, 19951996...................................... 3
Condensed Statements of Revenues and Expenses (Unaudited)
for the Three Months and NineSix Months Ended
SeptemberJune 30, 19961997 and 19951996..................................... 5
Condensed Statements of Cash Flows (Unaudited)
for the NineSix Months Ended SeptemberJune 30, 19961997 and 19951996............ 6
Notes to the Condensed Financial StatementsStatements................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of OperationsOperations......... 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 15
Item 6. Exhibits and Reports on Form 8-K8-K...................... 15
SIGNATURESSIGNATURES.......................................................... 16
2
PART I - FINANCIALI--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBERJune 30, 1997 and December 31, 1996
AND DECEMBER 31, 1995
- -------------------------------------------------------------------------------
(dollars in thousands)------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1997 1996
1995
ASSETS (Unaudited)
--------------------------(UNAUDITED)
------------ -----------
ELECTRIC PLANT, AT ORIGINAL COST:Electric plant, at original cost:
In service $5,719,078 $5,699,213service............................................ $4,904,500 $5,742,597
Less: Accumulated provision for depreciation (1,458,271) (1,362,431)
---------- ----------
4,260,807 4,336,782depreciation.......... (1,350,645) (1,488,272)
------------ -------------
3,553,855 4,254,325
Nuclear fuel, at amortized cost 95,437 94,013cost....................... 86,793 86,722
Plant acquisition adjustments, at
amortized cost 4,419 5,214cost...................................... -- 4,153
Construction work in progress 40,658 35,753
---------- ----------
4,401,321 4,471,762
---------- ----------
INVESTMENTS AND FUNDS:
Decommissioning fund, at market 77,886 74,492progress......................... 13,928 31,181
------------ -------------
3,654,576 4,376,381
------------ -------------
Investments and funds:
Bond, reserve and construction funds, at
market 53,024 56,511market.............................................. 32,331 53,955
Decommissioning fund, at market....................... 94,782 86,269
Investment in associated organizations, at
cost 15,424 15,853
---------- ----------
146,334 146,856
---------- ----------
CURRENT ASSETS:cost................................................ 15,395 15,379
Deposit on Rocky Mountain transactions, at
cost................................................ 59,436 41,685
------------ -------------
201,944 197,288
------------ -------------
Current assets:
Cash and temporary cash investments, at
cost 95,864 201,151cost................................................ 41,532 132,783
Other short-term investments, at market 90,375 79,165
Receivables 107,572 99,559market............... 93,682 91,499
Receivables........................................... 120,105 113,289
Inventories, at average cost 92,807 82,949cost.......................... 85,907 89,825
Prepayments and other current assets 14,288 14,325
---------- ----------
400,906 477,149
---------- ----------
DEFERRED CHARGES:assets.................. 12,133 14,625
------------ -------------
353,359 442,021
------------ -------------
Deferred charges:
Premium and loss on reacquired debt, being
amortized 202,737 200,794amortized........................................... 191,153 201,007
Deferred amortization of Scherer
leasehold 89,715 87,134
Discontinued projects, being amortized 22,776 24,305leasehold........................................... 93,460 90,717
Deferred debt expense, being amortized 20,900 21,135
Other 22,632 9,361
---------- ----------
358,760 342,729
---------- ----------
$5,307,321 $5,438,496
---------- ----------
---------- ----------amortized................ 12,748 21,703
Other................................................. 36,795 33,058
------------ -------------
334,156 346,485
------------ -------------
$4,544,035 $5,362,175
------------ -------------
------------ -------------
The accompanying notes are an integral part of these condensed statements.
3
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBERJune 30, 1997 and December 31, 1996
AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(dollars in thousands)------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1996 1995
EQUITIES1997
EQUITY AND LIABILITIES (Unaudited)
-------------------------(UNAUDITED) 1996
------------ -------------
CAPITALIZATION:Capitalization:
Patronage capital and membership fees (including
unrealized loss of ($276)1,302) at SeptemberJune 30, 19961997 and
gain of $3,570($844) at December 31, 19951996 on available-for-sale
securities) $361,273 $338,891securities.......................................... $ 321,855 $ 356,229
Long-term debt 4,122,458 4,207,320debt........................................ 3,279,702 4,052,470
Obligations under capital leases 294,381 296,478
---------- ----------
4,778,112 4,842,689
---------- ----------
CURRENT LIABILITIES:leases...................... 291,111 293,682
Obligation under Rocky Mountain transactions.......... 59,436 41,685
------------ -------------
3,952,104 4,744,066
------------ -------------
Current liabilities:
Long-term debt and capital leases due
within one year 109,545 89,675
Deferred margins to be refunded within one year 7,927 32,047year..................................... 97,724 159,622
Accounts payable 43,958 48,855payable...................................... 49,733 42,891
Accrued interest 20,806 91,096interest...................................... 7,995 15,931
Accrued and withheld taxes 22,486 1,785taxes............................ 14,160 4,940
Other current liabilities 11,708 18,007
---------- ----------
216,430 281,465
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Decommissioning reserve 118,970 114,049
Accumulated deferred income taxes 65,510 65,510liabilities............................. 6,077 9,540
------------ -------------
175,689 232,924
------------ -------------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized 59,113 60,868
Saleamortized................ 61,993 58,527
Net benefit of sale of income tax benefits,
being amortized 44,170 50,194
Other 25,016 23,721
---------- ----------
312,779 314,342
---------- ----------
$5,307,321 $5,438,496
---------- ----------
---------- ----------amortized..................................... 38,044 42,049
Net benefit of Rocky Mountain transactions,
being amortized..................................... 93,967 70,701
Accumulated deferred income taxes..................... 60,325 61,985
Decommissioning reserve............................... 133,945 124,468
Other................................................. 27,968 27,455
------------ -------------
416,242 385,185
------------ -------------
$4,544,035 $5,362,175
------------ -------------
------------ -------------
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 AND NINE MONTHS ENDED SEPTEMBERFor the Three and Six Months ended June 30, 1997 and 1996
AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)-----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Three Months Ended Nine Months Ended
September 30, September 30,THREE MONTHS SIX MONTHS
---------------------- ----------------------
1997 1996 19951997 1996
1995
----------------------- ---------------------------------- ---------- ---------- ----------
OPERATING REVENUES:Operating revenues:
Sales to Members $268,939 $284,476 $771,378 $764,793Members...................................... $230,180 $255,981 $487,211 $502,439
Sales to non-Members 17,709 33,060 61,187 91,519
-------- -------- -------- --------
TOTAL OPERATING REVENUES 286,648 317,536 832,565 856,312
-------- -------- -------- --------
OPERATING EXPENSES:
Fuel 54,807 62,813 158,465 164,484
Production 31,296 30,578 93,293 92,443non-Members.................................. 12,696 19,247 27,150 43,478
---------- ---------- ---------- ----------
Total operating revenues................................ 242,876 275,228 514,361 545,917
---------- ---------- ---------- ----------
Operating expenses:
Fuel.................................................. 46,704 55,418 91,593 103,658
Production............................................ 33,948 31,628 69,544 61,997
Purchased power 67,217 85,706 189,443 207,220power....................................... 62,321 58,162 120,311 122,226
Power delivery 4,110 3,817 11,974 11,885delivery........................................ 101 4,206 3,979 7,864
Depreciation and amortization 36,684 35,820 109,774 102,959amortization......................... 30,142 36,564 66,381 73,090
Taxes other than income taxes 7,035 7,181 21,761 19,601taxes......................... 5,595 7,342 13,215 14,726
Other operating expenses 10,490 8,672 26,764 24,039
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 211,639 234,587 611,474 622,631
-------- -------- -------- --------
OPERATING MARGIN 75,009 82,949 221,091 233,681
-------- -------- -------- --------
OTHER INCOME (EXPENSE)expenses.............................. 2,642 9,394 10,098 16,274
---------- ---------- ---------- ----------
Total operating expenses................................ 181,453 202,714 375,121 399,835
---------- ---------- ---------- ----------
Operating margin........................................ 61,423 72,514 139,240 146,082
---------- ---------- ---------- ----------
Other income (expense):
Interest income....................................... 6,320 4,680 13,755 8,740
Amortization of net benefit of sale of income
8,698 4,806 17,438 12,717tax benefits........................................ 2,799 2,008 5,597 4,015
Amortization of deferred marginsmargins...................... -- 6,966 5,229 24,120 16,649-- 17,154
Allowance for equity funds used during construction 47 68 137 1,635
Other 2,769 3,242 7,805 9,505
-------- -------- -------- --------
TOTAL OTHER INCOME 18,480 13,345 49,500 40,506
-------- -------- -------- --------
INTEREST CHARGES:construction... (35) 43 49 90
Other................................................. 2,061 386 3,569 1,021
---------- ---------- ---------- ----------
Total other income...................................... 11,145 14,083 22,970 31,020
---------- ---------- ---------- ----------
Interest charges:
Interest on long-term-debtlong-term debt and other obligations 81,488 86,429 245,848 254,961obligations...... 67,251 82,329 147,808 164,360
Allowance for debt funds used during construction (507) (791) (1,485) (20,186)
-------- -------- -------- --------
NET INTEREST CHARGES 80,981 85,638 244,363 234,775
-------- -------- -------- --------
NET MARGIN $12,508 $10,656 $26,228 $39,412
-------- -------- -------- --------
-------- -------- -------- --------construction..... (193) (464) (545) (978)
---------- ---------- ---------- ----------
Net interest charges.................................... 67,058 81,865 147,263 163,382
---------- ---------- ---------- ----------
Net margin.............................................. $ 5,510 $ 4,732 $ 14,947 $ 13,720
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these condensed statements.
5
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBERFor the Six Months Ended June 30, 1997 and 1996
AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)-----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1997 1996
1995
---------------------------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:Cash flows from operating activities:
Net margin.................................................................................. $ 14,947 $ 13,720
---------- ----------
Adjustments to reconcile net margin $ 26,228 $ 39,412
--------- ---------
ADJUSTMENTS TO RECONCILE NET MARGIN TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:to net cash provided by operating activities:
Depreciation and amortization 132,565 149,588
Amortizationamortization............................................................. 99,558 88,441
Net benefit of deferred margins (24,120) (16,649)Rocky Mountain transactions................................................ 23,266 --
Deferred gain from Corporate Restructuring................................................ 4,670 --
Allowance for equity funds used during construction (137) (1,635)
Other (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 (8,013) 6,524
Inventories (9,858) 8,736construction....................................... (49) (90)
Amortization of deferred margins.......................................................... -- (17,154)
Amortization of net benefit of sale of income tax benefits................................ (5,597) (4,015)
Other..................................................................................... (1,556) 2,783
Change in net current assets, excluding long-term debt due within one year and deferred
margins to be refunded within one year:
Receivables............................................................................... (6,815) (10,157)
Inventories............................................................................... (5,063) (5,113)
Prepayments and other current assets 37 (1,915)assets...................................................... 2,062 (189)
Accounts payable (4,897) (19,757)payable.......................................................................... 7,495 (14,616)
Accrued interest (70,290) (19,735)interest.......................................................................... (7,816) (3,907)
Accrued and withheld taxes 20,701 21,121taxes................................................................ 9,220 13,686
Other current liabilities (6,299) (5,885)
--------- ---------
TOTAL ADJUSTMENTS 26,691 119,977
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 52,919 159,389
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:liabilities................................................................. 2,869 (5,142)
---------- ----------
Total adjustments....................................................................... 122,244 44,527
---------- ----------
Net cash provided by operating activities................................................. 137,191 58,247
---------- ----------
Cash flows from investing activities:
Property additions (69,211) (107,989)additions.......................................................................... (39,386) (51,727)
Net proceeds from bond, reserve and construction funds 3,060 13,397funds...................................... 21,378 2,664
Decrease in investment in associated organizations 429 1,210organizations.......................................... (16) 389
Increase in other short-term investments (14,629) (69,239)investments.................................................... (2,395) (9,984)
Increase in decommissioning fund (4,970) (5,254)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (85,321) (167,875)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:fund............................................................ (4,521) (3,245)
Net assets sold in Corporate Restructuring.................................................. 717,907 --
Net liabilities extinguished in Corporate Restructuring..................................... (694,412) --
---------- ----------
Net cash used in investing activities..................................................... (1,445) (61,903)
---------- ----------
Cash flows from financing activities:
Debt proceeds, net 3,092 142,341net.......................................................................... 111,306 397
Debt payments (75,809) (139,730)
Other (168) (1,193)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (72,885) 1,418
--------- ---------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (105,287) (7,068)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIODpayments............................................................................... (286,397) (42,430)
Retirement of patronage capital............................................................. (48,863) --
Other....................................................................................... (3,043) (3,091)
---------- ----------
Net cash used in financing activities..................................................... (226,997) (45,124)
---------- ----------
Net decrease in cash and temporary cash investments........................................... (91,251) (48,780)
Cash and temporary cash investments at beginning of period.................................... 132,783 201,151
190,642
--------- ---------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD---------- ----------
Cash and temporary cash investments at end of period.......................................... $ 95,86441,532 $ 183,574
--------- ---------
--------- ---------
CASH PAID FOR:152,371
---------- ----------
---------- ----------
Cash paid for:
Interest (net of amounts capitalized)....................................................... $ 301,675145,392 $ 239,485157,883
Income taxes - -taxes................................................................................ $ 830 $ --
The accompanying notes are an integral part of these condensed statements.
6
OGLETHORPE POWER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBEROglethorpe Power Corporation
Notes to Condensed Financial Statements
June 30, 1997 and 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 includedinclude only normal recurring
adjustments) necessary to present fairly, in all material respects,
the results for the periods ended SeptemberJune 30, 19961997 and 1995.1996. 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. Certain amounts for 1996 have been reclassified to
conform with the current period presentation.
7
ITEMItem 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONSManagement's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
PROPOSEDCORPORATE 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 planningand its 39 retail electric distribution
cooperative members (the Members) completed a corporate restructuring (the
Corporate Restructuring) on March 11, 1997. Pursuant to divide itselfthe Corporate
Restructuring, Oglethorpe was divided into three specialized operating
companies to respond to increasing competition and deregulationregulatory changes in the
electric industry. In JuneOglethorpe's transmission business was transferred to,
and Julyis now owned and operated by, Georgia Transmission Corporation (An
Electric Membership Corporation) (GTC), a recently formed Georgia electric
membership corporation. Oglethorpe's system operations business was
transferred to, and is now owned and operated by, Georgia System Operations
Corporation (GSOC), a recently formed Georgia nonprofit corporation.
Oglethorpe continues to operate its power supply business. Oglethorpe
retained all of its owned and leased generation assets. Oglethorpe also
continues to administer its power purchase contracts and provide marketing
support functions to the Members. Immediately after the Corporate
Restructuring, Oglethorpe's corporate name was changed from "Oglethorpe Power
Corporation (An Electric Membership Generation & Transmission Corporation)"
to "Oglethorpe Power Corporation (An Electric Membership Corporation)".
POWER MARKETER ARRANGEMENTS
Oglethorpe is utilizing long-term power marketer arrangements to reduce the
cost of power to the Members. Oglethorpe has entered into power marketer
agreements with LG&E Power Marketing Inc. (LPM) effective January 1, 1997,
for approximately 50% of the load requirements of the Members and with Morgan
Stanley Capital Group Inc. (Morgan Stanley) effective May 1, 1997, with
respect to 50% of the forecasted load requirements of the Members. Under
these power marketer agreements, Oglethorpe purchases energy at fixed prices
covering a portion of the costs of energy to its Members. LPM and Morgan
Stanley, in turn, have certain rights to market excess energy from the
Oglethorpe system. All of Oglethorpe's existing generating facilities and
power purchase arrangements are available for use by LPM and Morgan Stanley
for the term of the respective agreements. Oglethorpe continues to be
responsible for all the costs of its system resources but receives revenue
from LPM and Morgan Stanley for the use of the resources.
8
Separate Dispatch of Plant Wansley
As discussed in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, the Plant Wansley ownership and operating agreements were
amended to allow each co-owner to dispatch separately its respective
ownership interest in conjunction with contracting separately for long-term
coal purchases procured by Georgia Power Company (GPC) and to procure
separately long-term coal purchases. Pursuant to the amendments, Oglethorpe
began separately dispatching Wansley Units No. 1 and No. 2 on May 1, 1997.
Oglethorpe continues to use GPC as its agent for fuel procurement.
Results of Operations
Corporate Restructuring
Oglethorpe and the Members completed the Corporate Restructuring on March 11,
1997. As of that date, Oglethorpe transferred its transmission business and
assets to GTC and reflected the transfer of its system operations assets to
GSOC. However, the Boards of Directors of Oglethorpe, GeorgiaGTC and GSOC
determined that for ratemaking purposes all revenues and expenses related to
operations of GTC and GSOC would remain with Oglethorpe until April 1, 1997.
Pursuant to this approach, all transmission-related and systems
operations-related revenues were assigned to Oglethorpe, and all
transmission-related and systems operations-related costs were paid or
reimbursed by Oglethorpe during the period March 11, 1997 through March 31,
1997. As a result, the Condensed Statements of Revenues and Expenses for the
six months ended June 30, 1997 reflect operations as a combined power supply,
transmission and system operations company through March 31, 1997, and
operations solely as a power supply company thereafter. Therefore, decreases
in operating revenues, power delivery expenses, depreciation and
amortization, taxes other than income taxes, operating margin, other
operating income and net interest charges from 1996 to 1997 are primarily
attributable to the Corporate Restructuring. See Oglethorpe's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 for a pro forma
presentation of the Statement of Revenues and Expenses reflecting the
exclusion of the transmission and system operations businesses, as though the
Corporate Restructuring had occurred at the beginning of 1996, for the year
ended December 31, 1996 (Note 11 of Notes to Financial Statements).
For the Three Months and Six Months Ended March 31, 1997 and 1996
Oglethorpe's net margin for the three months and six months ended June 30, 1997
was $5.5 million and $14.9 million, respectively, compared to $4.7 million and
$13.7 million for the same periods of 1996.
Operating Revenues
Revenues from sales to Members for the three months and six months ended June
30, 1997 were 10.1% and 3.0% lower compared to the same period of 1996. The
decrease in revenues from Members was attributable to reduced capacity revenues
relating to the transmission business, however, this decrease was offset
somewhat by an increase in energy revenues from sales to Members for the three
months and six months ended June 30, 1997 of 9.7% and 14.6% compared to the same
periods of 1996, respectively. Megawatt-hour (MWh) sales to the Members were
6.1% and
9
3.5% lower in the current three-month and six-month periods compared to the
same periods of 1996. As a result, Oglethorpe's average energy revenue per
MWh from sales to Members for the three-month and six-month periods were
16.8% and 19.0% higher in 1997 compared to 1996, respectively, primarily due
to the expiration of the short-term power marketer arrangement with Enron
Power Marketing Inc. (EPMI) that had allowed Oglethorpe to passthrough
significant savings in the first six months of 1996. During the first eight
months of 1996, Oglethorpe had a power marketer arrangement with EPMI to
supply 100% of the load requirements of the Members. As noted under
"General--Power Marketer Arrangements" above, Oglethorpe has entered into
power marketer arrangements with LPM effective January 1, 1997 for
approximately 50% of the load requirements of the Members and with Morgan
Stanley effective May 1, 1997 with respect to 50% of the forecasted load
requirement of the Members.
Sales to non-Members were primarily made pursuant to contractual arrangements
with GPC and from energy sales to other non-Member utilities and power
marketers. The following table summarizes the amounts of non-Member revenues
from these sources for the three months and six months ended June 30, 1997 and
1996:
Three Months Six Months
Ended June 30, Ended June 30,
----------------- -------------------
1997 1996 1997 1996
------ ------ ------- -------
(dollars in thousands)
GPC-Power supply arrangements $4,763 $3,208 $12,565 $ 7,925
Sales to other utilities 5,629 10,517 9,663 22,799
Sales to power marketers 2,304 3,837 2,736 7,697
ITS transmission agreements -- 1,685 2,186 5,057
------ ------ ------- -------
Total $12,696 $19,247 $27,150 $43,478
------ ------ ------- -------
------ ------ ------- -------
The revenues from power supply arrangements with GPC were derived from energy
sales arising from dispatch situations whereby GPC caused Plant Wansley to be
operated when Oglethorpe's system did not require all of its contractual
entitlement to the generation. These revenues compensated Oglethorpe for its
costs because, under the operating agreement (before it was recently
amended), Oglethorpe was responsible for its share of fuel costs any time a
unit operated. Such sales to GPC were higher in 1997 compared to the same
periods of 1996. As noted under "General--Separate Dispatch of Plant
Wansley" above, with the commencement of the separate dispatch of Plant
Wansley as of May 1, 1997, this type of sale to GPC has ended.
Sales to other non-Member utilities in 1997 represent sales made directly by
Oglethorpe. Oglethorpe sells for its own account any energy available from
the portion of its resources dedicated to Morgan Stanley that is not
scheduled by Morgan Stanley pursuant to its power marketer arrangement. Such
sales during the first six months of 1996 were initiated by EPMI. Where EPMI
did not have a
10
contractual relationship with the purchaser and Oglethorpe did, Oglethorpe
recorded the sale and credited the revenues to EPMI in its monthly billing.
Under the current LPM and Morgan Stanley power marketer arrangements, and
previously, under the EPMI power marketer arrangement, sales to the power
marketers represented the net energy transmitted on behalf of LPM, Morgan
Stanley and EPMI off-system on a daily basis from Oglethorpe's total
resources. Such energy was sold to LPM, Morgan Stanley and EPMI at
Oglethorpe's cost, subject to certain limitations. The volume of sales to
power marketers depends primarily on the power marketers' decisions for
servicing their load requirements.
Another source of non-Member revenues was payments received from GPC for use
of the Integrated 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(ITS) and related changes will occur. The current target date for full implementationtransmission
interfaces. GPC compensated Oglethorpe to the extent that Oglethorpe's
percentage of investment in the ITS exceeded its percentage use of the
restructuring issystem. In such case, Oglethorpe was entitled to income as compensation for
the use of its investment by the other ITS participants. As a result of the
Corporate Restructuring, all of the revenues in this category have accrued to
GTC since April 1, 1997.
Operating Expenses
The overall decrease in operating expenses for the three months and six
months ended June 30, 1997 compared to the same periods of 1996 was primarily
attributable to the elimination of expenses relating to the transmission
business assumed by GTC in connection with the Corporate Restructuring.
However, the decrease in fuel expense and the increase in production
operations and maintenance costs were unaffected by the Corporate
Restructuring. Fuel costs decreased 15.7% and 11.6% from the same periods of
the prior year, respectively, even though total generation decreased only
9.1% and 5.7%, respectively. Such savings in average fuel costs resulted
from the difference in the mix of generation, with more nuclear and less
fossil generation in 1997. The decrease in fossil generation resulted
primarily from a maintenance outage during February and March 1997 at Plant
Scherer Unit No. 1. The higher nuclear generation during 1997 compared to
1996 was achieved as a result of having two refueling outages in the first
six months of 1996 compared to one in 1997. Conversely, the increase in
production operations and maintenance costs was primarily attributable to the
maintenance outage at Plant Scherer Unit No. 1. Effective January 1, 1997; however,1996,
the costs of nuclear refueling outages are deferred and amortized over the
18-month period following the outage.
Purchased power cost for the six months ended June 30, 1997 compared to the
same period of 1996 was virtually unchanged. A total of 16.8% fewer MWhs
were purchased in 1997 compared to 1996, but average purchased power expense
increased by 18.4%. As noted under "Operating Revenues" above, significant
energy cost savings were derived in the first six months of 1996 from the
EPMI power supply arrangement.
The decrease in other operating expenses for 1997 compared to the same
periods of the prior year was due primarily to transfer of administrative and
general expenses relating to the transmission and system operations
businesses in connection with the Corporate Restructuring.
11
Other Income
Other income for the three months and six months ended June 30, 1997
decreased compared to the same periods of 1996 primarily as a result of
Oglethorpe utilizing, as planned, all remaining amounts available under its
deferred margin rate mechanism during 1996. (For a discussion of deferred
margins, see Note 1 of Notes to Financial Statements in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.) Interest
income was higher in the three-month and six-month periods of 1997 compared
to the same periods of 1996 partly due to higher earnings from the
decommissioning fund and partly due to income from the deposits from the
Rocky Mountain transactions. The deposits were made in December 1996 and
January 1997.
Financial Condition
Corporate Restructuring
As of March 11, 1997, Oglethorpe transferred its transmission business and
assets to GTC. Thereafter, the assets, liabilities and equity of GTC were no
longer a part of Oglethorpe. The purchase price for the transmission
business was based on an appraisal of the fair market value of such effective date may,business,
as determined by an independent appraiser, and was approximately $708
million. The purchase price was paid primarily by GTC's assumption of a
portion (approximately 16.86%) of Oglethorpe's long-term secured debt in an
amount equal to approximately $686 million. Approximately $541 million of
this debt (payable to RUS, Federal Financing Bank (FFB) and CoBank, ABC
(CoBank)) became the sole obligation of GTC, and Oglethorpe was released from
all liability with regard to this indebtedness. The remaining debt assumed
by GTC in connection with the Corporate Restructuring, approximately $145
million, relates to Oglethorpe's pollution control revenue bonds (PCBs).
While GTC assumed and agreed to pay this $145 million of debt, Oglethorpe is
not legally released from its liability for this debt. The remainder of the
purchase price was paid by GTC from cash obtained through a borrowing from
National Rural Utilities Cooperative Finance Corporation (CFC) and the
assumption of approximately $1 million of other Oglethorpe liabilities.
Oglethorpe also made a special patronage capital distribution of
approximately $49 million to the Members which was used by the terms of the Restructuring Agreement, be extended by the three companies.Members to
establish equity in and to provide initial working capital to GTC.
On October 1, 1996, Oglethorpe transferred to GSOC its system operations
assets, consisting of its system control center and related energy control
and revenue metering systems equipment to GSOC, a newly formed wholly owned subsidiary of
Oglethorpe.equipment. 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 note held by the Rural Utilities
Service (RUS) note and, by delivery of a purchase money note payable to Oglethorpe and
by the assumption of certain other liabilities of Oglethorpe. From October
1, 1996 to March 11, 1997, Oglethorpe was the sole member of GSOC; therefore,
the assets transferred to GSOC will not become fully operational
untilremained in the effective dateconsolidated balance sheet of
the restructuring. At that time, it is expected
that theOglethorpe. The Members will also becomeand GTC became members of GSOC. GSOC will then operateon March 11, 1997;
and thereafter the control center as a separate entityassets, liabilities 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 membersequity 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, Oglethorpe
is continuing to utilize short-term power supply swap agreements. The
initial agreement was with Enron Power Marketing, Inc. (EPMI) and was in
place from January 4, 1996 through 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 to sell to Oglethorpe at a favorable fixed rate all the energy
necessary to meet the Members' requirements and Oglethorpe was required to
sell to the power marketer at cost, subject to certain limitations, upon
request all energy available from Oglethorpe's total power resources. Under
both agreements, Oglethorpe continued 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 agreements on the results of operations
for the first nine months of 1996.
Oglethorpe has negotiated and obtained Board approval to sign a long-term
power supply swap agreement for approximately 50% of its Members' load
requirements with 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 asno longer a
part of its continuing effortsOglethorpe.
Most of the remaining comparisons of the balance sheets as of June 30, 1997
and December 31, 1996 are in addition to reduce costs, Oglethorpe has signed a letterthe effects 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 ofCorporate
Restructuring described above. See 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 negotiating1996 for 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). This
transaction will provide a substantial up-front cash payment to Oglethorpe
which will be amortized over the termpro forma
12
presentation of the lease to reduce revenue
requirements from the Members. Substantially allBalance Sheet of the net cash benefit is
expectedpost-restructuring Oglethorpe as of
December 31, 1996 (Note 11 of Notes to be used by Oglethorpe to reduce long-term debt. Oglethorpe
expects to close at least a 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 three months and nine months ended September
30, 1996 was $12.5 million and $26.2 million compared to $10.7 million and
$39.4 million for the same 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)Financial Statements). The increase in Member revenues for the nine months ended September
30, 1996 compared to the same period of 1995 was due to the recovery of
additional fixed costs of Rocky Mountain and the increased fixed cost
responsibility resulting from the scheduled end of Sell-back revenues from
Georgia Power Company (GPC) under the plant operating agreements (discussed
below). Energy revenues from sales to Members for the three months and nine
months ended September 30, 1996 were 16.3% and 6.5% lower then same periods
of the prior year despite the fact that megawatt-hour (MWh) sales were
virtually unchanged for the current quarter and increased 7.7% year-to-date.
Under the DLD and EPMI power supply swap agreements, the power marketers sold
to Oglethorpe at 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 nine months of 1996. These savings
were immediately passed through to the Members. Oglethorpe's average Member
energy
11
revenue per MWh for the three months and nine months ended September 30, 1996
was 16.3% and 13.1% less than the same periods of 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 September 30,
1996 and 1995:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(dollars in thousands)
GPC- Plant operating agreements $ - $ 89 $ - $10,096
GPC- Power supply arrangements 2,959 12,139 11,054 30,712
ITS transmission agreements 1,817 3,770 6,874 9,377
Sales to power marketers 1,150 - 8,846 -
Sales to other utilities 11,783 17,062 34,413 41,334
------- ------- ------- -------
Total $17,709 $33,060 $61,187 $91,519
------- ------- ------- -------
------- ------- ------- -------
The first two types of non-Member revenues were derived from contractual
agreements with 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 1996 compared to the same period of 1995.
The third source of non-Member revenues was primarily payments from GPC for
use of the Integrated Transmission System (ITS) and related transmission
interfaces. GPC compensates Oglethorpe to the 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 month and nine month periods of 1996 compared to 1995
was the result of relatively greater usage by Oglethorpe compared to 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 were initiated by DLD and
EPMI in 1996 while in 1995 these sales were made by Oglethorpe directly with
the non-Member
12
utilities. While Oglethorpe maintains the contractual relationship with
these other utilities and administers the transactions, all profits on these
sales to other utilities from Oglethorpe's total resources accrued to DLD and
EPMI.
OPERATING EXPENSES
The decrease in operating expenses for the three months and nine months ended
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 and
partly due to the utilization of lower price spot market coal at Plant
Wansley. The decrease in 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 of purchased power in the first nine months of 1996
compared to 1995 to provide for Oglethorpe's Member load and for sales to
other utilities.
OTHER INCOME
Other income for the three 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 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 was higher in 1996 compared to 1995 partly due to higher average cash
balances and partly due to higher interest rates.
INTEREST CHARGES
The decrease in net interest charges for the three months ended 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 (interest was capitalized for the
first six months).
FINANCIAL CONDITION
Total assets and total equity plus liabilities as of SeptemberJune 30, 19961997 were $5.3$4.5
billion which, after adjustment for the Corporate Restructuring, was $131$85
million less than the comparable total at December 31, 19951996 due to
depreciation of plant and due to the decrease in cash and temporary cash
investments.
13
ASSETSAssets
Property additions for the ninesix months ended SeptemberJune 30, 19961997 totaled $69.2$39.4
million and included additions, replacements and improvements to transmission
and distribution facilities (subsequently sold to GTC) for the first three
months of 1997 and existing generation facilities.
All plant acquisition adjustments were related to transmission plant. As a
result of the Corporate Restructuring discussed above, Oglethorpe no longer has
any plant acquisition adjustments.
The decrease in construction work in progress resulted from the projects sold to
GTC and GSOC in the Corporate Restructuring.
The decrease in the bond, reserve and construction funds was attributable to the
utilization of available excess debt service reserve funds for debt service
payments.
The increase in the deposit on, the obligation under and net benefit of the
Rocky Mountain transactions resulted from the completion of the lease
transactions for the remainder of Oglethorpe's interest in Rocky Mountain in
January 1997. For a discussion of the Rocky Mountain transactions, see Notes 1
and 2 of Notes to Financial Statements in Oglethorpe's Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
The decrease in cash and temporary cash investments was partly due to property additions funded from cashthe
payment of the $49 million special patronage capital distribution made in
connection with the Corporate Restructuring discussed above and scheduled debt service payments.
Other short-term investments is composed of those investments whose maturity
periods exceed three months. During the first quarter of 1996, an additional
$10 million was transferred into investments with maturities of more than
three months.
The increase in inventories primarily resulted from higher coal inventories
at Plant Schererpartly due to an unplanned outage at Scherer Unit No. 1. In
addition, coal inventories at Plant Scherer were lower than normal at
year-end.
The increasea
prepayment in other deferred charges primarily resulted1997 of Federal Financing Bank (FFB) debt made from the deferralproceeds
of $14.7the December 1996 and January 1997 Rocky Mountain transactions.
Prepayments and other current assets decreased due to a $1.1 million decrease in
the estimated payment made to GPC for Plant Hatch and Plant Wansley
operations and maintenance costs for July 1997 compared to the estimate paid for
January 1997.
The change in premium and loss on reacquired debt resulted partly from premiums
paid in connection with FFB debt prepayment and the Pollution Control Bond (PCB)
refunding, excluding the effect of nuclear refueling outagethe portion of these costs assumed by GTC in
the Corporate Restructuring.
The decrease in deferred debt expense resulted partly from unamortized issuance
cost related to Vogtle Units
No. 1the PCB refunding being converted to premium and No. 2loss on
reacquired debt and Hatch Unit No. 1 which are being recovered through rates
over a periodpartly from the portion of eighteen months startingthese costs assumed by GTC in Maythe
Corporate Restructuring.
13
Equity and November 1996.
EQUITY AND LIABILITIES
Deferred margins to be refundedLiabilities
The decrease in patronage capital and membership fees is the result of the $49
million special patronage capital distribution made in connection with the
Corporate Restructuring, discussed above.
The decrease in long-term debt due within one year decreased by $24.1 million
which isresulted primarily from the
amount that was refunded toprepayment of FFB debt, discussed above. In addition, the Members forbalance reflects the
first nine
monthsimpact of 1996.the Corporate Restructuring.
Accounts payable declined as of June 30, 1996 as a result ofincreased due to normal variations in the timing of payables
activity.
AccruedThe decrease in accrued interest decreased primarily due to normal paymentsresulted partly from the portion of debt
assumed by GTC in the Corporate Restructuring and accruals of
interest.partly from other factors.
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)1997) and partly due to normal activity.
LIQUIDITY 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.Corporate Restructuring.
14
PART II - OTHER INFORMATION
ITEMItem 1. Legal Proceedings
On June 17, 1997, PECO Energy Company--Power Team ("PECO") filed an
application with the Federal Energy Regulatory Commission ("FERC") pursuant
to Section 211 of the Federal Power Act requesting FERC to compel Oglethorpe
and/or GTC to provide PECO with 250 MW of firm point-to-point transmission
service from the Tennessee Valley Authority ("TVA")-Integrated Transmission
System ("ITS") interface to the Florida-ITS interface for an initial
three-year period, with an automatic roll-over provision. PECO also seeks
$10,000 per day in penalties from Oglethorpe and/or GTC, alleging bad faith
and delays in negotiations. In their FERC response, GTC and
Oglethorpe contend that they negotiated with PECO in good faith, and thus
there is no reasonable basis for imposing the penalties sought by PECO. GTC
also responded that it does not have firm "available transfer capability"
at the TVA-ITS interface to fulfill PECO's request, after taking into account
the need to protect system reliability, existing firm commitments, and use of
the TVA-ITS interface to serve "native load," in accordance with North
American Electric Reliability Council guidelines. In the event GTC is ordered
by FERC to provide the requested service, PECO would be required to
compensate GTC at rates set by FERC in the order. As a consequence of any
such order, power purchased by Oglethorpe for delivery through the TVA-ITS
interface would probably be curtailed, and could result in higher purchased
power cost than would otherwise be the case. Although FERC transmission
pricing policy is designed to ensure that a transmission provider is fully
compensated for the cost of providing transmission service, potentially
including opportunity cost, there can be no assurance that rates ordered by
FERC for service to PECO would fully compensate GTC, Oglethorpe and the
Members for the use of the transmission system and for any resulting increase
in the cost of power.
Item 6. EXHIBITS AND REPORTS ON FORMExhibits and Reports on Form 8-K
(a) EXHIBITSExhibits
Number Description
- ---------- ----------- 2.1(1) First-----------
10.8.6 Supplemental Agreement to the Amended and Restated 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,Wholesale
Power Contract, dated as of January 15, 1995, to the Plant Hal
Wansley Operating AgreementsMay 1, 1997 by and among Georgia Power
Company,between
Oglethorpe Municipaland Altamaha Electric Authority of Georgia
and City of Dalton, Georgia.
10.29(2) Master Power Purchase and Sale Agreement between Duke/Louis
Dreyfus L.L.C. and Oglethorpe, dated as of August 31, 1996.Membership Corporation,
together with a Schedule identifying 38 other
substantially identical Supplemental Agreements.
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----------------------------
(b) Reports 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 Commission.
(b) REPORTS ON FORMForm 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended SeptemberJune 30,
1996.1997.
15
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: August 14, 199611, 1997 By: /s/ T. D. Kilgore
------------------------------------------------------------
T. D. Kilgore
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 199611, 1997 /s/ Gary M. Bullock
--------------------------
Gary M. Bullock
Secretary-TreasurerMac F. Oglesby
----------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: August 14, 199611, 1997 /s/ Larry N. Brownlee
--------------------------
Larry N. BrownleeRobert D. Steele
----------------------------------
Robert D. Steele
Controller
(Principal(Chief Accounting Officer)
16