================================================================================
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) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NO.For the transition period from ___________ to _____________
Commission File No. 33-7591
OGLETHORPE POWER CORPORATION
(AN ELECTRIC MEMBERSHIP 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 to such
filing requirements for the past 90 days. YESYes X NO
---- ----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.
OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
PAGE NO.
--------MARCH 31, 2000
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of September 30, 1999March 31, 2000
(Unaudited) and December 31, 19981999 3
Condensed Statements of Revenues and Expenses and
Comprehensive Margin (Unaudited) for the Three Months
ended March 31, 2000 and Nine Months ended September 30, 1999 and 1998 5
Condensed Statements of Cash Flows (Unaudited)
for the NineThree Months Ended September 30,March 31, 2000 and 1999 and 1998 6
Notes to the Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 1612
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 1713
SIGNATURES 1814
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30,PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 2000 and December 31, 1999
AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2000 1999
1998
ASSETSAssets (Unaudited)
---------------------------------------------------------------------------
Electric plant, at original cost:
ELECTRIC PLANT, AT ORIGINAL COST:
In service $4,869,530 $4,856,174$4,856,774 $4,854,037
Less: Accumulated provision for depreciation (1,602,992) (1,510,888)
----------------- ----------------
3,266,538 3,345,286(1,657,517) (1,625,933)
--------------- ---------------
3,199,257 3,228,104
Nuclear fuel, at amortized cost 88,374 84,41879,751 84,565
Construction work in progress 17,637 20,948
----------------- ----------------
3,372,549 3,450,652
----------------- ----------------
INVESTMENTS AND FUNDS:24,720 18,299
--------------- ---------------
3,303,728 3,330,968
--------------- ---------------
Investments and funds:
Decommissioning fund, at market 126,508 122,094141,423 135,703
Deposit on Rocky Mountain transactions, at cost 58,607 55,75560,583 59,579
Bond, reserve and construction funds, at market 30,870 32,90928,082 31,158
Investment in associated organizations, at cost 16,239 16,23117,788 17,919
Other, at cost 2,731 3,326
----------------- ----------------
234,955 230,315
----------------- ----------------
CURRENT ASSETS:2,510 2,535
--------------- ---------------
250,386 246,894
--------------- ---------------
Current assets:
Cash and temporary cash investments, at cost 125,181 106,235165,022 222,814
Other short-term investments, at market 75,285 73,35676,648 75,482
Customer receivables 132,338 110,919107,688 109,705
Notes and interim financing receivable 73,391 45,151136,277 94,070
Inventories, at average cost 91,635 76,78384,284 89,766
Prepayments and other current assets 17,560 21,395
----------------- ----------------
515,390 433,839
----------------- ----------------
DEFERRED CHARGES:21,466 19,293
--------------- ---------------
591,385 611,130
--------------- ---------------
Deferred charges:
Premium and loss on reacquired debt, being amortized 198,805 206,729191,269 196,289
Deferred amortization of Scherer leasehold 100,828 99,297101,705 101,404
Discontinued projects, being amortized 30,066 36,20325,974 28,020
Deferred debt expense, being amortized 15,106 15,82517,178 17,070
Other 34,369 33,405
----------------- ----------------
379,174 391,459
----------------- ----------------
$4,502,068 $4,506,265
================= ================
31,040 32,847
--------------- ---------------
367,166 375,630
--------------- ---------------
$4,512,665 $4,564,622
=============== ===============
The accompanying notes are an integral part of these condensed financial
statements.
3
OGLETHORPE POWER CORPORATION
CONDENSED BALANCE SHEETS
SEPTEMBER 30,Oglethorpe Power Corporation
Condensed Balance Sheets
March 31, 2000 and December 31, 1999
AND DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2000 1999
1998
EQUITY AND LIABILITIESEquity and Liabilities (Unaudited)
------------------------------------------------------------------------------
Capitalization:
CAPITALIZATION:
Patronage capital and membership fees (including unrealized loss of ($748)1,435)
at September 30, 1999March 31, 2000 and gain of $1,006($1,609) at
December 31, 19981999 on available-for-sale securities) $369,770 $352,701$379,387 $370,025
Long-term debt 3,098,867 3,177,8833,062,376 3,103,590
Obligation under capital leases 276,993 282,299273,280 275,224
Obligation under Rocky Mountain transactions 58,607 55,75560,583 59,579
---------------- -----------------
3,775,626 3,808,418
---------------- 3,804,237 3,868,638
-----------------
----------------
CURRENT LIABILITIES:Current liabilities:
Long-term debt and capital leases due within one year 105,172 97,475110,123 129,419
Accounts payable 64,353 46,67655,411 69,555
Notes payable 70,251 50,986130,253 88,479
Accrued interest 20,333 10,07414,484 50,201
Accrued and withheld taxes 19,433 2146,724 26
Other current liabilities 9,369 17,9018,042 9,318
---------------- -----------------
325,037 346,998
---------------- 288,911 223,326
-----------------
----------------
DEFERRED CREDITS AND OTHER LIABILITIES:Deferred credits and other liabilities:
Gain on sale of plant, being amortized 56,426 58,28255,188 55,807
Net benefit of sale of income tax benefits, being amortized 20,023 26,03016,019 18,021
Net benefit of Rocky Mountain transactions, being amortized 86,800 89,18985,208 86,004
Accumulated deferred income taxes 63,20363,485 63,203
Decommissioning reserve 159,478 156,021169,505 164,510
Other 22,990 21,57622,597 21,661
---------------- -----------------
412,002 409,206
---------------- 408,920 414,301
-----------------
----------------
$4,502,068 $4,506,265$4,512,665 $4,564,622
================ ================= ================
The accompanying notes are an integral part of these condensed financial
statements.
4
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF REVENUES AND EXPENSES AND COMPREHENSIVE MARGIN (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,Oglethorpe Power Corporation
Condensed Statements of Revenues and Expenses and Comprehensive Margin (Unaudited)
For the Three Months Ended March 31, 2000 and 1999
AND 1998
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Three Months Nine Months2000 1999
1998 1999 1998
------------------------------- ---------------------------------------------------------------------------
Operating revenues:
OPERATING REVENUES:
Sales to Members $370,841 $331,361 $878,424 $860,317$264,705 $245,043
Sales to non-Members 22,795 14,414 39,893 37,451
-------------- -------------- -------------- --------------
TOTAL OPERATING REVENUES 393,636 345,775 918,317 897,768
-------------- -------------- -------------- --------------
OPERATING EXPENSES:10,177 5,721
------------- -------------
Total operating revenues 274,882 250,764
------------- -------------
Operating expenses:
Fuel 57,158 55,680 145,298 144,52549,112 41,535
Production 50,376 49,996 153,216 145,41358,993 50,311
Purchased power 192,413 153,202 338,148 337,90772,514 63,006
Depreciation and amortization 33,728 31,074 101,028 93,273
-------------- -------------- -------------- --------------
TOTAL OPERATING EXPENSES 333,675 289,952 737,690 721,118
-------------- -------------- -------------- --------------
OPERATING MARGIN 59,961 55,823 180,627 176,650
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)32,736 33,619
------------- -------------
Total operating expenses 213,355 188,471
------------- -------------
Operating margin 61,527 62,293
------------- -------------
Other income (expense):
Investment income 6,897 5,742 24,961 21,8568,949 7,455
Amortization of deferred gains 619 619
Amortization of net benefit of sale of income tax benefits 2,799 2,799
8,396 8,396
Allowance for equity funds used during construction 34 19 80 4912 27
Other 1,010 786 2,808 1,699
-------------- -------------- -------------- --------------
TOTAL OTHER INCOME 10,740 9,346 36,245 32,000
-------------- -------------- -------------- --------------
INTEREST CHARGES:259 191
------------- -------------
Total other income 12,638 11,091
------------- -------------
Interest charges:
Interest on long-term debt and other obligations 64,757 65,256 198,744 199,79765,076 65,745
Allowance for debt funds used during construction (297) (173) (695) (452)
-------------- -------------- -------------- --------------
NET INTEREST CHARGES 64,460 65,083 198,049 199,345
-------------- -------------- -------------- --------------
NET MARGIN 6,241 86 18,823 9,305(99) (460)
------------- -------------
Net interest charges 64,977 65,285
------------- -------------
Net margin 9,188 8,099
Net change in unrealized gain (loss) on available-for-sale securities (85) 2,366 (1,754) 2,961
-------------- -------------- -------------- --------------
COMPREHENSIVE MARGIN $6,156 $2,452 $17,069 $12,266
============== ============== ============== ==============
174 (775)
------------- -------------
Comprehensive margin $9,362 $7,324
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
5
OGLETHORPE POWER CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,Oglethorpe Power Corporation
Condensed Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and 1999
AND 1998
- ----------------------------------------------------------------------------------------------------------
(dollars in thousands)-----------------------------------------------------------------------------------------------------------
2000 1999
1998
-----------------------------------------------------------------------
Cash flows from operating activities:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net margin $ 18,8239,188 $ 9,305
---------------- ---------------
ADJUSTMENTS TO RECONCILE NET MARGIN TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:8,099
------------ -------------
Adjustments to reconcile net margin to net cash provided
by operating activities:
Depreciation and amortization 136,505 129,41051,244 38,108
Allowance for equity funds used during construction (80) (49)(12) (27)
Amortization of deferred gains (1,856) (1,856)(619) (619)
Amortization of net benefit of sale of income tax benefits (8,396) (8,396)(2,799) (2,799)
Deferred income taxes 283 -
Other 10,596 9,991
CHANGE IN NET CURRENT ASSETS, EXCLUDING LONG-TERM DEBT
AND CAPITAL LEASES DUE WITHIN ONE YEAR AND NOTES PAYABLE:2,337 3,269
Change in net current assets, excluding long-term debt
and capital leases due within one year and notes payable:
Notes receivable 220 502200 209
Receivables (21,419) (21,751)2,017 6,889
Inventories (14,852) (9,388)5,482 (6,676)
Prepayments and other current assets 3,835 (7,971)(2,174) (4,896)
Accounts payable 17,677 18,682(14,144) 11,060
Accrued interest 10,259 1,454(35,718) 4,331
Accrued and withheld taxes 19,219 16,6376,698 6,270
Other current liabilities (8,532) (3,686)
---------------- ---------------
TOTAL ADJUSTMENTS 143,176 123,579
---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 161,999 132,884
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:(1,277) (11,558)
------------ -------------
Total adjustments 11,518 43,561
------------ -------------
Net cash (used in) provided by operating activities 20,706 51,660
------------ -------------
Cash flows from investing activities:
Property additions (44,995) (25,779)(14,582) (18,632)
Net proceeds from bond, reserve and construction funds 1,327 1,143
(Increase) decrease3,013 330
Decrease in investment in associated organizations (8) 343131 138
Increase in other short-term investments (2,972) (4,520)(930) (1,296)
Increase in decommissioning fund (13,905) (8,988)
---------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (60,553) (37,801)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:(2,861) (4,467)
------------ -------------
Net cash used in investing activities (15,229) (23,927)
------------ -------------
Cash flows from financing activities:
Long-term debt proceeds, net (3,497) 1,185(2,957) (2,597)
Long-term debt payments (71,945) (68,931)
Premium paid on refinancing of debt - (24,041)(60,685) (33,825)
Increase in notes payable 19,265 3,98241,774 39,898
Increase in notes receivable under interim financing agreement (28,460) -(42,405) (48,908)
Other 2,137 1,412
---------------- ---------------
NET CASH USED IN FINANCING ACTIVITIES (82,500) (86,393)
---------------- ---------------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 18,946 8,690
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF PERIOD1,004 230
------------ -------------
Net cash used in financing activities (63,269) (45,202)
------------ -------------
Net decrease in cash and temporary cash investments (57,792) (17,469)
Cash and temporary cash investments at beginning of period 222,814 106,235
63,215
---------------- ---------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF PERIOD $125,181------------ -------------
Cash and temporary cash investments at end of period $165,022 $ 71,905
================ ===============
CASH PAID FOR:88,766
============ =============
Cash paid for:
Interest (net of amounts capitalized) $161,459 $ 177,39693,058 $ 52,415
Income taxes - -
The accompanying notes are an integral part of these condensed financial
statements.
6
OGLETHORPE POWER CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30,Oglethorpe Power Corporation
Notes to Condensed Financial Statements
March 31, 2000 and 1999 AND 1998
(A) The condensed financial statements included hereinin this report 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 hereinin this report reflects all adjustments (which include only
normal recurring adjustments) and estimates necessary to present fairly,
in all material respects, the results for the periods ended September 30, 1999March 31,
2000 and 1998.1999. 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 theseThese condensed financial statements should 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 19981999 have been reclassified to conform with the
current period presentation. The results of operations for the three
month period ended March 31, 2000 are not necessarily indicative of
results to be expected for the full year.
(B) In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The standard requires
that all derivative instruments be recognized as assets or liabilities
and be measured at fair value. Oglethorpe is required to adopt SFAS No.
133 by January 1, 2001. Oglethorpe is currently assessing the impact
that adoption of SFAS No. 133 will have on results of operations and
financial condition.
7
ITEMItem 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
MEMBER POWER RESOURCES
UnderManagement's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For the Wholesale Power Contracts,Three Months Ended March 31, 2000 and 1999
Operating Revenues
Revenues from sales to Oglethorpe's 39 retail electric distribution cooperative
members (the Members) may choose to supply all or a
portion of their future requirements with purchases from suppliers other than
Oglethorpe. A new entity, Smarr EMC, was formed in 1998 by 36 of the Members to
own a two-unit, 217 megawatt (MW) combustion turbine (CT) facility, Smarr Energy
Facility (Smarr CT). Smarr CT was declared in commercial operation in June 1999.
Oglethorpe is providing operation management services for this facility.
Smarr EMC, or similar entities, may also own future generation facilities on
behalf of Members who may decide to participate in such projects. Sewell
Creek Energy Facility (Sewell Creek CT) is one such project currently under
construction in which 31 Members are participating. Sewell Creek CT is a
four-unit, 492 MW CT facility scheduled for commercial operation by the
summer of 2000. Oglethorpe is providing construction management services and
interim financing for this facility and anticipates that it will provide
operation management services as well.
In addition, two Members formed an entity that constructed 90 MW of CT
capacity, which began commercial operation in the summer of 1999.
All of these CTs are currently anticipated to be dispatched in the Oglethorpe
pool of generation resources, except for 50 MW of the 90 MW owned by two
Members.
RESULTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1999 and 1998
- ----------------------------------------------------------------------
OPERATING REVENUES
Revenues from sales to Members for the three months and nine months ended September 30, 1999March 31, 2000 were 11.9% and 2.1%8.0% higher
than for the same periodsperiod of 1998.1999. Megawatt-hour (MWh) sales to Members were 3.7% and 5.2%9.5%
higher in the current three-month and nine-month periodsperiod compared to the same periodsperiod of 1998.1999. The increase
in MWh sales to Members in 2000 compared to 1999 was due primarily to continued
sales growth in the Members' service territories. The average revenue per MWh
from sales to Members was 7.9% higher1.3% lower for the current quarter and 2.9% lower year-to-date compared to the
same periodsperiod of 1998.1999.
The components of Member revenues for the three months ended March 31, 2000 and
nine months ended
September 30, 1999 and 1998 were as follows:
8
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands)
Capacity revenues $155,287 $155,866 $465,710 $467,548
Energy revenues 215,554 175,495 412,714 392,769
-------- -------- -------- --------
Total $370,841 $331,361 $878,424 $860,317Three Months
Ended March 31,
------------------------
2000 1999
---- ----
(dollars in thousands)
Capacity revenues $155,316 $155,213
Energy revenues 109,389 89,830
-------- --------
Total $264,705 $245,043
======== ======== ======== ========
While capacity revenues from Members for the three months and nine months ended September 30, 1999March 31, 2000
compared to 19981999 were virtually unchanged, energy revenues were 22.8% and 5.1%21.8% higher for
the current periodsquarter compared to the same periodsperiod of 1998.1999. The increase in energy
revenues in the current quarter of 19992000 was primarilypartly due to higher MWh sales and
partly due to the pass-through of higher energy prices for purchased power in
the wholesale electricity marketsenergy and
higher average fuel costs (see "OPERATING EXPENSES""Operating Expenses" below). Oglethorpe's average
energy revenue per MWh from sales to Members for the current quarterthree-month period was
18.5%11.2% higher in 2000 compared to same quarter of 1998.
The increase in energy revenues from sales to Members for the year-to-date was
due to additional MWhs of energy sold, as the average energy revenue per MWh was
virtually unchanged from the prior year. Peak demand for energy occurred during
the third quarter in 1999 and in the second quarter in 1998. The resulting
higher wholesale electric market prices during the third quarter of 1999 largely
offset the lower market prices for purchased power experienced in the second
quarter of 1999.
The increase in MWh sales to Members in 1999 compared to 1998
was due to continued sales growth in the Members' service territories. In
addition, Oglethorpe provided the Members with additional energy to offset lower
delivery of hydroelectric power from Southeastern Power Administration due to
lower than normal rainfall.8
Sales to non-Members were primarily 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 ended March 31, 2000 and nine months ended September
30,1999:
Three Months
Ended March 31,
------------------------
2000 1999
and 1998:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands)
Sales to other utilities $21,884 $ 9,212 $34,588 $22,626
Sales to power marketers 911 5,202 5,305 14,825
------- ------- ------- -------
Total $22,795 $14,414 $39,893 $37,451
======= ======= =======---- ----
(dollars in thousands)
Sales to other utilities $ 8,576 $3,826
Sales to power marketers 1,601 1,895
------- ------
Total $10,177 $5,721
=======
======
Sales to other utilities 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 Capital Group Inc. (Morgan Stanley) that is not
scheduled by Morgan Stanley pursuant to its power marketer arrangement.
9
Under the LG&E Energy Marketing Inc. (LEM) and Morgan Stanley power marketer
arrangements, sales to the power marketers represent the net energy transmitted
on behalf of LEM and Morgan Stanley off-system on a daily basis from
Oglethorpe's total resources. SuchOglethorpe sold this energy was sold to LEM at Oglethorpe's
cost, subject to certain limitations, and to Morgan Stanley at a contractually
fixed price. The volume of sales to power marketers depends primarily on the
power marketers' decisions for servicing their load requirements.
For information
regarding an arbitration proceeding between Oglethorpe and LEM regarding the LEM
power marketer arrangement, see "PART II - OTHER INFORMATION--Item 1. Legal
Proceedings."
OPERATING EXPENSESOperating Expenses
Operating expenses for the three months and nine months ended September 30, 1999March 31, 2000 were 15.1% and 2.3%13.2% higher
compared to the same periodsperiod of 1998.1999. This increase was primarily due to
25.6% higher totalincreases in fuel, production and purchased power costs for the current three-month periodquarter
compared to the same quarter of 1999.
Fuel costs increased 18.2% primarily as a result of a 15.0% increase in MWhs of
generation. For the current quarter, nuclear generation was 15.4% higher and
fossil generation was 11.6% higher as compared to the same period of 1998.1999. The
higher fossil generation resulted in a 2.9% increase in average fuel costs.
The 17.3% increase in production costs was partly due to higher operations and
maintenance (O&M) expenses for Plant Scherer and partly due to nuclear insurance
costs. The higher O&M expenses for Plant Scherer resulted partly from a $1.6
million true up for sharing of O&M expenses between the owners of Units No. 1
and 2 (which include Oglethorpe) and the owners of Units No. 3 and 4 related to
the burning of western coal. In addition, Plant Scherer Unit No. 2 incurred
higher maintenance outage costs in the first quarter of 2000 compared to the
same quarter of 1999. Also, O&M expenses in 1999 were lowered by a $2.1 million
refund for nuclear insurance.
Purchased power costs year-to-date were virtually unchanged. Oglethorpe purchased 9.6% and 10.4% less
MWhsincreased 15.1% in the three months and nine months ended September 30, 1999 than incurrent quarter compared to the
same periodsperiod of 1998.1999 primarily as a result of a 23.7% increase in purchased MWhs.
The average cost per MWh of total
9
purchased power was 38.9% and 11.7% higher7.0% lower in 19992000 compared to the comparable periodsperiod of
1998.1999. Purchased power costs were as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
(dollars in thousands)
Capacity costs $ 22,858 $ 30,422 $ 75,207 $ 93,102
Energy costs 169,555 122,780 262,941 244,805
-------- -------- -------- --------
Total $192,413 $153,202 $338,148 $337,907
======== ======== ======== ========
Three Months
Ended March 31,
-----------------------
2000 1999
---- ----
(dollars in thousands)
Capacity costs $21,611 $25,408
Energy costs 50,903 37,598
------- -------
Total $72,514 $63,006
======= =======
Purchased power capacity costcosts for the three months and nine months ended September 30, 1999 wasMarch 31, 2000 were
approximately 24.9% and 19.2%14.9% lower than for the comparable periodssame period of 1998.1999. These savings were
primarily a result of the
elimination,a new power purchase agreement Oglethorpe entered into
with Georgia Power Company (GPC) effective SeptemberApril 1, 1998, of a 250 MW component block under1999 which replaced the
Block Power Sale Agreement between Oglethorpe and Georgia Power Company (GPC).Agreement. Purchased power energy costs for the three-month
and nine-month periodsperiod of 19992000 were 38.1% and 7.4%35.4% higher compared to the same periodsperiod of 19981999 primarily
as a result of higher volume of purchased MWhs during the first quarter of 2000
compared to the first quarter of 1999. In addition, higher prices experienced in the
wholesale electricity markets during the third
quarter of 1999 compared to 1998, whereas in 1998 higher prices occurred in the
second quarter compared to 1999. This factor resulted in a 52.7% and a 19.9%9.4% increase in the average cost of
purchased power energy per MWh for the three-month and nine-month periodsperiod of 19992000 compared to
1998. The increase in the
average cost of purchased power energy during the current quarter was primarily
responsible for the increase in the average cost of energy to the Members in the
third quarter of 1999 compared the same period of 1998.
OTHER INCOME1999.
Other Income
Investment income was higher for the three-month and nine-month periodsperiod of 19992000 compared to the
same periodsperiod of 1998 primarily1999 partly due to interest earnings on the notes and interim financing receivable
10
from
Smarr EMC relating to Smarr CT andthe Sewell Creek CT.Energy Facility and partly due to higher
cash and temporary cash investment balances and higher interest earnings on
those investments. See "GENERAL--MEMBER
POWER RESOURCES""Financial Condition" for a further discussion of these projects.
NET MARGIN AND COMPREHENSIVE MARGIN
Oglethorpe's net margin for the
three months and nine months ended September 30,
1999 was $6.2 million and $18.8 million, respectively, compared to $86,000 and
$9.3 million for the same periods of 1998. The higher net margin resulted
primarily from lower than budgeted fixed operations and maintenance (O&M)
expenses and from lower than budgeted interest rates on the variable portion of
long-term debt. Comprehensive margin for Oglethorpe is net margin adjusted for
the net change in unrealized gains and losses on investments in
available-for-sale securities.
FINANCIAL CONDITIONSewell Creek Energy Facility.
Financial Condition
Total assets and total equity plus liabilities as of September 30, 1999March 31, 2000 were $4.5
billion, which was $4.2$52 million less than the total at December 31, 19981999 due
primarily to depreciation of plant and the decrease in cash and temporary cash
investments, offset somewhat by an increase in the notes and interim financing receivable for
construction of Sewell Creek CT, customer receivables and inventories, offset by
depreciation of plant.Energy Facility. The Sewell Creek CT projectEnergy Facility
is being financed on an interim basis by Oglethorpe through the issuance of
commercial paper. Smarr EMC has negotiated permanent financing for the Sewell
Creek Energy Facility, which Oglethorpe expects will close shortly after it is
placed into commercial operation (expected to occur in the summer of 2000).
Oglethorpe expects Smarr EMC to use the proceeds of this financing to repay the
notes to Oglethorpe, and Oglethorpe will in turn repay the commercial paper
issued in connection with the interim financing of the facility. See "General--MEMBER POWER RESOURCES""THE
MEMBERS--Smarr EMC" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS--Financial Condition--Liquidity and Sources
of Capital" in Items 1 and 7 of Oglethorpe's 1999 Annual Report on Form 10-K for
a further discussion of these projects.
ASSETSSmarr EMC.
10
Assets
Property additions for the ninethree months ended September 30, 1999March 31, 2000 totaled $45.0$14.6
million primarily for purchases of nuclear fuel and for additions, replacements
and improvements to existing generation facilities.
The increasedecrease in cash and temporary cash investments was theis a result of cash
provided from operations exceeding cash used in
financing and investing activities, including property additions noted above and
debt principal repayments.repayments, exceeding cash provided from operations.
The increase in customer receivables resulted from significantly higher energy
costs billed to Members at September 30, 1999 compared to the energy costs
reflected in the receivable balance at December 31, 1998.
The increase in notes and interim financing receivable resulted primarily from use of funds for
interim financing activities related to the construction of the Sewell Creek
CT.
Inventories of fossil fuel were greater at September 30, 1999 than at December
31, 1998 as a result of unused coal supplies that were increased in anticipation
of normal seasonal demand for electricity during the summer season. In addition,
inventories were greater because Oglethorpe's fossil fuel plants have been
utilized less than projected due to decisions made by LEM and Morgan Stanley
under the power marketer arrangements. Oglethorpe also has increased its fossil
fuel inventories as part of its Year 2000 contingency plan.
See "Miscellaneous--YEAR 2000--CONTINGENCY PLANNING".
11
Energy Facility.
Prepayments and other current assets decreased primarily due to the exercise of
options purchased to meet summer power requirements.
EQUITY AND LIABILITIES
Accounts payable increased primarily due to the volume of purchased power
activity in September 1999estimated
prepayments to GPC for Plant Hatch O&M costs for April 2000 being $3.3 million
higher compared to December 1998.the estimate for January 2000.
Equity and Liabilities
Accounts payable decreased due to normal variations in the timing of payables
activity.
Notes payable represents commercial paper issued by Oglethorpe as interim
financing for costs incurred in the construction of Sewell Creek CT.Energy
Facility. Oglethorpe expects to be reimbursed for costs relating to the
construction of Sewell Creek CTEnergy Facility shortly after it is placed into
commercial operation, which Oglethorpe anticipates will be byin the summer of
2000.
AccruedThe decrease in accrued interest increased as a result ofresulted from the accrual for the January 1, 2000fourth quarter Federal
Financing Bank interest payment due forbeing paid on January 3, 2000, whereas, the
Scherer Unit No. 2 lease obligation.first quarter Federal Financing Bank interest payment was paid on March 31.
Accrued and withheld taxes increased as a result of the normal monthly accruals
for property taxes, which are generally paid in the fourth quarter of the year.
The decrease in other current liabilities primarily resulted from $8.9 million
improvement in negative book cash balances at September 30, 1999 compared to
1998 year-end.
CAPITAL REQUIREMENTS
The Georgia Department of Natural Resources recently approved a State
Implementation Plan (SIP), developed to bring Atlanta into compliance with
the one-hour ozone National Ambient Air Quality Standards under the Clean Air
Act. The SIP requires significant reductions in nitrogen oxide emissions from
Plants WansleyForward-Looking Statements and Scherer by May 1, 2003. Oglethorpe expects that it and the
other co-owners will have to install control equipment at both plants to
achieve these reductions. Based on this SIP, Oglethorpe estimates that its
share of the expenses for controls will be up to $80 million over the next
four years. The expected expenditures for 2000 and 2001 were previously
reflected in Oglethorpe's forecasted capital expenditures for the years 2000
and 2001 included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition--Capital
Requirements" in Item 7 of Oglethorpe's 1998 Annual Report on Form 10-K. The
remaining expected expenditures are included in Oglethorpe's forecasted
capital expenditures for 2002 and 2003.
The U.S. Environmental Protection Agency (EPA) must approve the SIP before it
is implemented. The EPA has indicated that it will not approve the current
SIP because the EPA does not believe the reductions called for by the SIP
will be sufficient to bring Atlanta into compliance. In response to the EPA's
concerns the Georgia Environmental Protection Division recently announced
that it is considering revising the SIP, which revisions may include stricter
regulations affecting both plants. In addition, it is unclear how the
recently approved rules affecting Plant Scherer will be interpreted. If
stricter standards are implemented or if the recently approved standards are
interpreted to require greater reductions than Oglethorpe anticipates,
Oglethorpe may incur significant additional capital costs. Because these
regulations are subject not only to additional rulemaking, but also to legal
challenges, the above amounts are estimates and may significantly differ from
actual future
12
expenditures Oglethorpe must make to comply with these and other
environmental laws and regulations.
On November 3, 1999, the United States Justice Department, on behalf of the
EPA, filed lawsuits against GPC and some of its affiliates, as well as other
utilities. The lawsuits allege violations of the new source review provisions
and the new source performance standards of the Clean Air act at, among other
facilities, Plant Scherer Units No. 3 and No. 4. Oglethorpe is not currently
named in the lawsuits and Oglethorpe does not have an ownership interest in
the named units of Plant Scherer. The resolution of this matter is highly
uncertain at this time, as is any responsibility of Oglethorpe for a share of
any penalties and capital costs required to remedy any violations at
facilities co-owned by Oglethorpe.
MISCELLANEOUS
COMPETITION
For information about competition in the electric utility industry and the
actions and potential actions Oglethorpe and the Members have taken and are
considering and evaluating to reduce costs and enhance their competitiveness in
anticipation of future increased competition, see Oglethorpe's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1999.
YEAR 2000
BACKGROUND. The Year 2000 issue, which is common to most corporations, concerns
the ability of certain hardware, software, databases and other devices that use
microprocessors to properly recognize date sensitive information related to the
Year 2000 and thereafter. Oglethorpe is heavily dependent upon complex computer
systems for all phases of power supply operations. Oglethorpe's operations
include both information technology (IT) systems, such as billing systems,
financial accounting systems, and human resource/payroll systems, as well as
non-IT systems that may have embedded microprocessors, such as those relating to
operations of the Rocky Mountain Pumped Storage Hydroelectric Facility (Rocky
Mountain), generation substations and Oglethorpe's headquarters facilities.
Management recognizes the seriousness of the Year 2000 issue and believes it has
dedicated adequate resources to address the issue. Oglethorpe's Controller and
Chief Risk Officer is in charge of its Year 2000 program, and he reports
directly to Oglethorpe's President and Chief Executive Officer. As part of its
business alliance with Oglethorpe, Intellisource assisted in the administration
of certain portions of Oglethorpe's Year 2000 program. Oglethorpe's Board of
Directors and its audit committee are monitoring this issue through periodic
updates from project management.
PROJECT PHASES. Oglethorpe has developed and is implementing a detailed strategy
to prevent any material disruption to operations.
Phase I began in April 1997 and included an inventory and assessment of
potential Year 2000 problems in its systems. Substantially all IT and non-IT
systems were inventoried and assessed.
13
Phase II began in the fall of 1997 and includes remediation and testing of all
inventoried IT and non-IT systems. Remediation and testing efforts for all
inventoried internally developed systems applications are complete. Financial
accounting systems, procurement and materials management systems and human
resource/payroll systems are externally developed and supported. Oglethorpe is
replacing most of its financial accounting systems modules and is retaining and
upgrading one module. Oglethorpe expects its financial accounting systems to be
Year 2000 ready during the fourth quarter of 1999. The financial accounting
systems project is approximately 90% complete. All other externally developed
business systems are Year 2000 ready. Critical computer systems required to
operate the Rocky Mountain control room have been upgraded. The computer system
required to manage maintenance activities and purchase materials for Rocky
Mountain has been replaced.
Phase III began in the spring of 1999 with a verification of the completeness of
the original systems inventory. Phase III also includes contingency planning, an
assessment of Year 2000 readiness of material third parties and verification
that all material systems are being properly remediated and tested. This phase
will be on-going throughout 1999.
RELATIONSHIPS WITH THIRD PARTIES. Georgia Transmission Corporation (GTC) and
Georgia System Operations Corporation (GSOC) have implemented detailed
strategies to ensure Year 2000 readiness of the systems utilized in their
transmission and systems control operations. The Year 2000 readiness plans for
Oglethorpe, GTC and GSOC were jointly developed and are being implemented on the
same schedule, as described above.
Oglethorpe has gathered information from the Members regarding their Year 2000
readiness. In addition, the Members have participated in an ongoing survey by
the Georgia Public Service Commission (PSC) to monitor Year 2000 readiness. As
of September 30, 1999, all of the Members were on or ahead of the PSC's schedule
for Year 2000 readiness. Based on the information gathered by Oglethorpe and the
PSC, Oglethorpe is conducting a follow-up program to monitor the Members' Year
2000 readiness and has worked with the Members to coordinate contingency plans
for Oglethorpe and the Members.
All of Oglethorpe's co-owned generating plants, except Rocky Mountain, are
operated by GPC on behalf of itself as a co-owner and as agent for the other
co-owners. Year 2000 remediation and testing on all generation plants which are
operated by GPC are being performed by GPC's parent company, The Southern
Company (Southern). Oglethorpe estimates that approximately $4.7 million will be
billed by Southern based on its ownership share of the co-owned generation
plants, of which approximately $4.4 million has been paid. Remaining costs will
be expensed primarily in 1999. Southern reports that its Year 2000 program for
the Georgia-based generating plants was completed on schedule in June 1999.
Southern also reports that its Year 2000 program will continue to monitor the
affected computer systems, devices and applications into the Year 2000. Southern
is subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and, in accordance therewith, files reports and other
information with the SEC.
14
During Phase III of its program, Oglethorpe is in the process of assessing the
Year 2000 readiness of other third parties, including power marketers (such as
LEM and Morgan Stanley), other utilities and vendors of materials and services.
Oglethorpe has identified over 1,200 such third parties, of which 300 have
continuing relationships with Oglethorpe. Approximately 60 of these are deemed
to be material. Oglethorpe has requested information from these third parties.
As of October 31, 1999, Oglethorpe has received assurances from 100% of material
third parties and approximately 90% of other continuing third parties that they
are Year 2000 ready. Oglethorpe will continue to request information from the
remaining continuing third parties in the fourth quarter of 1999. Oglethorpe may
not be able to identify all third parties' Year 2000 problems and may not be
able to develop adequate contingency plans if third parties do not correct their
Year 2000 problems.
PROJECT COSTS. In addition to the $4.7 million expected to be paid to Southern,
Oglethorpe currently estimates project costs of approximately $4.6 million.
These costs have been incurred to upgrade its internal systems, including
those relating to Rocky Mountain, and to upgrade or replace its externally
developed financial accounting, procurement and materials management systems.
These costs also have been and are being incurred to perform a management
evaluation of the Phase I and Phase II activities, and to perform the
contingency planning and the preparedness evaluation of key business
relationships. Oglethorpe's policy is to expense as incurred the maintenance
and modification costs of existing software, including those associated with
the Year 2000 project, and to capitalize and amortize over its useful life
the cost of new software. To date, Oglethorpe has spent approximately $3.6
million of the $4.6 million on these efforts. These costs are estimates, and
actual costs could be higher.
Oglethorpe plans to pay for Year 2000 costs with general corporate funds. Year
2000 costs are being recovered from the Members through Oglethorpe's rates.
RISK ASSESSMENT. Oglethorpe has implemented a detailed process to minimize the
possibility of power supply interruptions related to Year 2000 challenges and
expects its IT and non-IT systems to be Year 2000 ready by December 31, 1999.
The most reasonably likely worst case scenario would be service interruptions to
Oglethorpe's Members or the Members' retail consumers. These scenarios include
the loss of a generating unit or a source of purchased power, or a disruption in
transmission or distribution services by GTC or the Members. There is also risk
to the Members of billing and other business system failures and of some
reduction in net margin caused by interruptions in service and reduced
electrical demand by consumers because of their Year 2000 issues. Because
Oglethorpe is taking prudent steps to prepare for the Year 2000 challenges, it
expects any interruptions in power supply to be isolated and short in duration.
However, because of material relationships with third parties, Oglethorpe may
not be able to assess fully the possibility of service interruptions to the
ultimate retail consumers or the impact of service interruptions or other
business system failures on its financial condition or results of operations.
Actual results, costs, risks, or worst case scenarios related to Year 2000
issues may materially differ from those that Oglethorpe expects or estimates.
Factors that might cause material differences include, but are not limited to,
Oglethorpe's ability to locate and correct all microprocessors that are not Year
2000 ready, the readiness of third parties, and Oglethorpe's ability to develop
adequate contingency plans to respond to foreseen or unforeseen Year 2000
problems.
15
CONTINGENCY PLANNING. Oglethorpe has developed contingency plans for its IT and
non-IT systems with the assistance of the consulting firm KPMG. The contingency
plans were completed as of July 31, 1999 and will continue to be evaluated,
tested and implemented throughout 1999. The contingency plans also focus on
non-compliance by material third parties and assess the need to identify
alternative vendors and the need to increase inventory of materials and
supplies. The goal of the contingency planning process is to keep any service
interruptions to a minimum and of short duration and to avoid disruptions in its
billing or other management processes. Oglethorpe may incur additional costs as
a result of implementing its contingency plans.
As part of Oglethorpe's contingency plans, it has worked with GTC, GSOC and
the Members to implement an action plan for the Year 2000 rollover based on
Oglethorpe's, GTC's and GSOC's established plans for handling a major storm
or similar event. Oglethorpe will staff a command center beginning on
December 31, 1999 and continuing for as long as needed to resolve any
problems that arise from the date change.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKSAssociated Risks
This Quarterly Report on Form 10-Q contains forward-looking statements,
including statements regarding, among other items, (i) anticipated trends in
Oglethorpe's business and (ii) Oglethorpe's future power supply resources and
arrangements, (iii) anticipated changes in laws or regulations and their effects
on Oglethorpe and (iv) other management issues such as the Year 2000 issue.arrangements. These forward-looking statements are based largely on Oglethorpe's
current expectations and are subject to a number of risks and uncertainties,
certain of which are beyond Oglethorpe's control. For certain factors that could
cause actual results to differ materially from those anticipated by these
forward-looking statements, see "YEAR 2000" herein, "Miscellaneous--COMPETITION"
in Item 2 of Oglethorpe's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1999 and "CERTAIN FACTORS AFFECTING THE ELECTRIC UTILITY
INDUSTRY" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--Miscellaneous--Competition" in ItemItems 1 and 7 of
Oglethorpe's 19981999 Annual Report
11
on Form 10-K. In light of these risks and uncertainties, there can be no
assurance that events anticipated by the forward-looking statements contained in
this Quarterly Report will in fact transpire.
ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures About Market Risk
Oglethorpe's market risks have not changed materially from the market risks
reported in Oglethorpe's 19981999 Annual Report on Form 10-K.
1612
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The arbitration process regarding Oglethorpe's power marketer agreement with LEM
is continuing. Discovery has been completedItem 6. Exhibits and both Oglethorpe and LEM have
submitted their proposed resolutions to the arbitrators. A hearing began on
November 2, 1999 and is ongoing. The agreement calls for the arbitrators to
render a decision within thirty days of the end of the hearing. For more
information on this matter, see "MEMBER REQUIREMENTS AND POWER SUPPLY
RESOURCES--Power Marketer Arrangements--LEM AGREEMENTS" in Item 1 and "LEGAL
PROCEEDINGS" in Item 3 of Oglethorpe's 1998 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
As previously reported in a Current ReportReports on Form 8-K
filed September 3,
1999, Thomas A. Smith succeeded Jack L. King as President and Chief Executive
Officer and as a director of Oglethorpe effective September 15, 1999. As part
of a management transition plan, Mr. King also resigned as President and
Chief Executive Officer and as a director of GTC and GSOC. Effective
September 15, 1999, Julian Brix became President and Chief Executive Officer
and a director of GTC. Effective January 1, 2000, Jerry J. Saacks,
Oglethorpe's Chief Operating Officer, will leave that position to become
President and Chief Executive Officer and a director of GSOC. Effective
November 8, 1999, W. Clayton Robbins was named Oglethorpe's Senior Vice
President, Finance and Administration to replace the position of Chief
Financial Officer which had been vacant since Mr. Smith became President and
Chief Executive Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS(a) Exhibits
Number Description
------ -----------
27.1 Financial Data Schedule (for SEC use only).
(B) REPORTS ON FORM 8-K
A report(b) Reports on Form 8-K
wasNo reports on Form 8-K were filed by Oglethorpe on September 3, 1999, announcing
that Thomas A. Smith was named to succeed Jack L. King as President and Chief
Executive Officer and as a Director of Oglethorpe effective September 15,
1999.
17for the quarter ended March
31, 2000.
13
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 Corporation)
Date: November 10, 1999May 15, 2000 By: /s/ Thomas A. Smith
-----------------------------------------------------------
Thomas A. Smith
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 10, 1999May 15, 2000 /s/ Mac F. Oglesby
----------------------------------------------------------
Mac F. Oglesby
Treasurer
(Principal Financial Officer)
Date: November 10, 1999May 15, 2000 /s/ W. Clayton Robbins
----------------------
W. Clayton Robbins
Senior Vice President, Finance
and Administration
(Principal Financial Officer)
Date: May 15, 2000 /s/ Willie B. Collins
-------------------------------------------------------------
Willie B. Collins
Controller and Chief Risk Officer
(Chief Accounting Officer)
18
14