- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM 10-Q
(MARK ONE)
[ X ](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 September 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 FROM ___________ TO _____________
COMMISSION FILE NO.For the transition period from ________ to ________
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 SEPTEMBER 30, 19961997
PAGE NO.
--------
PART I - FINANCIALI--FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 19961997 (Unaudited)
and December 31, 19951996........................................ 3
Condensed Statements of Revenues and Expenses (Unaudited)
for the Three Months and Nine Months Ended
September 30, 19961997 and 19951996.................................. 5
Condensed Statements of Cash Flows (Unaudited) for
the Nine Months Ended September 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 - OTHERII--OTHER INFORMATION
Item 1. Legal Proceedings........................................... 17
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 168-K............................ 17
SIGNATURES............................................................ 18
2
PART I - FINANCIALI--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBEROglethorpe Power Corporation
Condensed Balance Sheets
September 30, 1996 AND DECEMBER1997 and December 31, 19951996
- -------------------------------------------------------------------------------
(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.......................................................................... $ 4,906,315 $ 5,742,597
Less:Accumulated provision for depreciation (1,458,271) (1,362,431)
---------- ----------
4,260,807 4,336,782depreciation......................................... (1,382,063) (1,488,272)
------------ ------------
3,524,252 4,254,325
Nuclear fuel, at amortized cost 95,437 94,013cost..................................................... 86,980 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....................................................... 13,059 31,181
------------ ------------
3,624,291 4,376,381
------------ ------------
Investments and funds:
Bond, reserve and construction funds, at market 53,024 56,511market..................................... 32,328 53,955
Decommissioning fund, at market..................................................... 101,821 86,269
Investment in associated organizations, at cost 15,424 15,853
---------- ----------
146,334 146,856
---------- ----------
CURRENT ASSETS:cost..................................... 15,407 15,379
Deposit on Rocky Mountain transactions, at cost..................................... 51,325 41,685
------------ ------------
200,881 197,288
------------ ------------
Current assets:
Cash and temporary cash investments, at cost 95,864 201,151cost........................................ 59,981 132,783
Other short-term investments, at market 90,375 79,165
Receivables 107,572 99,559market............................................. 96,145 91,499
Receivables......................................................................... 117,580 113,289
Inventories, at average cost 92,807 82,949cost........................................................ 70,872 89,825
Prepayments and other current assets 14,288 14,325
---------- ----------
400,906 477,149
---------- ----------
DEFERRED CHARGES:assets................................................ 22,371 14,625
------------ ------------
366,949 442,021
------------ ------------
Deferred charges:
Premium and loss on reacquired debt, being amortized 202,737 200,794amortized................................ 189,692 201,007
Deferred amortization of Scherer leasehold 89,715 87,134
Discontinued projects, being amortized 22,776 24,305leasehold.......................................... 94,832 90,717
Deferred debt expense, being amortized 20,900 21,135amortized.............................................. 13,641 21,703
Other............................................................................... 36,994 33,058
------------ ------------
335,159 346,485
------------ ------------
$ 4,527,280 $ 5,362,175
------------ ------------
------------ ------------
The accompanying notes are an integral part of these condensed statements.
3
Oglethorpe Power Corporation
Condensed Balance Sheets
September 30, 1997 and December 31, 1996
- -------------------------------------------------------------------------------
(dollars in thousands)
1997 1996
EQUITY AND LIABILITIES (UNAUDITED)
- -------------------------------------------------------------------------------------- ------------ ------------
CAPITALIZATION:
Patronage capital and membership fees (including unrealized loss of ($515)
at September 30, 1997 and($844) at December 31, 1996 on
available-for-sale securities).................................................... $ 321,771 $ 356,229
Long-term debt...................................................................... 3,263,731 4,052,470
Obligations under capital leases.................................................... 289,825 293,682
Obligation under Rocky Mountain transactions........................................ 51,325 41,685
------------ ------------
3,926,652 4,744,066
------------ ------------
Current liabilities:
Long-term debt and capital leases due within one year............................... 87,847 159,622
Accounts payable.................................................................... 53,641 42,891
Accrued interest.................................................................... 13,560 15,931
Accrued and withheld taxes.......................................................... 19,800 4,940
Other 22,632 9,361current liabilities........................................................... 4,891 9,540
------------ ------------
179,739 232,924
------------ ------------
Deferred credits and other liabilities:
Gain on sale of plant, being amortized.............................................. 61,375 58,527
Net benefit of sale of income tax benefits, being amortized......................... 36,042 42,049
Net benefit of Rocky Mountain transactions, being amortized......................... 93,171 70,701
Accumulated deferred income taxes................................................... 60,325 61,985
Decommissioning reserve............................................................. 141,399 124,468
Other............................................................................... 28,577 27,455
------------ ------------
420,889 385,185
------------ ------------
$ 4,527,280 $ 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 September 30, 1997 and 1996
- -------------------------------------------------------------------------------
(dollars in thousands)
THREE MONTHS NINE MONTHS
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- 358,760 342,729
---------- ----------
$5,307,321 $5,438,496
Operating revenues:
Sales to Members............................................... $ 280,503 $ 268,939 $ 767,714 $ 771,378
Sales to non-Members........................................... 6,076 17,709 33,226 61,187
---------- ---------- ---------- ----------
Total operating revenues......................................... 286,579 286,648 800,940 832,565
---------- ---------- ---------- ----------
Operating expenses:
Fuel........................................................... 61,206 54,807 152,799 158,465
Production..................................................... 34,216 31,296 103,760 93,293
Purchased power................................................ 95,038 67,217 215,350 189,443
Power delivery................................................. (10) 4,110 3,969 11,974
Depreciation and amortization.................................. 30,154 36,684 96,534 109,774
Taxes other than income taxes.................................. 5,593 7,035 18,808 21,761
Other operating expenses....................................... 3,629 10,490 13,728 26,764
---------- ---------- ---------- ----------
Total operating expenses......................................... 229,826 211,639 604,948 611,474
---------- ---------- ---------- ----------
Operating margin................................................. 56,753 75,009 195,992 221,091
---------- ---------- ---------- ----------
Other income (expense):
Interest income................................................ 7,247 8,698 21,002 17,438
Amortization of net benefit of sale of income tax benefits..... 2,799 2,008 8,396 6,023
Amortization of deferred margins............................... -- 6,966 -- 24,120
Allowance for equity funds used during construction............ 32 47 81 137
Other.......................................................... 457 761 4,025 1,782
---------- ---------- ---------- ----------
Total other income............................................... 10,535 18,480 33,504 49,500
---------- ---------- ---------- ----------
Interest charges:
Interest on long-term debt and other obligations............... 68,488 81,488 216,294 245,848
Allowance for debt funds used during construction.............. (328) (507) (873) (1,485)
---------- ---------- ---------- ----------
Net interest charges............................................. 68,160 80,981 215,421 244,363
---------- ---------- ---------- ----------
Net margin....................................................... ($ 872) $ 12,508 $ 14,075 $ 26,228
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these condensed statements.
35
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBEROglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
AND DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
1997 1996
1995
EQUITIES AND LIABILITIES (Unaudited)
----------------------------------- ----------
CAPITALIZATION:
Patronage capitalCash flows from operating activities:
Net margin.............................................................................. $ 14,075 $ 26,228
Adjustments to reconcile net margin to net cash provided by operating activities:
Depreciation and membership fees (including unrealized
lossamortization......................................................... 139,190 132,565
Net benefit of ($276) at September 30, 1996 andRocky Mountain transactions............................................ 22,470 --
Deferred gain from Corporate Restructuring............................................ 4,670 --
Allowance for equity funds used during construction................................... (81) (137)
Amortization of $3,570 at
December 31, 1995 on available-for-sale securities) $361,273 $338,891
Long-termdeferred margins...................................................... -- (24,120)
Amortization of net benefit of sale of income tax benefits............................ (8,396) (6,023)
Other................................................................................. 1,445 3,025
Change in net current assets, excluding long-term debt 4,122,458 4,207,320
Obligations under capital leases 294,381 296,478
---------- ----------
4,778,112 4,842,689
---------- ----------
CURRENT LIABILITIES:
Long-term debt and capital leases due within one year 109,545 89,675
Deferredand
deferred margins to be refunded within one year 7,927 32,047
Accounts payable 43,958 48,855
Accrued interest 20,806 91,096
Accrued and withheld taxes 22,486 1,785
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 65,510
Gain on sale of plant, being amortized 59,113 60,868
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
---------- ----------
---------- ----------
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 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 $268,939 $284,476 $771,378 $764,793
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 92,443
Purchased power 67,217 85,706 189,443 207,220
Power delivery 4,110 3,817 11,974 11,885
Depreciation and amortization 36,684 35,820 109,774 102,959
Taxes other than income taxes 7,035 7,181 21,761 19,601
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):
Interest income 8,698 4,806 17,438 12,717
Amortization of deferred margins 6,966 5,229 24,120 16,649
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:
Interest on long-term-debt and other obligations 81,488 86,429 245,848 254,961
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
-------- -------- -------- --------
-------- -------- -------- --------
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 SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------------------------------
(dollars in thousands)
1996 1995
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin $ 26,228 $ 39,412
--------- ---------
ADJUSTMENTS TO RECONCILE NET MARGIN TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 132,565 149,588
Amortization of deferred margins (24,120) (16,649)
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:
Receivablesyear:
Receivables........................................................................... (4,290) (8,013)
6,524
InventoriesInventories........................................................................... 9,972 (9,858) 8,736
Prepayments and other current assetsassets.................................................. (8,176) 37
(1,915)
Accounts payablepayable...................................................................... 11,403 (4,897)
(19,757)
Accrued interestinterest...................................................................... (2,251) (70,290) (19,735)
Accrued and withheld taxestaxes............................................................ 14,860 20,701 21,121
Other current liabilitiesliabilities............................................................. 1,683 (6,299)
(5,885)
--------- ---------
TOTAL ADJUSTMENTS---------- ----------
Total adjustments................................................................... 182,499 26,691
119,977
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES---------- ----------
Net cash provided by operating activities............................................. 196,574 52,919
159,389
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:---------- ----------
Cash flows from investing activities:
Property additionsadditions.................................................................... (49,942) (69,211) (107,989)
Net proceeds from bond, reserve and construction fundsfunds................................ 21,616 3,060
13,397
Decrease(Decrease) Increase in investment in associated organizationsorganizations......................... (28) 429 1,210
Increase in other short-term investmentsinvestments.............................................. (4,306) (14,629) (69,239)
Increase in decommissioning fundfund...................................................... (7,709) (4,970)
(5,254)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIESNet assets sold in Corporate Restructuring............................................ 717,907 --
Net liabilities extinguished in Corporate Restructuring............................... (694,412) --
---------- ----------
Net cash used in investing activities............................................... (16,874) (85,321)
(167,875)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:---------- ----------
Cash flows from financing activities:
Debt proceeds, netnet.................................................................... 100,404 3,092
142,341
Debt paymentspayments......................................................................... (302,617) (75,809)
(139,730)
OtherRetirement of patronage capital....................................................... (48,863) --
Other................................................................................. (1,426) (168)
(1,193)
--------- ---------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES---------- ----------
Net cash used in financing activities............................................... (252,502) (72,885)
1,418
--------- ---------
NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS---------- ----------
Net decrease in cash and temporary cash investments..................................... (72,802) (105,287)
(7,068)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIODCash 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.................................... $ 59,981 $ 95,864
$ 183,574
--------- ---------
--------- ---------
CASH PAID FOR:---------- ----------
---------- ----------
Cash paid for:
Interest (net of amounts capitalized)................................................. $ 202,400 $ 301,675
Income taxes.......................................................................... $ 239,485
Income 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
September 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 September 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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
PROPOSED RESTRUCTURINGCorporate 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 itselfand its 39 retail electric distribution
cooperative members (the Members) completed a corporate restructuring (the
Corporate Restructuring) on March 11, 1997, in which Oglethorpe was divided
into three specialized operating companies to respond to increasing
competition and deregulationregulatory changes in the electric industry. In JuneAs part of the
Corporate Restructuring, Oglethorpe's transmission business was sold 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 sold 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 1996,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 utilizes long-term power marketer arrangements to reduce the
cost of power to the Members. Oglethorpe has entered into power marketer
agreements with LG&E Energy Marketing Inc. (LEM) 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. The LEM
agreements are based on the actual requirements of the Members during the
contract term, whereas the Morgan Stanley agreement represents a fixed supply
obligation. Under these power marketer agreements, Oglethorpe purchases
energy at fixed prices covering a portion of the costs of energy to its
Members. LEM 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 LEM 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 LEM and Morgan Stanley for the use of the
resources.
8
RESULTS OF OPERATIONS
Corporate Restructuring
Oglethorpe and the Members completed the Corporate Restructuring on March
11, 1997. However, the Boards of Directors of Oglethorpe, GTC 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
nine months ended September 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 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 Nine Months Ended September 30, 1997 and 1996
Oglethorpe's net margin (loss) for the three months and nine months ended
September 30, 1997 was ($0.9) million and $14.1 million, respectively,
compared to $12.5 million and $26.2 million for the same periods of 1996. In
August 1997, due to achieving a year-to-date net margin higher than required
by its Indenture, the Oglethorpe Board of Directors adjusted the 1997 budget
thereby lowering the revenue requirement by a total of $4.0 million. Such
reduction in revenues was implemented by reducing the capacity charges for
August 1997. Year-to-date net margin for 1997, after this adjustment, is
sufficient to meet margin requirements. The higher net margin in 1996
resulted primarily from unbudgeted savings in interest and decommissioning
costs and from higher than expected interest income.
Operating Revenues
Revenues from sales to Members for the three months and nine months ended
September 30, 1997 were 4.3% higher for the three months and 0.5% lower
year-to-date compared to the same periods of 1996. While revenues from
Members have been reduced due to the removal of capacity revenues relating to
the transmission business, this decrease has been offset by an increase in
energy revenues from sales to Members. Such energy revenues were 65.1% higher
for the three months ended September 30, 1997 compared to the same period of
1996 and 33.7% higher for the nine-month period compared to 1996.
Megawatt-hour (MWh) sales to the Members were 11.4% and 2.2% higher in the
current three-month and nine-month periods compared to the same periods of
1996. Consequently, Oglethorpe's average energy revenue per MWh from sales to
Members for the three-month and nine-month periods were 48.3% and 30.8%
higher in 1997 compared to 1996, respectively. This increase was primarily
due to the expiration of the short-term power marketer arrangements with
Duke/Louis Dreyfus (DLD) and Enron Power Marketing Inc. (EPMI) that had
9
allowed Oglethorpe to passthrough significant savings in the first nine
months of 1996. During the first nine months of 1996, Oglethorpe had power
marketer arrangements with DLD and EPMI to supply 100% of the load
requirements of the Members. As noted under "GeneralPower Marketer
Arrangements" above, Oglethorpe has entered into power marketer arrangements
with LEM 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 requirements of the Members.
Sales to non-Members were primarily made pursuant to contractual
arrangements with Georgia Power Company (GPC) and from energy sales to other
utilities and power marketers. The following table summarizes the amounts of
non-Member revenues from these sources for the three months and nine months
ended September 30, 1997 and 1996:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
GPC- Power supply arrangements......................................... $ 283 $ 2,947 $ 12,847 $ 10,872
Sales to other utilities............................................... 5,021 11,795 14,691 34,595
Sales to power marketers............................................... 772 1,150 3,508 8,846
ITS transmission agreements............................................ -- 1,817 2,180 6,874
--------- --------- --------- ---------
Total.............................................................. $ 6,076 $ 17,709 $ 33,226 $ 61,187
--------- --------- --------- ---------
--------- --------- --------- ---------
The revenues from power supply arrangements with GPC were primarily 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 the first nine months of 1997
compared to the same periods of 1996. 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 nine months of 1996 were initiated by DLD and EPMI. Where DLD or EPMI did
not have a contractual relationship with the purchaser and Oglethorpe did,
Oglethorpe recorded the sale and credited the revenues to DLD or EPMI in its
monthly billing.
Under the current LEM and Morgan Stanley power marketer arrangements, and
previously, under the DLD and EPMI power marketer arrangements, sales to the
power marketers represented the net energy transmitted on behalf of LEM, Morgan
Stanley, DLD and EPMI off-system on a daily basis
10
from Oglethorpe's total resources. Such energy was sold to LEM, Morgan
Stanley, DLD 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
Operating expenses were 8.6% higher in the current quarter and 1.1% lower
for the nine months ended September 30, 1997 compared to the same periods of
1996. Since April 1, 1997, certain operating expenses have been reduced due
to the elimination of expenses relating to the transmission business assumed
by GTC in connection with the Corporate Restructuring. However, the changes
in fuel expense and the increases in production operations and maintenance
costs were unaffected by the Corporate Restructuring. Fuel costs increased
11.7% in the third quarter and decreased 3.6% for the nine months ended
September 30, 1997 from the same periods of the prior year, respectively.
Total megawatt-hours (MWhs) of generation increased 7.4% in the current
quarter and decreased 1.0% year-to-date. For the current quarter, fossil
generation was 11.6% higher compared to the same period of 1996 due to a
maintenance outage at Scherer Unit No. 1 in July 1996 and due to higher
utilization of Plant Wansley in 1997. The higher fossil generation in the
third quarter resulted in higher average fuel costs. For the nine months
ended September 30, 1997 the mix of generation was more nuclear and less
fossil generation than in 1996 resulting in lower average fuel costs. The
decrease in fossil generation resulted primarily from a maintenance outage
during February and March 1997 at Plant Scherer Unit No. 1. Also, the higher
nuclear generation during 1997 compared to 1996 was achieved as a result of
having three refueling outages in the first nine months of 1996 compared to
two in 1997. Conversely, the increase in production operations and
maintenance costs was partly attributable to the 1997 maintenance outage at
Plant Scherer Unit No. 1. In addition, effective January 1, 1997; however,1996, the costs
of nuclear refueling outages are deferred and amortized over the 18-month
period following the outage. Such change in accounting resulted in a $12.9
million deferral of maintenance costs in the first nine months of 1996.
Purchased power cost for the three months and nine months ended September
30, 1997 were 41.4% and 13.7% higher compared to the same periods of 1996,
respectively. A total of 11.6% more MWhs were purchased in the third quarter of
1997 compared to 1996. Year-to-date, 4.9% fewer MWhs were purchased than the
same period of the prior year. Consequently, the average cost of purchased power
per MWh has increased by 26.7% and 19.5%, respectively. As noted under
"Operating Revenues" above, significant energy cost savings were derived in the
first nine months of 1996 from the DLD and EPMI power supply arrangements.
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 nine months ended September 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 for the nine months ended September 30, 1997 compared to
the same period 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 sold 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 $709 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, ACB (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 $2 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 transferredsold 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 sold 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 September 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
12
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 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 September 30, 19961997 were
$5.3$4.5 billion which, after adjustment for the Corporate Restructuring, was $131$102
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 nine months ended September 30, 19961997 totaled
$69.2$49.9 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 decommissioning investment fund and the decommissioning
reserve resulted from earnings of the fund. An amount equal to the earnings of
the fund was accrued as an increase to the decommissioning reserve.
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 fundedthe
payment of the $49 million special patronage capital distribution made in
connection with the Corporate Restructuring discussed above and partly due to a
prepayment in 1997 of Federal Financing Bank (FFB) debt made from cashthe proceeds
of the December 1996 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 inventoriesJanuary 1997 Rocky Mountain transactions.
Inventories decreased primarily resulted from higherdue to lower coal inventories at Plant
Scherer resulting from problems associated with rail transportation in the
current quarter and due to an unplanned outage at Scherer Unit No. 1. In
addition, coal inventories atthe seasonal demands of summer. The rail
transportation providers expect operations to return to normal by the beginning
of next year.
Prepayments and other current assets increased due to a $9.9 million
increase in the estimated payment made to GPC for Plant Scherer were lower than normal at
year-end.Hatch operations and
maintenance costs for October 1997
13
compared to the estimate paid for January 1997. The increase in other deferred charges primarily resulted from the deferral
of $14.7 million of nuclearestimate
paid related to planned refueling outage and uprate costs related to Vogtle Units
No. 1 and No. 2 andat Plant Hatch Unit
No. 1 which are2.
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 the 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 the PCB refunding being recovered through rates
over a periodconverted to premium and loss
on reacquired debt and partly from the portion of eighteen months startingthese costs assumed by GTC in
Maythe Corporate Restructuring.
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.
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)1997) and partly due to normal activity.
LIQUIDITYthe
Corporate Restructuring.
COMPETITION
The electric utility industry in the United States is undergoing
fundamental change and is becoming increasingly competitive. See "BUSINESS OF
OGLETHORPE--Certain Factors Affecting the Utility Industry in General" In
Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
Several states are in the process of implementing varying forms of retail
wheeling and most others are in the various stages of considering retail
competition. Proposed federal legislation could mandate retail wheeling in
every state. No legislation related to retail wheeling has yet been enacted
in Georgia, and, currently, no bill is pending in the Georgia legislature
which would amend the Georgia Territorial Electric Service Act (Territorial
Act) or otherwise affect the exclusive right of the Members to supply power
to their current service territories. In 1997, the staff of the Georgia
Public Service Commission (GPSC)
14
conducted a series of workshops to solicit views from the various parties
impacted by electric industry restructuring and to discuss potential
resolutions of these issues. The GPSC staff anticipates presenting a report
to the GPSC that will identify electric industry restructuring issues,
potential resolutions and the views of the parties who participated in the
workshop. The GPSC does not have the authority under Georgia law to order
retail wheeling or amend the Territorial Act. Oglethorpe and the Members
participated in the GPSC staff workshops and are actively monitoring and
studying legislative initiatives in Congress and in other states to take
advantage of the experiences of cooperatives and other utilities in other
states to protect their interests in future legislative activities in Georgia.
Under current Georgia law, the Members have the exclusive right to
provide retail electric service in their respective territories. Since 1973,
however, Georgia has permitted limited competition among electric utilities
located in Georgia for sales of electricity to certain large commercial or
industrial customers. Pursuant to the Territorial Act, the owner of any new
facility may receive electric service from the power supplier of its choice
if the facility is located outside of municipal limits and has a connected
demand upon initial full operation of 900 kilowatts or more. See "THE
MEMBERS--Service Area and Competition" in Oglethorpe's Annual Report on Form
10-K for the fiscal year ended December 31, 1996. The Members, with
Oglethorpe's support, are actively engaged in competition with other retail
electric suppliers for these new commercial and industrial loads. While the
competition for 900 kilowatt loans represents only limited competition in
Georgia, this competition has given Oglethorpe and the Members the
opportunity to develop resources and strategies to operate in an increasingly
competitive market. In 1996, sales by the Members to commercial and
industrial customers, including both customers who had a choice of suppliers
and those who did not, accounted for 26% of Members' total sales.
Over the past years, Oglethorpe has taken several steps to prepare for and
adapt to the fundamental changes which have occurred or are likely to occur in
the electric utility industry and to reduce the possibility of incurring
stranded costs. Most importantly, Oglethorpe completed the Corporate
Restructuring and divided itself into generation, transmission and system
operations companies in order to better serve its Members in a deregulated and
competitive environment. See "General--Corporate Restructuring" herein. Since
1992, Oglethorpe also has pursued an interest cost reduction program. As a
result of this program, Oglethorpe has prepaid $222 million of FFB debt and
refinanced $1.1 billion of PCB debt and $1.2 billion of FFB debt. These steps
have reduced Oglethorpe's interest costs significantly. See "Financial
Condition--Refinancing Transactions" in Oglethorpe's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
Oglethorpe and the Members also amended the Wholesale Power Contracts in
connection with the Corporate Restructuring. The Wholesale Power Contracts
provide that the Members are jointly and severally responsible for all costs and
expenses of all of the generation and purchased power resources of Oglethorpe
existing on March 11, 1997, as well as certain future power resources. See
"BUSINESS OF OGLETHORPE--New Wholesale Power Contracts" in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. Each Wholesale
Power Contract specifically provides that the Member must make payments whether
or not power has been delivered and whether or not a plant has been sold or is
otherwise unavailable. The formulary rate
15
established by Oglethorpe in the rate schedule to the Wholesale Power
Contracts employs a rate methodology under which all categories of costs are
specifically separated as components of a formula to determine Oglethorpe's
revenue requirements. The rate schedule also allocated to the Members the
responsibility for all of Oglethorpe's fixed costs. Oglethorpe's charges
under the Wholesale Power Contracts may be adjusted by the Board of
Directors. With respect to Oglethorpe, the RUS has retained certain approval
rights over the changes to the Wholesale Power Contracts, including the rate
schedule. See "BUSINESS OF OGLETHORPE--Electric Rates" in Oglethorpe's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996. As a result
of these contractual agreements, the Members ultimately are liable for the
existing power resources of Oglethorpe.
Oglethorpe has also entered into arrangements with power marketers to
obtain the value that can be brought by power marketers and to provide for
future load requirements without taking all the risk associated with
traditional suppliers. See "MEMBER REQUIREMENTS AND REFINANCING TRANSACTIONS
InPOWER SUPPLY
RESOURCES--Power Purchase and Sale Arrangements--POWER MARKETER ARRANGEMENTS"
in Oglethorpe's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 and "General--POWER SUPPLY SWAP ARRANGEMENTS" in Item 2 in
Oglethorpe's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
Oglethorpe and the Members continue to consider and evaluate a wide array
of other potential actions to reduce costs and to maintain their
competitiveness in anticipation of future competition. These activities on
the proposed restructuringpart of Oglethorpe and the Members are in various stages of study or
preliminary consideration. Many Members are now providing or considering
proposals to provide non-traditional products and services such as
telecommunications and other services. Depending on the nature of future
competition in Georgia, there could be reasons for the Members to separate
their physical distribution business from their energy business, or otherwise
restructure their current businesses to operate effectively under retail
competition. Oglethorpe continues to seek to identify and evaluate
opportunities to reduce the cost of wholesale power to the Members.
Oglethorpe currently defers certain costs of providing services to the
Members pursuant to Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation." Note 1 of
Notes to Financial Statements in Oglethorpe's ongoing
liquidity needs,Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, sets forth the regulatory assets and
liabilities reflected on Oglethorpe's balance sheet as of December 31, 1996.
Regulatory assets represent probable future revenues to Oglethorpe associated
with certain costs which will be recovered from Members through the
rate-making process. Regulatory liabilities represent probably future
reduction in revenues associated with amounts that are to be credited to
Members through the rate-making process. In the event that Oglethorpe is evaluatingno
longer subject to the provisions of SFAS No. 71, Oglethorpe would be required
to write off regulatory assets and liabilities. In addition, Oglethorpe would
be required to determine any impairment to other assets, including plant, and
write down the assets, if impaired, to their fair value.
Year 2000 Issue
Many information systems have been designed to function based on years that
begin with "19". Oglethorpe expects that by the year 2000 it will have adapted
its unsecured credit facilities.
Oglethorpesystems, to the extent it considers necessary, to process years that begin
with "20", and does not anticipate renewingexpect that the year 2000 issue will have a material
adverse effect on its $70 million uncommitted linefinancial condition or results of credit with CoBank, ACB, which expiresoperations.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Oglethorpe's Quarterly Report on December 1, 1996. Prior to
year-end, Oglethorpe may defease up to $309 million of PCBs and may issue
commercial paper,Form 10-Q for the quarter ended June 30,
1997 reported on an interim basis, or refunding PCBsaction by PECO Energy CompanyPower Team filed on June 17,
1997 with the Federal Energy Regulatory Commission relating to finance the
defeasance.
14
PART II - OTHER INFORMATIONOglethorpe and
GTC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)(A) EXHIBITS
Number DescriptionNUMBER DESCRIPTION
- ------------------- -----------
2.1(1)4.8.1(b) First 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,Supplemental Indenture, dated as of January 15, 1995,October 1, 1997, made by
Oglethorpe to SunTrust Bank, Atlanta, as trustee, relating 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 Duke/Louis
Dreyfus L.L.C. and Oglethorpe, dated as of August 31, 1996.Series 1997B (Burke) Note
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 Commission.
(b)(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Oglethorpe for the quarter ended
September 30, 1996.
151997.
17
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: AugustNovember 14, 19961997 By: /s/ T. D. Kilgore
-----------------------------------------------------------
T. D. Kilgore
President and Chief Executive Officer
(Principal Executive Officer)
Date: AugustNovember 14, 19961997 /s/ Gary M. Bullock
--------------------------
Gary M. Bullock
Secretary-TreasurerMac F. Oglesby
---------------------------------
Mac F. Oglesby
Treasurer and Director
(Principal Financial Officer)
Date: AugustNovember 14, 19961997 /s/ Larry N. Brownlee
--------------------------
Larry N. BrownleeRobert D. Steele
---------------------------------
Robert D. Steele
Controller
(Principal(Chief Accounting Officer)
16
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