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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | ||
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, | ||
OR | ||
o | 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. 333-192954
(An Electric Membership Corporation)
(Exact name of registrant as specified in its charter)
Georgia (State or other jurisdiction of incorporation or organization) | 58-1211925 (I.R.S. employer identification no.) | |
2100 East Exchange Place Tucker, Georgia (Address of principal executive offices) | 30084-5336 (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. Yes oý No ýo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filero o Accelerated Filer o Non-Accelerated Filer ý (Do not check if a smaller reporting company) Smaller Reporting Company o Emerging Growth Company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
---|---|---|---|---|
None | N/A | N/A |
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.
(This page has been left blank intentionally)
OGLETHORPE POWER CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 20172019
| | Page No. | ||
---|---|---|---|---|
PART I—FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements | 1 | ||
Unaudited Consolidated Balance Sheets as of September 30, | 1 | |||
Unaudited Consolidated Statements of Revenues and Expenses For the Three and Nine Months ended September 30, | 3 | |||
Unaudited Consolidated Statements of | 4 | |||
| ||||
Unaudited Consolidated Statements of Cash Flows For the Nine Months ended September 30, | ||||
Notes to Unaudited Consolidated Financial Statements | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||
Item 4. | Controls and Procedures | |||
PART II—OTHER INFORMATION | ||||
Item 1. | Legal Proceedings | |||
Item 1A. | Risk Factors | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 3. | Defaults Upon Senior Securities | |||
Item 4. | Mine Safety Disclosures | |||
Item 5. | Other Information | |||
Item 6. | Exhibits | |||
SIGNATURES |
i
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements." All statements, other than statements of historical facts, that address activities, events or developments that we expect or anticipate to occur in the future, including matters such as the timing of various regulatory and other actions, future capital expenditures, business strategy, regulatory actions, and development, construction or operation of facilities (often, but not always, identified through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "projection," "target" and "outlook") are forward-looking statements.
Although we believe that in making these forward-looking statements our expectations are based on reasonable assumptions, any forward-looking statement involves uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Some of the risks, uncertainties and assumptions that may cause actual results to differ from these forward-looking statements are described under "Item 1A—RISK FACTORS" and in other sections of our annual report on Form 10-K for the fiscal year ended December 31, 2016 and under "Risk Factors" in our Form 10-Q for the quarterly period ended June 30, 20172018 and in this quarterly report on Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur.
Any forward-looking statement speaks only as of the date of this quarterly report, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of them; nor can we assess the impact of each factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to:
ii
ii
iii
Item 1. Financial Statements
Oglethorpe Power Corporation |
(dollars in thousands) | (dollars in thousands) | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||
Assets | ||||||||||||||
Electric plant: | ||||||||||||||
In service | $ | 8,857,293 | $ | 8,786,839 | $ | 9,184,450 | $ | 8,981,238 | ||||||
Right-of-use assets—finance leases | 302,732 | 302,732 | ||||||||||||
Less: Accumulated provision for depreciation | (4,260,047 | ) | (4,115,339 | ) | (4,805,514 | ) | (4,544,405 | ) | ||||||
| | | | | | | | | | | | | | |
4,597,246 | 4,671,500 | 4,681,668 | 4,739,565 | |||||||||||
Nuclear fuel, at amortized cost | 360,529 | 377,653 | 351,874 | 358,358 | ||||||||||
Construction work in progress | 3,824,068 | 3,228,214 | 4,515,150 | 3,866,042 | ||||||||||
| | | | | | | | | | | | | | |
Total electric plant | 8,781,843 | 8,277,367 | 9,548,692 | 8,963,965 | ||||||||||
| | | | | | | | | | | | | | |
Investments and funds: | ||||||||||||||
Nuclear decommissioning trust fund | 427,786 | 386,029 | 483,235 | 420,818 | ||||||||||
Investment in associated companies | 74,187 | 72,783 | 73,533 | 77,037 | ||||||||||
Long-term investments | 125,518 | 99,874 | 208,024 | 164,125 | ||||||||||
Restricted investments | 265,180 | 221,122 | 513,193 | 503,158 | ||||||||||
Other | 21,689 | 20,730 | 24,996 | 24,259 | ||||||||||
| | | | | | | | | | | | | | |
Total investments and funds | 914,360 | 800,538 | 1,302,981 | 1,189,397 | ||||||||||
| | | | | | | | | | | | | | |
Current assets: | ||||||||||||||
Cash and cash equivalents | 342,064 | 366,290 | 427,039 | 752,618 | ||||||||||
Restricted short-term investments | 246,432 | 247,006 | 50,790 | 150,000 | ||||||||||
Receivables | 180,250 | 155,042 | 158,451 | 153,647 | ||||||||||
Inventories, at average cost | 263,226 | 259,831 | 272,353 | 259,087 | ||||||||||
Prepayments and other current assets | 20,438 | 32,919 | 10,126 | 8,098 | ||||||||||
| | | | | | | | | | | | | | |
Total current assets | 1,052,410 | 1,061,088 | 918,759 | 1,323,450 | ||||||||||
| | | | | | | | | | | | | | |
Deferred charges: | ||||||||||||||
Regulatory assets | 572,237 | 545,387 | 773,780 | 655,063 | ||||||||||
Prepayments to Georgia Power | 40,346 | 29,459 | ||||||||||||
Other | 28,639 | 16,733 | 23,520 | 21,934 | ||||||||||
| | | | | | | | | | | | | | |
Total deferred charges | 600,876 | 562,120 | 837,646 | 706,456 | ||||||||||
| | | | | | | | | | | | | | |
Total assets | $ | 11,349,489 | $ | 10,701,113 | $ | 12,608,078 | $ | 12,183,268 | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
Oglethorpe Power Corporation |
(dollars in thousands) | (dollars in thousands) | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||
Equity and Liabilities | ||||||||||||||
Capitalization: | ||||||||||||||
Patronage capital and membership fees | $ | 923,495 | $ | 859,810 | $ | 1,013,551 | $ | 962,286 | ||||||
Accumulated other comprehensive margin | (352 | ) | (370 | ) | ||||||||||
| | | | | | | ||||||||
923,143 | 859,440 | |||||||||||||
Long-term debt | 7,991,307 | 7,892,836 | 8,871,910 | 8,727,148 | ||||||||||
Obligation under capital lease | 89,710 | 92,096 | ||||||||||||
Obligation under finance leases | 78,771 | 81,730 | ||||||||||||
Other | 19,725 | 18,765 | 24,977 | 21,428 | ||||||||||
| | | | | | | | | | | | | | |
Total capitalization | 9,023,885 | 8,863,137 | 9,989,209 | 9,792,592 | ||||||||||
| | | | | | | | | | | | | | |
Current liabilities: | ||||||||||||||
Long-term debt and capital lease due within one year | 154,817 | 316,861 | ||||||||||||
Long-term debt and finance leases due within one year | 196,489 | 522,289 | ||||||||||||
Short-term borrowings | 631,949 | 102,168 | 560,671 | — | ||||||||||
Accounts payable | 161,168 | 73,801 | 141,185 | 206,577 | ||||||||||
Accrued interest | 84,287 | 93,634 | 67,118 | 60,971 | ||||||||||
Member power bill prepayments, current | 43,836 | 176,988 | 107,695 | 224,957 | ||||||||||
Other current liabilities | 54,621 | 59,979 | 72,960 | 49,465 | ||||||||||
| | | | | | | | | | | | | | |
Total current liabilities | 1,130,678 | 823,431 | 1,146,118 | 1,064,259 | ||||||||||
| | | | | | | | | | | | | | |
Deferred credits and other liabilities: | ||||||||||||||
Asset retirement obligations | 726,074 | 698,051 | 1,057,560 | 1,017,563 | ||||||||||
Member power bill prepayments, non-current | 202,202 | 48,115 | 77,614 | 54,750 | ||||||||||
Contract retainage | 0 | 40,008 | ||||||||||||
Regulatory liabilities | 236,445 | 197,748 | 299,527 | 218,998 | ||||||||||
Other | 30,205 | 30,623 | 38,050 | 35,106 | ||||||||||
| | | | | | | | | | | | | | |
Total deferred credits and other liabilities | 1,194,926 | 1,014,545 | 1,472,751 | 1,326,417 | ||||||||||
| | | | | | | | | | | | | | |
Total equity and liabilities | $ | 11,349,489 | $ | 10,701,113 | $ | 12,608,078 | $ | 12,183,268 | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
Oglethorpe Power Corporation |
(dollars in thousands) | |||||||||||||
Three Months | Nine Months | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
Operating revenues: | |||||||||||||
Sales to Members | $ | 385,758 | $ | 430,883 | $ | 1,106,975 | $ | 1,158,134 | |||||
Sales to non-Members | 148 | 130 | 220 | 383 | |||||||||
| | | | | | | | | | | | | |
Total operating revenues | 385,906 | 431,013 | 1,107,195 | 1,158,517 | |||||||||
| | | | | | | | | | | | | |
Operating expenses: | |||||||||||||
Fuel | 143,767 | 178,516 | 366,405 | 404,056 | |||||||||
Production | 93,657 | 105,681 | 293,930 | 312,332 | |||||||||
Depreciation and amortization | 56,143 | 54,719 | 167,983 | 162,606 | |||||||||
Purchased power | 14,345 | 13,109 | 44,222 | 39,254 | |||||||||
Accretion | 9,224 | 8,059 | 27,333 | 24,099 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses | 317,136 | 360,084 | 899,873 | 942,347 | |||||||||
| | | | | | | | | | | | | |
Operating margin | 68,770 | 70,929 | 207,322 | 216,170 | |||||||||
| | | | | | | | | | | | | |
Other income: | |||||||||||||
Investment income | 14,850 | 12,578 | 44,509 | 37,628 | |||||||||
Other | 627 | 1,531 | 1,908 | 6,259 | |||||||||
| | | | | | | | | | | | | |
Total other income | 15,477 | 14,109 | 46,417 | 43,887 | |||||||||
| | | | | | | | | | | | | |
Interest charges: | |||||||||||||
Interest expense | 93,809 | 93,544 | 280,621 | 273,066 | |||||||||
Allowance for debt funds used during construction | (33,517 | ) | (30,135 | ) | (99,953 | ) | (84,460 | ) | |||||
Amortization of debt discount and expense | 3,150 | 2,999 | 9,386 | 8,946 | |||||||||
| | | | | | | | | | | | | |
Net interest charges | 63,442 | 66,408 | 190,054 | 197,552 | |||||||||
| | | | | | | | | | | | | |
Net margin | $ | 20,805 | $ | 18,630 | $ | 63,685 | $ | 62,505 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
|
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||
Three Months | Nine Months | Three Months | Nine Months | |||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||
Sales to Members | $ | 382,548 | $ | 384,529 | $ | 1,097,754 | $ | 1,123,741 | ||||||||||||||||||
Sales to non-Members | 75 | 115 | 329 | 470 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Total operating revenues | 382,623 | 384,644 | 1,098,083 | 1,124,211 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Fuel | 138,704 | 151,903 | 349,146 | 394,494 | ||||||||||||||||||||||
Production | 93,092 | 95,971 | 301,996 | 299,134 | ||||||||||||||||||||||
Depreciation and amortization | 60,574 | 56,936 | 183,212 | 170,565 | ||||||||||||||||||||||
Purchased power | 17,716 | 15,381 | 50,415 | 46,030 | ||||||||||||||||||||||
Accretion | 13,328 | 9,608 | 36,361 | 28,364 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Total operating expenses | 323,414 | 329,799 | 921,130 | 938,587 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Operating margin | 59,209 | 54,845 | 176,953 | 185,624 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Other income: | ||||||||||||||||||||||||||
Investment income | 14,144 | 15,242 | 45,129 | 43,925 | ||||||||||||||||||||||
Other | 623 | 1,765 | 1,565 | 5,383 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Total other income | 14,767 | 17,007 | 46,694 | 49,308 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Interest charges: | ||||||||||||||||||||||||||
Interest expense | 100,687 | 95,958 | 301,864 | 280,385 | ||||||||||||||||||||||
Allowance for debt funds used during construction | (47,909 | ) | (38,589 | ) | (138,246 | ) | (110,670 | ) | ||||||||||||||||||
Amortization of debt discount and expense | 2,912 | 3,149 | 8,764 | 9,198 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Net interest charges | 55,690 | 60,518 | 172,382 | 178,913 | ||||||||||||||||||||||
| | | | | | | | | | | | | | |||||||||||||
Net margin | $ | 20,805 | $ | 18,630 | $ | 63,685 | $ | 62,505 | $ | 18,286 | $ | 11,334 | $ | 51,265 | $ | 56,019 | ||||||||||
| | | | | | | | | | | | | ||||||||||||||
Other comprehensive margin: | ||||||||||||||||||||||||||
Unrealized gain (loss) on available-for-sale securities | 56 | (19 | ) | 18 | 358 | |||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||
Total comprehensive margin | $ | 20,861 | $ | 18,611 | $ | 63,703 | $ | 62,863 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
Oglethorpe Power Corporation |
(dollars in thousands) | (dollars in thousands) | |||||||||||||
Patronage Capital and Membership Fees | Accumulated Other Comprehensive (Deficit) Margin | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at December 31, 2015 | $ | 809,465 | $ | 58 | $ | 809,523 | ||||||||
Balance at December 31, 2017 | $ | 911,087 | ||||||||||||
Net margin | 27,399 | |||||||||||||
| | | | | | | | | | | | | | |
Components of comprehensive margin: | ||||||||||||||
Balance at March 31, 2018 | $ | 938,486 | ||||||||||||
Net margin | 62,505 | — | 62,505 | 17,285 | ||||||||||
Unrealized gain on available-for-sale securities | — | 358 | 358 | |||||||||||
| | | | | | | | | | | | | | |
Balance at September 30, 2016 | $ | 871,970 | $ | 416 | $ | 872,386 | ||||||||
Balance at June 30, 2018 | $ | 955,771 | ||||||||||||
Net margin | 11,335 | |||||||||||||
| | | | |||||||||||
Balance at September 30, 2018 | $ | 967,106 | ||||||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Balance at December 31, 2016 | $ | 859,810 | $ | (370 | ) | $ | 859,440 | |||||||
Balance at December 31, 2018 | $ | 962,286 | ||||||||||||
Net margin | 23,596 | |||||||||||||
| | | | | | | | | | | | | | |
Components of comprehensive margin: | ||||||||||||||
Balance at March 31, 2019 | $ | 985,882 | ||||||||||||
Net margin | 63,685 | — | 63,685 | 9,383 | ||||||||||
Unrealized gain on available-for-sale securities | — | 18 | 18 | |||||||||||
| | | | | | | | | | | | | | |
Balance at September 30, 2017 | $ | 923,495 | $ | (352 | ) | $ | 923,143 | |||||||
Balance at June 30, 2019 | $ | 995,265 | ||||||||||||
Net margin | 18,286 | |||||||||||||
| | | | | ||||||||||
Balance at September 30, 2019 | $ | 1,013,551 | ||||||||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
Oglethorpe Power Corporation |
(dollars in thousands) | (dollars in thousands) | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||
Cash flows from operating activities: | ||||||||||||||
Net margin | $ | 63,685 | $ | 62,505 | $ | 51,265 | $ | 56,019 | ||||||
| | | | | | | | | ��� | | | | | |
Adjustments to reconcile net margin to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization, including nuclear fuel | 279,898 | 268,674 | 281,049 | 277,209 | ||||||||||
Accretion cost | 27,333 | 24,099 | 36,361 | 28,364 | ||||||||||
Amortization of deferred gains | (1,341 | ) | (1,341 | ) | (1,341 | ) | (1,341 | ) | ||||||
Allowance for equity funds used during construction | (567 | ) | (567 | ) | (569 | ) | (708 | ) | ||||||
Deferred outage costs | (32,777 | ) | (29,464 | ) | (26,925 | ) | (23,761 | ) | ||||||
Gain on sale of investments | (16,478 | ) | (653 | ) | ||||||||||
(Gain) loss on sale of investments | (4,611 | ) | 3,886 | |||||||||||
Regulatory deferral of costs associated with nuclear decommissioning | 631 | (14,522 | ) | (17,686 | ) | (20,019 | ) | |||||||
Other | (6,610 | ) | (4,424 | ) | (549 | ) | (4,564 | ) | ||||||
Change in operating assets and liabilities: | ||||||||||||||
Receivables | (24,650 | ) | (41,015 | ) | (1,706 | ) | (14,580 | ) | ||||||
Inventories | (3,395 | ) | 30,251 | (13,238 | ) | 16,209 | ||||||||
Prepayments and other current assets | 1,949 | (1,305 | ) | (2,256 | ) | 2,535 | ||||||||
Accounts payable | 68,585 | (87,056 | ) | (60,068 | ) | (6,098 | ) | |||||||
Accrued interest | (9,347 | ) | (966 | ) | 6,147 | 1,298 | ||||||||
Accrued taxes | 7,249 | 5,348 | 34,435 | 12,312 | ||||||||||
Other current liabilities | (13,354 | ) | (20,604 | ) | (26,761 | ) | (11,743 | ) | ||||||
Member power bill prepayments | 20,935 | 32,809 | (94,398 | ) | 67,461 | |||||||||
Other | 37,982 | 10,866 | ||||||||||||
| | | | | | | | | | | | | | |
Total adjustments | 298,061 | 159,264 | 145,866 | 337,326 | ||||||||||
| | | | | | | | | | | | | | |
Net cash provided by operating activities | 361,746 | 221,769 | 197,131 | 393,345 | ||||||||||
| | | | | | | | | | | | | | |
Cash flows from investing activities: | ||||||||||||||
Property additions | (737,146 | ) | (421,384 | ) | (887,160 | ) | (852,225 | ) | ||||||
Activity in nuclear decommissioning trust fund—Purchases | (329,248 | ) | (307,222 | ) | (281,821 | ) | (360,801 | ) | ||||||
—Proceeds | 323,840 | 302,308 | 275,545 | 354,897 | ||||||||||
Increase in restricted investments | (44,058 | ) | (66,821 | ) | ||||||||||
Decrease in restricted short-term investments | 574 | 3,519 | ||||||||||||
Decrease in restricted investments | 89,175 | 127,662 | ||||||||||||
Activity in other long-term investments—Purchases | (45,246 | ) | (44,457 | ) | (165,743 | ) | (160,813 | ) | ||||||
—Proceeds | 27,196 | 35,278 | 134,907 | 135,673 | ||||||||||
Other | (12,780 | ) | 2,401 | (9,674 | ) | 8,331 | ||||||||
| | | | | | | | | | | | | | |
Net cash used in investing activities | (816,868 | ) | (496,378 | ) | (844,771 | ) | (747,276 | ) | ||||||
| | | | | | | | | | | | | | |
Cash flows from financing activities: | ||||||||||||||
Long-term debt proceeds | 4,517 | 634,279 | 683,008 | 280,257 | ||||||||||
Long-term debt payments | (240,417 | ) | (113,328 | ) | (477,360 | ) | (117,684 | ) | ||||||
Increase (decrease) in short-term borrowings, net | 652,401 | (105,225 | ) | |||||||||||
Increase in short-term borrowings, net | 124,044 | 505,397 | ||||||||||||
Other | 14,395 | 8,553 | (7,631 | ) | 6,180 | |||||||||
| | | | | | | | | | | | | | |
Net cash provided by financing activities | 430,896 | 424,279 | 322,061 | 674,150 | ||||||||||
| | | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents | (24,226 | ) | 149,670 | (325,579 | ) | 320,219 | ||||||||
Cash and cash equivalents at beginning of period | 366,290 | 213,038 | 752,618 | 397,695 | ||||||||||
| | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | $ | 342,064 | $ | 362,708 | $ | 427,039 | $ | 717,914 | ||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Supplemental cash flow information: | ||||||||||||||
Cash paid for— | ||||||||||||||
Interest (net of amounts capitalized) | $ | 187,798 | $ | 185,484 | $ | 156,370 | $ | 166,134 | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||||
Change in asset retirement obligations | $ | 2,189 | $ | 72,097 | $ | 5,053 | $ | 2,404 | ||||||
Change in accrued property additions | $ | (21,904 | ) | $ | (24,451 | ) | ||||||||
Accrued property additions at end of period | $ | 103,390 | $ | 144,372 | ||||||||||
Interest paid-in-kind | $ | 42,555 | $ | 34,587 | $ | 55,767 | $ | 44,040 |
The accompanying notes are an integral part of these consolidated financial statements.
Oglethorpe Power Corporation
Notes to Unaudited Consolidated Financial Statements
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2018, as filed with the SEC. The results of operations for the three-monththree- and nine-month periods ended September 30, 20172019 are not necessarily indicative of results to be expected for the full year. As noted in our 20162018 Form 10-K, our revenues consist primarily of sales to our 38 electric distribution cooperative members and, thus, the receivables on the consolidated balance sheets are principally from our members. See "Notes to Consolidated Financial Statements" in our 20162018 Form 10-K.
The guidance establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
result in management's best estimate of fair value. Level 3 financial instruments are those whose fair value is based on significant unobservable inputs. None of our financial assets or liabilities had unobservable inputs classifying them as level 3.
As required by the guidance, assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:
1. Market approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business) and deriving fair value based on these inputs.
2. Income approach. The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.
3. Cost approach. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost). This approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset or comparable utility, adjusted for obsolescence.
The tables below detail assets and liabilities measured at fair value on a recurring basis at September 30, 20172019 and December 31, 2016.2018.
| | | | | | | | | | | | | | | | | | | | | | | |
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||||
September 30, | Quoted Prices in | Significant Other | September 30, | Quoted Prices in | Significant Other | Significant | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | (dollars in thousands) | ||||||||||||||||||||||
Nuclear decommissioning trust funds: | |||||||||||||||||||||||
Domestic equity | $ | 138,008 | $ | 138,008 | $ | — | $ | 164,319 | $ | 164,319 | $ | — | $ | — | |||||||||
International equity trust | 81,260 | — | 81,260 | 88,037 | — | 88,037 | — | ||||||||||||||||
Corporate bonds | 68,909 | — | 68,909 | ||||||||||||||||||||
US Treasury and government agency securities | 51,144 | 51,144 | — | ||||||||||||||||||||
Agency mortgage and asset backed securities | 35,153 | — | 35,153 | ||||||||||||||||||||
Mutual funds | 47,604 | 47,604 | — | ||||||||||||||||||||
Corporate bonds and debt | 62,039 | — | 62,039 | — | |||||||||||||||||||
US Treasury securities | 53,744 | 53,744 | — | — | |||||||||||||||||||
Mortgage backed securities | 54,803 | — | 54,803 | — | |||||||||||||||||||
Domestic mutual funds | 50,990 | 50,990 | — | — | |||||||||||||||||||
Municipal bonds | 301 | — | 301 | 1,237 | — | 1,237 | — | ||||||||||||||||
Federal agency securities | 2,197 | — | 2,197 | — | |||||||||||||||||||
Non-US Gov't bonds & private placements | 272 | — | 272 | — | |||||||||||||||||||
Other | 5,407 | 5,407 | — | 5,597 | 5,597 | — | — | ||||||||||||||||
Long-term investments: | |||||||||||||||||||||||
International equity trust | 20,712 | — | 20,712 | 21,190 | — | 21,190 | — | ||||||||||||||||
Corporate bonds | 15,173 | — | 15,173 | ||||||||||||||||||||
US Treasury and government agency securities | 11,608 | 11,608 | — | ||||||||||||||||||||
Agency mortgage and asset backed securities | 1,348 | — | 1,348 | ||||||||||||||||||||
Mutual funds | 75,479 | 75,479 | — | ||||||||||||||||||||
Corporate bonds and debt | 18,340 | — | 18,340 | — | |||||||||||||||||||
US Treasury securities | 9,772 | 9,772 | — | — | |||||||||||||||||||
Mortgage backed securities | 13,246 | — | 13,246 | — | |||||||||||||||||||
Domestic mutual funds | 94,772 | 94,772 | — | — | |||||||||||||||||||
Federal agency securities | 46 | — | 46 | — | |||||||||||||||||||
Treasury STRIPS | 48,058 | — | 48,058 | — | |||||||||||||||||||
Other | 1,198 | 1,199 | — | 2,600 | 2,600 | — | — | ||||||||||||||||
Natural gas swaps | 807 | — | 807 | 26,379 | — | 26,379 | — | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Fair Value Measurements at Reporting Date Using | Fair Value Measurements at Reporting Date Using | ||||||||||||||||||||||
December 31, | Quoted Prices in | Significant Other | December 31, | Quoted Prices in | Significant Other | Significant | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | (dollars in thousands) | ||||||||||||||||||||||
Nuclear decommissioning trust funds: | |||||||||||||||||||||||
Domestic equity | $ | 170,408 | $ | 170,408 | $ | — | $ | 136,196 | $ | 136,196 | $ | — | $ | — | |||||||||
International equity trust | 66,861 | — | 66,861 | 76,852 | — | 76,852 | — | ||||||||||||||||
Corporate bonds | 60,019 | — | 60,019 | ||||||||||||||||||||
US Treasury and government agency securities | 65,725 | 65,725 | — | ||||||||||||||||||||
Agency mortgage and asset backed securities | 17,410 | — | 17,410 | ||||||||||||||||||||
Corporate bonds and debt | 51,356 | — | 48,853 | 2,503 | |||||||||||||||||||
US Treasury securities | 47,712 | 47,712 | — | — | |||||||||||||||||||
Mortgage backed securities | 56,004 | — | 56,004 | — | |||||||||||||||||||
Domestic mutual funds | 43,359 | 43,359 | — | — | |||||||||||||||||||
Municipal bonds | 943 | — | 943 | 278 | — | 278 | — | ||||||||||||||||
Federal agency securities | 6,066 | — | 6,066 | — | |||||||||||||||||||
Non-US Gov't bonds & private placements | 964 | — | 964 | — | |||||||||||||||||||
Other | 4,663 | 4,663 | — | 2,031 | 2,031 | — | — | ||||||||||||||||
Long-term investments: | |||||||||||||||||||||||
Corporate bonds | 11,853 | — | 11,853 | ||||||||||||||||||||
US Treasury and government agency securities | 12,187 | 12,187 | — | ||||||||||||||||||||
Agency mortgage and asset backed securities | 1,651 | — | 1,651 | ||||||||||||||||||||
International equity trust | 15,946 | — | 15,946 | 17,382 | — | 17,382 | — | ||||||||||||||||
Mutual funds | 57,932 | 57,932 | — | ||||||||||||||||||||
Corporate bonds and debt | 12,571 | — | 11,366 | 1,205 | |||||||||||||||||||
US Treasury securities | 12,062 | 12,062 | — | — | |||||||||||||||||||
Mortgage backed securities | 11,517 | — | 11,517 | — | |||||||||||||||||||
Domestic mutual funds | 94,494 | 94,494 | — | — | |||||||||||||||||||
Federal agency securities | 941 | — | 941 | — | |||||||||||||||||||
Treasury STRIPS | 14,113 | — | 14,113 | — | |||||||||||||||||||
Other | 305 | 305 | — | 1,045 | 1,045 | — | — | ||||||||||||||||
Natural gas swaps | (15,090 | ) | — | (15,090 | ) | 13,154 | — | 13,154 | — | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | |
NoneThe Level 2 investments above in corporate bonds and debt, federal agency mortgage backed securities, and mortgage backed securities may not be exchange traded. The fair value measurements for these investments are based on a market approach, including the use of ourobservable inputs. Common inputs include reported trades and broker/dealer bid/ask prices. The fair value of the Level 2 investments above in international equity trust are calculated based on the net asset value per share of the fund. There are no unfunded commitments for the international equity trust and redemption may occur daily with a 3-day redemption notice period.
The Level 3 investments above in corporate bonds and debt consist of investments in bank loans which are not exchanged traded. Although these securities may be liquid and priced daily, their inputs are not observable.
The following table presents the changes in Level 3 assets or liabilities measured at fair value on a recurring basis were categorized as Level 3 atduring the three and nine months ended September 30, 2017 or December 31, 2016.2019 and 2018.
| | | | |
Three Months Ended | ||||
Corporate bonds and debt | ||||
| | | | |
(dollars in thousands) | ||||
Assets (Liabilities): | ||||
Balance at June 30, 2019 | $ | — | ||
Total gains or losses (realized/unrealized): | ||||
Included in earnings (or changes in net assets) | — | |||
Liquidations | — | |||
| | | | |
Balance at September 30, 2019 | $ | — | ||
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Nine Months Ended | ||||
Corporate bonds and debt | ||||
| | | | |
(dollars in thousands) | ||||
Assets (Liabilities): | ||||
Balance at December 31, 2018 | $ | 3,708 | ||
Total gains or losses (realized/unrealized): | ||||
Included in earnings (or changes in net assets) | 94 | |||
Liquidations | (3,802 | ) | ||
| | | | |
Balance at September 30, 2019 | $ | — | ||
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Three Months Ended | ||||
Corporate bonds and debt | ||||
| | | | |
(dollars in thousands) | ||||
Assets (Liabilities): | ||||
Balance at June 30, 2018 | $ | 4,997 | ||
Total gains or losses (realized/unrealized): | ||||
Included in earnings (or changes in net assets) | (656 | ) | ||
| | | | |
Balance at September 30, 2018 | $ | 4,341 | ||
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Nine Months Ended | ||||
Corporate bonds and debt | ||||
| | | | |
(dollars in thousands) | ||||
Assets (Liabilities): | ||||
Balance at December 31, 2017 | $ | — | ||
Transfers to Level 3 | 4,997 | |||
Total gains or losses (realized/unrealized): | ||||
Included in earnings (or changes in net assets) | (656 | ) | ||
| | | | |
Balance at September 30, 2018 | $ | 4,341 | ||
| | | | |
| | | | |
| | | | |
| | | | |
The estimated fair values of our long-term debt, including current maturities at September 30, 20172019 and December 31, 20162018 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | ||
2017 | 2016 | 2019 | 2018 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Long-term debt | $ | 8,237,972 | $ | 9,119,700 | $ | 8,304,523 | $ | 9,043,029 | $ | 9,174,752 | $ | 10,976,451 | $ | 9,347,307 | $ | 9,837,254 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
The estimated fair value of long-term debt is classified as Level 2 and is estimated based on observed or quoted market prices for the same or similar issues or on current rates offered to us for debt of similar maturities. The primary sources of our long-term debt consist of first mortgage bonds, pollution control revenue bonds and long-term debt issued by the Federal Financing Bank that is guaranteed by the Rural Utilities Service or the U.S. Department of Energy. We also have small amounts of long-term debt provided by National Rural Utilities Cooperative Finance Corporation (CFC) and by CoBank, ACB.. The valuations for the first mortgage bonds and the pollution control revenue bonds were obtained from a third party data reporting service, and are based on secondary market trading of our debt. Valuations for debt issued by the Federal Financing Bank are based on U.S. Treasury rates as of September 30, 20172019 plus an applicable spread, which reflects our borrowing rate for new loans of this type from the Federal Financing Bank. The rates on the CFC debt are fixed and the valuation is based on rate quotes provided by CFC. We use an interest rate quote sheet provided by CoBank for valuation of the CoBank debt, which reflects current rates for similar loans.
For cash and cash equivalents, and receivables, the carrying amount approximates fair value because of the short-term maturity of those instruments. Restricted investments consist of funds on deposit with the Rural Utilities Service in the Cushion of Credit Account and the carrying amount of these investments approximates fair value.value because of the liquid nature of the deposits with the U.S. Treasury.
We are exposed to credit risk as a result of entering into these hedging arrangements. Credit risk is the potential loss resulting from a counterparty's nonperformance under an agreement. We have established policies and procedures to manage credit risk through counterparty analysis, exposure calculation and monitoring, exposure limits, collateralization and certain other contractual provisions.
It is possible that volatility in commodity prices could cause us to have credit risk exposures with one or more counterparties. If such counterparties fail to perform their obligations, we could suffer a financial loss. However, as of September 30, 20172019, all of the counterparties with transaction amounts outstanding under our hedging programs are rated investment grade by the major rating agencies or have provided a guaranty from one of their affiliates that is rated investment grade.
We have entered into International Swaps and Derivatives Association agreements with our natural gas hedge counterparties that mitigate credit exposure by creating contractual rights relating to creditworthiness, collateral, termination and netting (which, in certain cases, allows us to use the net value of affected transactions with the same counterparty in the event of default by the counterparty or early termination of the agreement).
Additionally, we have implemented procedures to monitor the creditworthiness of our counterparties and to evaluate nonperformance in valuing counterparty positions. We have contracted with a third party to assist in monitoring certain of our counterparties' credit standing and condition. Net liability positions are generally not adjusted as we use derivative transactions as hedges and have the ability and intent to perform under each of our contracts. In the instance of net asset positions, we consider general market conditions and the observable financial health and outlook of specific counterparties, forward looking data such as credit default swaps, when available, and historical default probabilities from credit rating agencies in evaluating the potential impact of nonperformance risk to derivative positions.
The contractual agreements contain provisions that could require us or the counterparty to post collateral or credit support. The amount of collateral or credit support that could be required is calculated as the difference between the aggregate fair value of the hedges and pre-established credit thresholds. The credit thresholds are contingent upon each party's credit ratings from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty.
Gas hedges. Under the natural gas swap arrangements, we pay the counterparty a fixed price for specified natural gas quantities and receive a payment for such quantities based on a market price index. These payment obligations are netted, such that if the market price index is lower than the fixed price, we will make a net payment, and if the market price index is higher than the fixed price, we will receive a net payment.
At September 30, 20172019 and December 31, 2016,2018, the estimated fair valuevalues of our natural gas contracts was awere net liabilityliabilities of approximately $807,000$26,379,000 and a net asset of $15,090,000,$13,154,000, respectively.
As of September 30, 20172019 and December 31, 2016,2018, neither we nor any counterparties were required to post credit support or collateral under the natural gas swap agreements. If the credit-risk-related contingent features underlying these agreements were triggered on September 30, 20172019 due to our credit rating being downgraded below investment grade, we would have been required to post collateral or letters of credit of $2,788,000$26,379,000 with our counterparties.
The following table reflects the notional volume activity of our natural gas derivatives as of September 30, 20172019 that is expected to settle or mature each year:
| | | | | | | | |
Year | Natural Gas Swaps | Natural Gas Swaps | ||||||
| | | | | | | | |
2017 | 3.8 | |||||||
2018 | 24.6 | |||||||
2019 | 18.7 | 3.5 | ||||||
2020 | 15.9 | 24.9 | ||||||
2021 | 12.9 | 22.0 | ||||||
2022 | 5.8 | 15.3 | ||||||
2023 | 10.2 | |||||||
2024 | 7.2 | |||||||
| | | | | | | | |
Total | 81.7 | 83.1 | ||||||
| | | | | | | | |
Interest rate options. In fourth quarter of 2011, we purchased seventeen LIBOR swaptions at a cost of $100,000,000 with a total notional amount of approximately $2,200,000,000 to hedge the interest rates on a portion of the debt that we are incurring to finance the two additional nuclear units at Plant Vogtle. The last of these options, having a notional value of $80,169,000, expired without value at March 31, 2017.
We are deferring the premiums paid to purchase these LIBOR swaptions, related carrying and other incidental costs in accordance with our rate-making treatment. The deferral will continue and costs will be amortized and collected in rates over the life of the associated debt that we hedged with the swaptions.
The table below reflects the fair value of derivative instruments and their effect on our consolidated balance sheets at September 30, 20172019 and December 31, 2016.2018.
| | | | | | | | | | | | | | | | | | |
Balance Sheet | Fair Value | Balance Sheet | Fair Value | |||||||||||||||
| | | | | | | | | | | | | | | | | | |
2017 | 2016 | 2019 | 2018 | |||||||||||||||
| (dollars in thousands) |
| (dollars in thousands) | |||||||||||||||
Not designated as hedges: | ||||||||||||||||||
Assets: | ||||||||||||||||||
Natural gas swaps | Other current assets | $ | 3,302 | $ | 13,833 | |||||||||||||
Natural gas swaps | Other deferred charges | $ | — | $ | 3,289 | Other current assets | $ | — | $ | 226 | ||||||||
Liabilities: |
|
| ||||||||||||||||
Natural gas swaps | Other current liabilities | $ | — | $ | 54 | Other current liabilities | $ | 10,435 | $ | 2,066 | ||||||||
Natural gas swaps | Other deferred credits | $ | 4,109 | $ | 1,977 | Other deferred credits | $ | 15,944 | $ | 11,314 | ||||||||
| | | | | | | | | | | | | | | | | | |
The following table presents the gross realized gains and (losses) on derivative instruments recognized in margin for the three and nine months ended September 30, 20172019 and 2016.2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Statement of Revenues and Expenses Location | Three months ended September 30, | Nine months ended September 30, | Statement of | Three months | Nine months | |||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||||||
Not Designated as hedges: | ||||||||||||||||||||||||||||||
Natural Gas Swaps | Fuel | $ | 778 | $ | 2,039 | $ | 3,514 | $ | 2,057 | |||||||||||||||||||||
Natural Gas Swaps | Fuel | (678 | ) | (5,923 | ) | (1,495 | ) | (18,262 | ) | |||||||||||||||||||||
Natural Gas Swaps gains | Fuel | $ | — | $ | 863 | $ | 224 | $ | 2,614 | |||||||||||||||||||||
Natural Gas Swaps losses | Fuel | (6,294 | ) | (97 | ) | (8,093 | ) | (956 | ) | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
$ | 100 | $ | (3,884 | ) | $ | 2,019 | $ | (16,205 | ) | |||||||||||||||||||||
Total | $ | (6,294 | ) | $ | 766 | $ | (7,869 | ) | $ | 1,658 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table presents the unrealized gains and (losses)losses on derivative instruments deferred on the balance sheet at September 30, 20172019 and December 31, 2016.2018.
| | | | | | | | | | | | | | | | | | |
Balance Sheet | 2017 | 2016 | Balance Sheet Location | 2019 | 2018 | |||||||||||||
| | | | | | | | | | | | | | | | | | |
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||
Not designated as hedges: | ||||||||||||||||||
Natural gas swaps | Regulatory asset | $ | (2,788 | ) | $ | (62 | ) | Regulatory asset | $ | 26,379 | $ | 13,154 | ||||||
Natural gas swaps | Regulatory liability | 1,981 | 15,152 | |||||||||||||||
Interest rate options | Regulatory asset | — | (5,788 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | |
Total not designated as hedges | $ | (807 | ) | $ | 9,302 | |||||||||||||
Total | $ | 26,379 | $ | 13,154 | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
The following tables summarize available-for-saledebt and equity securities as of September 30, 20172019 and December 31, 2016.2018.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross Unrealized | Gross Unrealized | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||
September 30, 2017 | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
September 30, 2019 | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity | $ | 251,021 | $ | 75,181 | $ | (4,386 | ) | $ | 321,816 | $ | 256,835 | $ | 114,881 | $ | (7,298 | ) | $ | 364,418 | ||||||||
Debt | 224,458 | 2,194 | (1,769 | ) | 224,883 | 309,021 | 10,185 | (563 | ) | 318,643 | ||||||||||||||||
Other | 6,604 | 1 | — | 6,605 | 8,198 | — | — | 8,198 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | $ | 482,083 | $ | 77,376 | $ | (6,155 | ) | $ | 553,304 | $ | 574,054 | $ | 125,066 | $ | (7,861 | ) | $ | 691,259 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Gross Unrealized | Gross Unrealized | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
(dollars in thousands) | (dollars in thousands) | |||||||||||||||||||||||||
December 31, 2016 | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
December 31, 2018 | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Equity | $ | 237,317 | $ | 51,054 | $ | (5,041 | ) | $ | 283,330 | $ | 251,226 | $ | 64,954 | $ | (9,105 | ) | $ | 307,075 | ||||||||
Debt | 201,492 | 1,167 | (3,423 | ) | 199,236 | 278,030 | 1,718 | (4,955 | ) | 274,793 | ||||||||||||||||
Other | 3,339 | — | (2 | ) | 3,337 | 3,075 | — | — | 3,075 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | ||
Total | $ | 442,148 | $ | 52,221 | $ | (8,466 | ) | $ | 485,903 | $ | 532,331 | $ | 66,672 | $ | (14,060 | ) | $ | 584,943 | ||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | |
In August 2015, the FASB issued an update to Topic 606 deferring the effective date by one year. The standard is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. The standard also permits early adoption of the standard, but not before the original effective date of December 15, 2016.
While we expect that the majority of our revenues will be included in the scope of Topic 606, we have not fully completed our evaluation of the new revenue standard. Our evaluation process includes, but is not limited to, identifying contracts within the scope of Topic 606, reviewing and documenting our accounting for these contracts and assessing the applicability of the variable consideration guidance. A large majority of our revenues is derived from substantially identical wholesale power contracts that we have with each of our 38 members. We expect the pattern of revenue recognition pursuant to our wholesale power contracts will remain unchanged on an annual basis under the new revenue standard. However, we continue to evaluate the effects, if any, of Topic 606 on our interim period revenues as it relates to budget adjustments, which have historically been made during the fourth quarter but may also be made during the year that affect our annual revenue requirement and therefore amounts billed to our members. We also continue to evaluate other revenue streams and the related contracts, as well as monitor issues specific to the power and utilities industry. While we have not fully completed our evaluation of the impact of the new revenue recognition guidance, we currently anticipate utilizing a full retrospective transition upon the adoption of Topic 606 as of January 1, 2018.
In January 2016, the FASB issued "Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new standard is effective for us for annual reporting periods beginning after December 15, 2017, and interim periods therein. Certain provisions within this update can be adopted early. Certain provisions within this update should be applied by means of a cumulative effect adjustment to the balance sheet of the fiscal year of adoption and certain provisions should be applied prospectively. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued "Leases (Topic 842)." The new leases standard requires a dual approach for lessee accounting under which a lessee would accountaccounts for leases as finance leases or operating leases. BothAccounting for both finance leases and operating leases will resultresults in the lessee recognizing a right-of-use (ROU) asset and a corresponding lease liability. For finance leases the lessee would recognizerecognizes interest expense and amortization of the ROU asset and for operating leases the lessee would recognizerecognizes a straight-line total lease expense. Quantitative and qualitative disclosures are required for significant judgments made by management. The new lease standard does not substantially change lessor accounting. TheWe adopted the new leases standard is effective for us on a modified retrospective approach for annual reporting periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are currently evaluating the future impact of this standard on our consolidated financial statements.
In June 2016, the FASB issued "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this update replace the current incurred loss impairment methodology with a methodology that reflects expected credit losses. The new standard is effective for us prospectively for annual reporting periods beginning after December 15, 2019, and interim periods therein. The amendments in this update can be adopted earlier as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. We are currently evaluatingcontinue to evaluate the future impact of this standard on our consolidated financial statements.statements, however, we do not expect the impact to be material.
In August 2016,2018, the FASB issued "Statement"Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." This standard eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of Cash Flows (Topic 230): Classificationthe FASB's disclosure framework project. Entities will no longer be required to disclose the amount of Certain Cash Receipts and Cash Payments."reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. However, public business entities will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this standard provide specific guidance on eight cash flow classification issues relating to how certain cash receipts and cash paymentsupdate are presented and classified in the statement of cash flows, thereby reducing the current and potential future diversity in practice. The new standard is effective for usall entities for annual reportingfiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and interim periods therein. Early adoption2019. An entity is permitted includingto early adopt any removed or modified disclosures upon issuance of this update and delay adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning ofadditional disclosures until their effective date.
As the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments should be applied using a retrospective transition methodstandard relates only to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
In November 2016, the FASB issued "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)." The amendments in this standard require the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents are to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The new standard is effective for us on a retrospective basis for annual reporting periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted, including adoption in an interim period. Our restricted cash balances are nominal and accordinglydisclosures, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements. We are currently evaluating the standard and whether we will early adopt the standard.
Pursuant to our contracts, we primarily provide two services, capacity and energy. Capacity and energy revenues are recognized by us upon transfer of control of promised services to our members and non-members in an amount that reflects the consideration we expect to receive in exchange for those services. Capacity and energy are distinct and we account for them as separate performance obligations. The table belowobligations to provide capacity and energy are satisfied over time as the customer simultaneously receives and consumes the benefit of these services. Both performance obligations are provided directly by us and not through a third party.
Each of our members is obligated to pay us for capacity and energy we furnish under the wholesale power contract in accordance with rates we establish. We review our rates periodically but are required to do so at least once every year. Revenues from our members are derived through a cost-plus rate structure which is set forth as a formula in the rate schedule to the wholesale power contracts. The formulary rate provides detailfor the pass-through of our (i) fixed costs (net of any income from other sources) plus a targeted margin as capacity revenues and (ii) variable costs as energy revenues from our members. Power purchase and sale agreements between us and non-members obligate each non-member to pay us for capacity, if any, and energy furnished in accordance with the prices mutually agreed upon. Margins produced from non-member sales are included in our rate schedule formula and reduce revenue requirements from our members.
The consideration we receive for providing capacity services is determined by our formulary rate on an annual basis. The components of the beginningformulary rate associated with capacity costs include the annual budget of fixed costs, a targeted margin and ending balance for each classification ofincome from other comprehensive margin along withsources. Capacity revenues, therefore, vary to the amount of any reclassification adjustments included in margin for each of the periods presented in the unaudited Consolidated Statements of Patronage Capitalextent these components vary. Fixed costs include items such as fixed operation and Membership Feesmaintenance expenses, administrative and Accumulated Other Comprehensive (Deficit) Margin. There were no material changes in the nature, timing or amounts of expected (gain) loss reclassified to net margin from the amounts disclosed in our 2016general expenses, depreciation and
Form 10-K. Amounts reclassifiedinterest. Year to net marginyear, capacity revenue fluctuations are generally due to the recovery of fixed operation and maintenance costs. Fixed costs also include certain costs, such as major maintenance costs, which will be recognized as expense in future periods. Recognition of revenues associated with these future expenses is deferred pursuant to Accounting Standards Codification (ASC) 980, Regulated Operations. The regulatory liabilities are amortized to revenue in accordance with the table belowassociated revenue deferral plan as the expenses are reflectedrecognized. For information regarding regulatory accounting, see Note J.
Capacity revenues are recognized by us for standing ready to deliver electricity to our customers. Our capacity revenues are based on the associated costs we expect to recover in "Other income"a given year and are recognized and billed to our members in equal monthly installments over the course of the year regardless of whether our generation and purchased power resources are dispatched to produce electricity. Non-member capacity revenues, if any, are typically billed and recognized in equal monthly installments over the term of the contract.
We have a power bill prepayment program pursuant to which our members may prepay future capacity costs and receive a discount. As this program provides us with significant financing, we adjust our capacity revenues by the amount of the discount, which is based on our unaudited Consolidated Statementsavoided cost of Revenuesborrowing. For additional information regarding our member prepayment program, see Note K.
We satisfy our performance obligations to deliver energy as energy is delivered to the applicable meter points. We determine the standard selling price for energy we deliver to our members based upon the variable costs incurred to generate or purchase that energy. Fuel expense is the primary variable cost. Energy revenue recognized equals the actual variable expenses incurred in any given accounting period. Our member energy revenues fluctuate from period to period based on several factors, including fuel costs, weather and Expenses.other seasonal factors, load requirements in our members' service territories, variable operating costs, the availability of electric generation resources, our decisions of whether to dispatch our owned or purchased resources or member-owned resources over which we have dispatch rights, and by members' decisions of whether to purchase a portion of their hourly energy requirements from our resources or from other suppliers. We provide approximately 60% of our members' energy requirements. The standard selling price for our energy revenues from non-members is the price mutually agreed upon.
Our effective tax rateWe are required under our first mortgage indenture to produce a margins for interest ratio of at least 1.10 for each fiscal year. For 2019, our board has approved a targeted margins for interest ratio of 1.14. Historically, our board of directors has approved adjustments to revenue requirements by year end such that revenue in excess of that required to meet the targeted margins for interest ratio is zero; therefore, all amounts belowrefunded to the members. Given that our capacity revenues are presented netbased upon budgeted expenditures and generally recognized and billed to our members in equal monthly installments over the course of tax.the year, we may recognize capacity revenues that exceed our actual fixed costs and targeted margins in any given interim reporting period. At each interim reporting period we assess our projected revenue requirements through year end to determine whether a refund to our members of excess consideration is likely. If so, we reduce our capacity revenues and recognize a refund liability to our members. Refund liabilities, if any, are included in accounts payable on our consolidated balance sheets. As of September 30, 2019 and September 30, 2018, we recognized refund liabilities totaling $7,700,000 and $20,000,000, respectively. Based on our current agreements with non-members, we do not refund any consideration received from non-members.
Sales to members for the three and nine months ended September 30, 2019 and 2018 were as follows:
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Accumulated Other Comprehensive (Deficit) Margin | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Three Months Ended | (dollars in thousands) | ||||||||||||||||
| | | | ||||||||||||||
(dollars in thousands) | |||||||||||||||||
Available-for-sale | 2019 | 2018 | 2019 | 2018 | |||||||||||||
| | | | | | | | | | | | | | | | | |
Balance at June 30, 2016 | $ | 435 | |||||||||||||||
Unrealized gain | 50 | ||||||||||||||||
(Gain) reclassified to net margin | (69 | ) | |||||||||||||||
Capacity revenues | $ | 231,270 | $ | 219,597 | $ | 712,305 | $ | 691,649 | |||||||||
Energy revenues | 151,278 | 164,932 | 385,449 | 432,092 | |||||||||||||
| | | | | | | | | | | | | | | | | |
Balance at September 30, 2016 | $ | 416 | |||||||||||||||
Total | $ | 382,548 | $ | 384,529 | $ | 1,097,754 | $ | 1,123,741 | |||||||||
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Member energy requirements supplied | 57 | % | 57 | % | 56 | % | 58 | % | |||||||||
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Sales to non-members during the three and nine months ended September 30, 2019 and 2018 were insignificant.
Electric capacity and energy revenues are recognized by us without any obligation for returns, warranties or taxes collected. As our members are jointly and severally obligated to pay all expenses associated with owning and operating our power supply business and we perform an on-going assessment of the credit worthiness of non-members, we have not recorded an allowance for doubtful accounts associated with our receivables from members or non-members.
We have a rate management program that allows us to expense and recover interest costs on a current basis that would otherwise be deferred or capitalized. The subscribing members of Vogtle Units No. 3 and No. 4 can elect to participate in this program on an annual basis. The Vogtle program allows for the recovery of financing costs associated with the construction of Vogtle Units No. 3 and No. 4 on a current basis. Under this program, amounts billed to participating members during the nine months ended September 30, 2019 and September 30, 2018 were $12,368,000 and $7,897,000, respectively. The cumulative amount billed since inception of the program totaled $78,685,000.
In 2018, we began an additional rate management program that allows us to recover future expense on a current basis from our members. In general, the program allows for additional collections over a five-year period with those amounts then applied to billings over the subsequent five-year period. The program is designed primarily as a mechanism to assist our members in managing the rate impacts associated with the commercial operation of the new Vogtle units. Under this program, amounts billed to participating members during the nine months ended September 30, 2019 and September 30, 2018 were $35,069,000 and $10,805,000, respectively. Funds collected through this program are invested and held until applied to members' bills. In conjunction with this program, we are applying regulated operations accounting to defer these revenues and related investment income on the funds collected. Amounts deferred under the program will be amortized to income when applied to members' bills. The cumulative amount billed since inception of the program totaled $50,505,000.
On January 1, 2019, we adopted the new leases standard using the optional transition method to apply the new lease guidance as of January 1, 2019, rather than as of the earliest period presented. In addition, we elected the package of practical expedients permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. Adoption of the new leases
standard resulted in recognition of right-of-use assets and offsetting lease liabilities totaling approximately $6,983,000 for certain operating leases. The adoption of this standard did not materially impact our consolidated financial statements.
We classify our four Scherer Unit No. 2 leases as finance leases and our railcar leases as operating leases. We have made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from short-term leases, leases having an initial term of 12 months or less, for any class of underlying asset. We recognize lease expense for short-term leases on a straight-line basis over the lease term. Lease expense recognized for our short-term leases during the nine months ended September 30, 2019 and September 30, 2018 was insignificant.
Finance Leases
Three of our finance leases have lease terms through December 31, 2027, and one lease extends through June 30, 2031. At the end of the leases, we can elect at our sole discretion to:
For rate-making purposes, we include the actual lease payments for our finance leases in our cost of service. The difference between lease payments and the aggregate of the amortization on the right-of-use asset and the interest on the finance lease obligation is recognized as a regulatory asset. Amortization of the finance lease right-of-use assets is recorded to depreciation and amortization expense.
Operating Leases
Our operating leases have terms that extend through October 31, 2023. At the end of the railcar operating leases, we can renew at terms mutually agreeable by us and the lessors, purchase the assets or return the assets to the lessors. We have an additional operating lease that has a term that extends through December 31, 2019 with renewal options for two additional twenty-year terms. We intend to exercise the option for one additional twenty-year term.
The exercise of renewal options for our finance and operating leases is at our sole discretion.
As all of our operating leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available on January 1, 2019, the date of adoption of the new leases standard, in determining the present value of lease payments.
For lease agreements entered into or reassessed after the adoption of the new leases standard, we combine lease and nonlease components.
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Classification | September 30, | December 31, | |||||
| | | | | | | |
(dollars in thousands) | |||||||
Right-of-Use Assets—Finance leases | |||||||
Right-of-use assets | $ | 302,732 | $ | 302,732 | |||
Less: Accumulated provision for depreciation | (256,186 | ) | (252,233 | ) | |||
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Total finance lease assets | $ | 46,546 | $ | 50,499 | |||
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Lease liabilities—Finance leases | |||||||
Obligations under finance leases | $ | 78,771 | $ | 81,730 | |||
Long-term debt and finance leases due within one year | 5,763 | 5,462 | |||||
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Total finance lease liabilities | $ | 84,534 | $ | 87,192 | |||
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Three Months Ended September 30, 2017 | |||||||||||
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(dollars in thousands) | |||||||||||
Available-for-sale | |||||||||||
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Balance at June 30, 2017 | $ | (408 | ) | ||||||||
Unrealized gain | 33 | ||||||||||
Loss reclassified to net margin | 23 | ||||||||||
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Balance at September 30, 2017 | $ | (352 | ) | ||||||||
Classification | September 30, | December 31, | |||||||||
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(dollars in thousands) | |||||||||||
Right-of-Use Assets—Operating leases | |||||||||||
Electric plant in service | $ | 4,068 | $ | — | |||||||
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Total operating lease assets | $ | 4,068 | $ | — | |||||||
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Lease liabilities—Operating leases | |||||||||||
Capitalization—Other | $ | 2,448 | $ | — | |||||||
Other current liabilities | 2,115 | — | |||||||||
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Total operating lease liabilities | $ | 4,563 | $ | — | |||||||
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| Three months ended | Nine months ended | |||||||||||||
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Lease Cost | Classification | September 30, | September 30, | September 30, | September 30, | ||||||||||
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| (dollars in thousands) | ||||||||||||||
Finance lease cost: | |||||||||||||||
Amortization of leased assets | Depreciation and amortization | $ | 1,189 | $ | 1,050 | $ | 3,567 | $ | 3,149 | ||||||
Interest on lease liabilities | Interest expense | 2,372 | 2,512 | 7,116 | 7,534 | ||||||||||
Operating lease cost: | Inventory(1) & production expense | 542 | 1,229 | 2,308 | 3,689 | ||||||||||
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Total leased cost | $ | 4,103 | $ | 4,791 | $ | 12,991 | $ | 14,372 | |||||||
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Nine Months Ended September 30, 2016 | September 30, | December 31, | |||||||||
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(dollars in thousands) | |||||||||||
Available-for-sale | |||||||||||
Lease Term and Discount Rate: | |||||||||||
Weighted-average remaining lease term (in years) | |||||||||||
Finance leases | 9.08 | 9.82 | |||||||||
Operating leases | 5.72 | N/A | |||||||||
Weighted-average discount rate | |||||||||||
Finance leases | 11.05 | % | 11.05 | % | |||||||
Operating leases | 4.94 | % | N/A | ||||||||
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Balance at December 31, 2015 | $ | 58 | |||||||||
Unrealized gain | 486 | ||||||||||
(Gain) reclassified to net margin | (128 | ) | |||||||||
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Balance at September 30, 2016 | $ | 416 | |||||||||
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Nine Months Ended September 30, 2017 | |||||||||||
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(dollars in thousands) | Nine months ended | ||||||||||
Available-for-sale | |||||||||||
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Balance at December 31, 2016 | $ | (370 | ) | ||||||||
Unrealized loss | (57 | ) | |||||||||
Loss reclassified to net margin | 75 | ||||||||||
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Balance at September 30, 2017 | $ | (352 | ) | ||||||||
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September 30, | September 30, | ||||||||||
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(dollars in thousands) | |||||||||||
Other Information: | |||||||||||
Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
Operating cash flows from finance leases | $ | 4,817 | $ | 10,302 | |||||||
Operating cash flows from operating leases | $ | 2,602 | $ | — | |||||||
Financing cash flows from finance leases | $ | 2,658 | $ | 4,647 | |||||||
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 6,983 | $ | — | |||||||
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Maturity analysis of our finance and operating lease liabilities as of September 30, 2019 is a follows:
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(dollars in thousands) | ||||||||||
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Year Ending December 31, | Finance Leases | Operating Leases | Total | |||||||
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2019 | $ | 7,475 | $ | 1,109 | $ | 8,584 | ||||
2020 | 14,949 | 1,402 | 16,351 | |||||||
2021 | 14,949 | 798 | 15,747 | |||||||
2022 | 14,949 | 608 | 15,557 | |||||||
2023 | 14,949 | 386 | 15,335 | |||||||
Thereafter | 70,481 | 1,157 | 71,638 | |||||||
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Total lease payments | $ | 137,752 | $ | 5,460 | $ | 143,212 | ||||
Less: imputed interest | (53,218 | ) | (897 | ) | (54,115 | ) | ||||
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Present value of lease liabilities | $ | 84,534 | $ | 4,563 | $ | 89,097 | ||||
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As a lessor, we primarily lease office space to several tenants within our headquarters building. Several of these tenants are related parties. We account for all of these lease agreements as operating leases.
Lease income recognized during the three and nine months ended September 30, 2019 and September 30, 2018 was as follows:
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Three months ended | Nine months ended | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
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(dollars in thousands) | |||||||||||||
Lease income | $ | 1,514 | $ | 1,461 | $ | 4,554 | $ | 4,406 | |||||
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We do not anticipate that the liabilities, if any, for any current proceedings against us will have a material effect on our financial condition or results of operations. However, at this time, the ultimate outcome of any pending or potential litigation cannot be determined.
a. Patronage Capital Litigation
On June 9, 2017, the Georgia Court of Appeals upheld the Superior Court of DeKalb County's decision to dismiss on all counts both of the cases described under Note 12—Patronage Capital LitigationEnvironmental Matters. in our 2016 Form 10-K. The plaintiffs did not further appeal these dismissals to the Georgia Supreme Court and the appeal period has since expired, ending this litigation.
b. Environmental Matters
As is typical for electric utilities, we are subject to various federal, state and local environmental laws which represent significant future risks and uncertainties. Air emissions, water discharges and water usage are extensively controlled, closely monitored and periodically reported. Handling and disposal requirements govern the manner of transportation, storage and disposal of various types of waste. We aremay also become subject to climate change regulations that impose restrictions on emissions of greenhouse gases, including carbon dioxide, for certain new and modified facilities.dioxide.
In general, these and other types of environmental requirements have become increasingly stringent. Such requirements may substantially increase the cost of electric service, by requiring modifications in the design or operation of existing facilities or the purchase of emission allowances. Failure to comply with these requirements could result in civil and criminal penalties and could include the complete shutdown of individual generating units not in compliance. Certain of our debt instruments require us to comply in all material respects with laws, rules, regulations and orders imposed by applicable governmental authorities, which include current and future
environmental laws or regulations. Should we fail to be in compliance with these requirements, it would constitute a default under those debt instruments. We believe that we are in compliance with those environmental regulations currently applicable to our business and operations. Although it is our intent to comply with current and future regulations, we cannot provide assurance that we will always be in compliance.
At this time, the ultimate impact of any potential new and more stringent environmental regulations described above is uncertain and could have an effect on our financial condition, results of operations and cash flows as a result of future additional capital expenditures and increased operations and maintenance costs.
Additionally, litigation over environmental issues and claims of various types, including property damage, personal injury, common law nuisance, and citizen enforcement of environmental requirements such as air quality and water standards, has increased generally throughout the United States. In particular, personal injury and other claims for damages caused by alleged exposure to hazardous materials, and common law nuisance claims for injunctive relief, personal injury and property damage allegedly caused by coal combustion residue, greenhouse gas and other emissions have become more frequent.
2019 and December 31, 2016,2018, we had restricted investments totaling $511,612,000$563,983,000 and $468,179,000,$653,158,000, respectively, of which $265,180,000$513,193,000 and $221,122,000,$503,158,000, respectively, were classified as long-term. The funds on deposit with the Rural Utilities Service in the Cushion of Credit Account are held by the U.S. Treasury, acting through the Federal Financing Bank.
The following regulatory assets and liabilities are reflected on the unaudited consolidated balance sheets as of September 30, 20172019 and December 31, 2016.2018.
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2017 | 2016 | 2019 | 2018 | |||||||||||
(dollars in thousands) | (dollars in thousands) | |||||||||||||
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Regulatory Assets: | ||||||||||||||
Premium and loss on reacquired debt(a) | $ | 51,546 | $ | 55,084 | $ | 41,580 | $ | 46,315 | ||||||
Amortization on capital leases(b) | 33,454 | 32,274 | ||||||||||||
Amortization of financing leases(b) | 35,304 | 34,918 | ||||||||||||
Outage costs(c) | 42,060 | 39,986 | 36,272 | 36,352 | ||||||||||
Interest rate swap termination fees(d) | 2,231 | 3,570 | ||||||||||||
Asset retirement obligations—Ashpond and other(l) | 59,540 | 33,747 | ||||||||||||
Asset retirement obligations—Ashpond and other(k) | 258,227 | 137,835 | ||||||||||||
Asset retirement obligations—Nuclear(k) | — | 7,031 | ||||||||||||
Depreciation expense | 43,023 | 44,091 | 40,176 | 41,244 | ||||||||||
Deferred charges related to Vogtle Units No. 3 and No. 4 training costs | 47,322 | 43,444 | 52,802 | 51,549 | ||||||||||
Interest rate options cost | 110,915 | 107,394 | 120,685 | 116,960 | ||||||||||
Deferral of effects on net margin—Smith Energy Facility | 167,941 | 172,399 | 156,051 | 160,509 | ||||||||||
Other regulatory assets(m) | 14,205 | 13,398 | 32,683 | 22,350 | ||||||||||
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Total Regulatory Assets | $ | 572,237 | $ | 545,387 | $ | 773,780 | $ | 655,063 | ||||||
Regulatory Liabilities: | ||||||||||||||
Accumulated retirement costs for other obligations | $ | 14,235 | $ | 9,829 | $ | 14,092 | $ | 13,873 | ||||||
Deferral of effects on net margin—Hawk Road Energy Facility | 19,705 | 20,163 | 18,639 | 19,101 | ||||||||||
Major maintenance reserve | 43,269 | 28,379 | 46,907 | 45,547 | ||||||||||
Amortization on capital leases(b) | 20,780 | 23,084 | ||||||||||||
Amortization of financing leases(b) | 14,981 | 17,156 | ||||||||||||
Deferred debt service adder | 93,296 | 86,082 | 112,144 | 105,192 | ||||||||||
Asset retirement obligations(l) | 40,199 | 11,766 | ||||||||||||
Asset retirement obligations—Nuclear(k) | 37,879 | — | ||||||||||||
Revenue deferral plan(l) | 52,003 | 15,670 | ||||||||||||
Other regulatory liabilities(m) | 4,961 | 18,445 | 2,882 | 2,459 | ||||||||||
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Total Regulatory Liabilities | $ | 236,445 | $ | 197,748 | $ | 299,527 | $ | 218,998 | ||||||
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Net Regulatory Assets | $ | 335,792 | $ | 347,639 | $ | 474,253 | $ | 436,065 | ||||||
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Pursuant to the loan guarantee program established under Title XVII of the Energy Policy Act of 2005, (the Title XVII Loan Guarantee Program), we and the U.S. Department of Energy, acting by and through the Secretary of Energy, entered into a Loan Guarantee Agreement on February 20, 2014 (as amended, the Loan Guarantee Agreement) pursuant to which the Department of Energy agreed to guarantee our obligations under thea Note Purchase Agreement, dated as of February 20, 2014 (the Original Note Purchase Agreement), among us, the Federal Financing Bank and the Department of Energy and two future advance promissory notes, each dated February 20, 2014, made by us to the Federal Financing Bank in the aggregate amount of $3,057,069,461 (the Original FFB Notes and together with the Original Note Purchase Agreement, the Original FFB Credit Facility Documents). TheFollowing the bankruptcy of Westinghouse in 2017 (as described in Note M), we and the Department of Energy amended the loan guarantee agreement to restrict further advances pending the satisfaction of certain conditions, including an amendment to the loan guarantee agreement.
In September 2017, the Department of Energy issued a conditional commitment to us to guarantee an additional $1,619,679,706 of funding from the Federal Financing Bank. On March 7, 2019, we entered into an amendment and waiver of the loan guarantee agreement under which we received an advance of $585,000,000. On March 22, 2019, we and the Department of Energy entered into an Amended and Restated Loan Guarantee Agreement (as amended, the Loan Guarantee Agreement) which increased the aggregate amount guaranteed by the Department of Energy to $4,676,749,167 and permits us to draw the remaining amount under the Original FFB Credit FacilityNotes. We also entered into a Note Purchase Agreement dated as of March 22, 2019 (the Additional Note Purchase Agreement), among us, the Federal Financing Bank and the Department of Energy and a future advance promissory note, dated March 22, 2019, made by us to the Federal Financing Bank in the amount of $1,619,679,706 (the Additional FFB Note and together with the Additional Note Purchase Agreement, the Additional FFB Documents).
Together, the Original FFB Documents and Additional FFB Documents provide for a multi-advance term loan facility (the Facility), under which we may make long-term loan borrowings through the Federal Financing Bank.
Proceeds of advances made under the Facility will beare used to reimburse us for a portion of certain costs of construction relating to Vogtle Units No. 3 and No. 4 that are eligible for financing under the Title XVII Loan Guarantee Program. Aggregate borrowingsloan guarantee program (Eligible Project Costs). Borrowings under the FacilityOriginal FFB Notes may not exceed the lesser of (i) 70% of eligible project costs or (ii) $3,057,069,461, of which $335,471,604 is designated for capitalized interest. Borrowings under the Additional FFB Note may not exceed (i) $1,619,679,706 or (ii) an amount that, when aggregated with borrowings under the Original FFB Notes, equals 70% of Eligible Project Costs less the $1,104,000,000 guarantee payment we received from Toshiba Corporation in December 2017. Total borrowings under the Facility will not exceed $4,676,749,167.
At September 30, 2019, aggregate Department of Energy-guaranteed borrowings, including capitalized interest totaled $2,435,490,000. We have no amounts outstanding under the Additional FFB Note.
Under the Loan Guarantee Agreement, we are obligated to reimburse the Department of Energy in the event the Department of Energyit is required to make any payments to the Federal Financing Bank under theits guarantee. Our payment obligations to the Federal Financing Bank under the FFB Notes and reimbursement obligations to the Department of Energy under its guarantee, but not our covenants to the Department of Energy under the Loan Guarantee Agreement, are secured equally and ratably with all of our other notes and obligations issued under our first mortgage indenture. The final maturity date for each advance is February 20, 2044. Interest is payable quarterly in arrears and principal payments on all advances under the FFB Notes will begin on February 20, 2020. Under both FFB Notes, the interestInterest rates on advances during the applicable interest rate periods will equal the current average yield on U.S. Treasuries of comparable maturity at the beginning of the interest rate period, plus a spread equal to 0.375%.
At September 30, 2017, aggregate Department of Energy-guaranteed borrowings totaled $1,720,997,000, including capitalized interest.
On July 27, 2017, we and the Department of Energy entered into Amendment No. 3 to the Loan Guarantee Agreement. Under the amended terms of the Loan Guarantee Agreement, no advancesAdvances under the Facility will be permitted unless and until such time as Georgia Power, on behalf of the Co-owners (as defined in Note L), has (i) completed comprehensive schedule, cost-to-complete, and cancellation cost assessments (the Cost Assessments) and made a determination to continue construction of Vogtle Units No. 3 and No. 4; (ii) delivered to the Department of Energy an updated project schedule, construction budget, and other information; (iii) entered into one or more agreements with a construction contractor or contractors that will be primarily responsible for construction of Vogtle Units No. 3 and No. 4 and such agreements have been approved by the Department of Energy (together with the Services Agreement (as defined in Note L) and certain
related intellectual property licenses (the IP Licenses), the Replacement EPC Arrangements); and (iv) entered into a further amendment to the Loan Guarantee Agreement with the Department of Energy to reflect the Replacement EPC Arrangements.
When the conditions in the preceding paragraph are satisfied, advancesOriginal FFB Notes may be requested under the Facility on a quarterly basis through December 31, 2020. The timingAdvances under the Additional FFB Note may be requested on a quarterly basis through November 30, 2023, one year beyond the current anticipated commercial operation date of satisfaction of these conditions is currently uncertain but likely to be satisfied in 2018. In addition toVogtle Unit No. 4.
Future advances under the conditions described above, future advancesFacility are subject to satisfaction of customary conditions, includingas well as (i) certification of compliance with the requirements of the Title XVII Loan Guarantee Program,loan guarantee program, (ii) accuracy of project-related representations and warranties, (iii) delivery of updated project-related information, our continued(iv) no Project Adverse Event (as described in Note M) having occurred or, if a Project Adverse Event has occurred, that Co-owners (as described in Note M) representing at least 90% of the ownership interests have voted to continue construction, have not deferred construction and we have provided the Department of our interest in Vogtle Units No. 3 and No. 4 free and clear of any liens except those permitted underEnergy with certain additional information, (v) certification regarding Georgia Power's compliance with certain obligations relating to the Loan Guarantee Agreement,Cargo Preference Act, as amended, (vi) evidence of compliance with the prevailingapplicable wage requirements of the Davis-Bacon Act, as amended, and(vii) certification from the Department of Energy's consulting engineer that proceeds of the advance are used to reimburse eligible project costs.Eligible Project Costs and (viii) if either the Services Agreement or the Bechtel Agreement (each, as described in Note M) are terminated, or rejected in bankruptcy proceedings, the Department of Energy has approved the replacement agreement.
We may voluntarily prepay outstanding borrowings under the Facility. Under the FFB Documents, any prepayment will be subject to a make-whole premium or discount, as applicable. Any amounts prepaid may not be re-borrowed.
Under the Loan Guarantee Agreement, we are subject to customary borrower affirmative and negative covenants and events of default. In addition, we are subject to project-related reporting requirements and other project-specific covenants and events of default.
Under the Loan Guarantee Agreement, upon the occurrence ofIf certain events occur, referred to as an "Alternate Amortization Event," at the Department of Energy may require usEnergy's option the Federal Financing Bank's commitment to prepaymake further advances under the Facility will terminate and we will be required to repay the outstanding principal amount of all guaranteed borrowings under the Facility over a period of five years, with level principal amortization. These events include (i) abandonment of the Vogtle Units No. 3 and No. 4 project, including a decision by Georgia Power to cancel the project, (ii) cessation of the construction of Vogtle Units No. 3 and No. 4 for twelve consecutive months, (ii)(iii) termination of the Services Agreement or rejection of the Services Agreement in bankruptcy, if Georgia Power does not maintain access to certain related intellectual property rights, under(iv) termination of the IP Licenses, (iii) a decisionServices Agreement by us notWestinghouse or termination of the Bechtel Agreement by Bechtel Power Corporation, (v) delivery of certain notices by the Co-owners to continuethe Department of Energy of their intent to cancel construction of Vogtle Units No. 3 and No. 4 (iv) Georgia Power, on behalfcoupled with termination by the Co-owners of the Services Agreement or the Bechtel Agreement, (vi) failure of the Co-owners fails to complete the Cost Assessments or enter into a replacement
contract with respect to the Replacement EPC Arrangements by December 31, 2017, (v)Services Agreement or the Bechtel Agreement following the Co-owners' termination of such agreement with the intent to replace it, (vii) the Department of Energy's takeover of construction of Vogtle Units No. 3 and No. 4 under certain conditions, (viii) the occurrence of any Project Adverse Event that results in a cancellation of the Vogtle Units No. 3 and No. 4 project or the cessation or deferral of construction beyond the periods permitted under the Loan Guarantee Amendment, (ix) loss of or failure to receive necessary regulatory approvals under certain circumstances, (vi)(x) loss of access to intellectual property rights necessary to construct or operate Vogtle Units No. 3 and No. 4 under certain circumstances, (vii)(xi) our failure to fund our share of operation and maintenance expenses for Vogtle Units No. 3 and No. 4 for twelve consecutive months, (viii)(xii) change of control of Oglethorpe and (ix)(xiii) certain events of loss or condemnation.
Under certain circumstances we may be required to make prepayments in connection with our receipt of payments under the settlement agreement with Toshiba regarding the Toshiba Guarantee or from the EPC Contractor under the EPC Agreement (as defined in Note L). In addition, if If we receive proceeds from an event of condemnation relating to Vogtle Units No. 3 and No. 4, such proceeds must be applied to immediately prepay outstanding borrowings under the Facility.
We may also voluntarily prepay outstanding borrowings under the Facility. Under the FFB Credit Facility Documents, any prepayment will be subject to a make-whole premium or discount, as applicable.
On September 28, 2017, the Department of Energy issued a conditional commitment to us for up to approximately $1,620,000,000 in additional guaranteed loans under the Loan Guarantee Agreement. Final approval and issuance of these additional loan guarantees by the Department of Energy cannot be assured and are subject to negotiation of definitive agreements, completion of due diligence by the Department of Energy, receipt of any necessary regulatory approvals and satisfaction of other conditions.
For the nine-month period ended September 30, 20172019, we received advances on Rural Utilities Service-guaranteed Federal Financing Bank loans totaling $4,517,000$98,008,000 for long-term financing of general and
environmental improvements at existing plants.These advances are secured under our first mortgage indenture.plants.
OnIn October 30, 2017,2019, we received an additional $17,582,000$17,344,000 in advances on Rural Utilities Service-guaranteed Federal Financing Bank loans for long-term financing of general and environmental improvements at existing plants.
On October 12, 2017, the Development Authority of Burke County (Georgia), the Development Authority of Heard County (Georgia) and the Development Authority of Monroe County (Georgia) issued, on our behalf, $122,620,000 in aggregate principal amount of tax-exempt pollution control revenue bonds for the purpose of refinancing costs associated with certain of our air or water pollution control and sewage or solid waste disposal facilities. The bonds were directly purchased by a bank and the proceeds were used to repay outstanding commercial paper issued to redeem certain auction rate pollution control revenue bonds in January 2017. Each series of bonds bear interest at an indexed variable rate until October 3, 2022, the initial mandatory tender date. The pollution control revenue bonds are scheduled to mature in 2040 through 2045. Our payment obligations related to these bonds are secured under our first mortgage indenture.
In 2008, Georgia Power, acting for itself and as agent for the Co-owners, entered into an Engineering, Procurement and Construction Agreement (the EPC Agreement) with Westinghouse Electric Company LLC and Stone & Webster, Inc. (collectively, the EPC Contractor). Stone & Webster, which was subsequently acquired by Westinghouse and changed its name to WECTEC Global Project Services Inc. (WECTEC)(collectively, Westinghouse). Pursuant to the EPC Agreement, the EPC ContractorWestinghouse agreed to design, engineer, procure, construct and test two 1,100 megawatt nuclear units using the Westinghouse AP1000 technology and related facilities at Plant Vogtle.
Under the EPC Agreement, the Co-owners agreed to pay a purchase price subject to certain price escalationsUntil March 2017, construction on Units No. 3 and adjustments. The EPC Agreement also provided for liquidated damages upon the EPC Contractor's failure to fulfill the schedule and certain performance guarantees, each subject to an aggregate cap of 10% of the contract price, or approximately $920 million.
Toshiba Corporation guaranteed certain payment obligations of the EPC ContractorNo. 4 continued under the EPC Agreement (the Toshiba Guarantee), including any liability of the EPC Contractor for abandonment of work. In January 2016, Westinghouse delivered to the Co-owners $920��million of letters of credit from financial institutions (Westinghouse Letters of Credit) to secure a portion of the EPC Contractor's potential obligations under thesubstantially fixed price EPC Agreement. TheIn March 2017, Westinghouse Letters of Credit are subject to annual renewals through June 30, 2020, and require 60 days' written notice to Georgia Power, as agent of the Co-owners, in the event the Westinghouse Letters of Credit will not be renewed.
Under the terms of the EPC Agreement, the EPC Contractor did not have the right to terminate the EPC Agreement for convenience. In the event of an abandonment of work by the EPC
Contractor, the maximum liability of the EPC Contractor under the EPC Agreement was 40% of the contract price, or $3.68 billion, of which our proportionate share is approximately $1.1 billion.
On March 29, 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. To provide for a continuation of work at Vogtle Units No. 3 and No. 4, Georgia Power, acting for itself and as agent for the other Co-owners, entered into an Interim Assessment Agreement with the EPC Contractor and WECTEC Staffing Services LLC, which the bankruptcy court approved on March 30, 2017. The Interim Assessment Agreement provided, among other items, that during the term of the Interim Assessment Agreement Georgia Power was obligated to pay, on behalf of the Co-owners, all costs accrued by the EPC Contractor for subcontractors and vendors for services performed or goods provided. The Interim Assessment Agreement, as amended, expired onEffective in July 27, 2017.
Subsequent to the EPC Contractor's bankruptcy filing, a number of subcontractors to the EPC Contractor, including Fluor Enterprises, Inc., a subsidiary of Fluor Corporation, alleged non-payment by the EPC Contractor for amounts owed for work performed on Vogtle Units No. 3 and No. 4. Georgia Power, acting for itself and as agent for the Co-owners, has taken, and continues to take, actions to remove liens filed by these subcontractors through the posting of surety bonds. Georgia Power estimates the aggregate liability, through September 30, 2017, of the Co-owners for the removal of subcontractor liens and payment of other EPC Contractor pre-petition accounts payable to total approximately $386 million, of which our proportionate share totals approximately $115 million. As of September 30, 2017, $340 million of this aggregate liability had been paid or accrued by Georgia Power, on behalf of the Co-owners.
On June 9, 2017, Georgia Power and the other Co-owners and Toshiba entered into a settlement agreement regarding the Toshiba Guarantee (the Guarantee Settlement Agreement). Pursuant to the Guarantee Settlement Agreement, Toshiba acknowledged the amount of its obligation under the Toshiba Guarantee is $3.68 billion (the Guarantee Obligations), of which our proportionate share is approximately $1.1 billion, and that the Guarantee Obligations exist regardless of whether Vogtle Units No. 3 and No. 4 are completed. The Guarantee Settlement Agreement also provides for a schedule of payments for the Guarantee Obligations that began in October 2017 and continues through January 2021. In the event Toshiba receives certain payments, including sale proceeds, from or related to Westinghouse (or its subsidiaries) or Toshiba Nuclear Energy Holdings (UK) Limited (or its subsidiaries), it will hold a portion of such payments in trust for the Co-owners and promptly pay them as offsets against any remaining Guarantee Obligations. Under the Guarantee Settlement Agreement, the Co-owners will forbear from exercising certain remedies, including drawing on the Westinghouse Letters of Credit, until June 30, 2020, unless certain events of nonpayment, insolvency, or other material breach of the Guarantee Settlement Agreement by Toshiba occur. If such an event occurs, the balance of the Guarantee Obligations will become immediately due and payable, and the Co-owners may exercise any and all rights and remedies, including drawing on the Westinghouse Letters of Credit without restriction. In addition, the Guarantee Settlement Agreement does not restrict the Co-owners from fully drawing on the Westinghouse Letters of Credit in the event they are not renewed or replaced prior to the expiration date. In October and November 2017, Georgia Power, on behalf of the Co-owners, received the first two installments of the Guarantee Obligations totaling $377.5 million from Toshiba, of which our proportionate share was $113.3 million. We are considering potential options with respect to our right to payments under the Guarantee Settlement Agreement and our claims against the EPC Contractor in the EPC Contractor's bankruptcy proceeding, including a potential sale of those payment rights and bankruptcy claims. Execution of any such transaction cannot be assured and would require certain consents from and cooperation by the Department of Energy.
On November 9, 2017, Toshiba released its financial results for the second quarter of fiscal year 2017, which reflected a negative shareholders' equity balance of approximately $5.5 billion as of
September 30, 2017. Toshiba also reiterated the existence of material events and conditions that raise substantial doubt about Toshiba's ability to continue as a going concern. As a result, substantial risk regarding the Co-owners' ability to fully collect the Guarantee Obligations continues to exist. An inability or other failure by Toshiba to perform its obligations under the Guarantee Settlement Agreement could have a further material impact on the net cost to the Co-owners of Vogtle Units No. 3 and No. 4, and, therefore, on our financial condition and results of operations as well.
Additionally, on June 9, 2017, Georgia Power, acting for itself and as agent for the other Co-owners, and the EPC ContractorWestinghouse entered into a services agreement which was amended and restated on July 20, 2017 (the Services Agreement), for the EPC Contractorpursuant to transition construction management of Vogtle Units No. 3which Westinghouse is providing facility design and No. 4 to Southern Nuclearengineering services, procurement and to provide ongoing design, engineering,technical support and procurement services to Southern Nuclear. On July 20, 2017, the bankruptcy court approved the EPC Contractor's motion seeking authorization to (i) enter into the Services Agreement, (ii) assumestaff augmentation on a time and assign to the Co-owners certain project-related contracts, (iii) join the Co-owners as counterparties to certain assumed project-related contracts, and (iv) reject the EPC Agreement.materials cost basis. The Services Agreement became effective upon approval by the Department of Energy on July 27, 2017 andprovides that it will continue until the start-up and testing of Vogtle Units No. 3 and No. 4 is complete and electricity is generated and sold from both units. The Services Agreement is terminable by the Co-owners upon 30 days' written notice.
On August 31, 2017, Georgia Power filed its 17th Vogtle Construction Monitoring report (VCM 17 Report) with the Georgia Public Service Commission. Table of Contents
In the VCM 17 Report, Georgia Power recommended that construction on Vogtle Units No. 3 and No. 4 be continued with Southern Nuclear serving as project manager. The recommendation to continue construction is supported by all the Co-owners and is based on the results of a comprehensive schedule, cost-to-complete and cancellation assessment. The Georgia Public Service Commission will render a decision on these matters by February 6, 2018.
The revised project schedule Georgia Power submitted to the Georgia Public Service Commission for approval included commercial operation dates of November 2021 for Unit No. 3 and November 2022 for Unit No. 4. Based on comprehensive cost-to complete assessments and the revised commercial operation dates, our revised project budget is $7.0 billion, which includes capital costs, allowance for funds used during construction and a contingency amount. This budget assumes 100% recovery of our $1.1 billion share of the Guarantee Obligations from Toshiba. As of September 30, 2017, our total investment in the additional Vogtle units was approximately $3.9 billion without taking into account any amounts recoverable from Toshiba. Amounts recovered in connection with the Guarantee Settlement Agreement will be recorded as a reduction to the construction work in progress balance as payments are received.
Effective October 23, 2017, Georgia Power, acting for itself and as agent for the other Co-owners, entered into a construction completion agreement (the Bechtel Agreement) with Bechtel Power Corporation, wherebypursuant to which Bechtel will serveserves as the primary contractor for the remaining construction activities for Vogtle Units No. 3 and No. 4. Facility design and engineering remains the responsibility of Westinghouse under the Services Agreement.4 (the Bechtel Agreement). The Bechtel Agreement is a cost reimbursable plus fee arrangement, whereby Bechtel will beis reimbursed for actual costs plus a base fee and an at-risk fee, which is subject to adjustment based on Bechtel's performance against cost and schedule targets. Each Co-owner is severally, (not jointly)and not jointly, liable for its proportionate share, based on its ownership interest, of all amounts owed to Bechtel under the Bechtel Agreement. The Co-owners may terminate the Bechtel Agreement at any time for their convenience, provided that the Co-owners will be required to pay amounts related to work performed prior to the termination (including the applicable portion of the base fee), certain termination-related costs and, at certain stages of the work, the applicable portion of the at-risk fee. Bechtel may terminate the Bechtel Agreement under certain
circumstances, including certain Co-owner suspensions of work, certain breaches of the Bechtel Agreement by the Co-owners, Co-owner insolvency and certain other events.
On November 2, 2017,In April 2019, Georgia Power and Southern Nuclear completed a cost and schedule validation process to verify and update quantities of commodities remaining to install, labor hours to install remaining quantities and related productivity, testing and system turnover requirements, and forecasted staffing needs and related costs. This process confirmed the Co-owners entered into an amendment to their joint ownership agreementstotal estimated project capital cost forecast for Vogtle Units No. 3 and No. 4 (as amended,4. Accordingly, we did not change our $7.5 billion project budget, which includes capital costs, allowance for funds used during construction, our allocation of the Joint Ownership Agreements) to provide for, among other conditions, additional Co-owner approval requirements. Pursuantproject-level contingency and a separate Oglethorpe-level contingency. There was also no change to the Joint Ownership Agreements, the holdersin-service dates of at least 90% of the ownership interests in Vogtle UnitsNovember 2021 for Unit No. 3 and November 2022 for Unit No. 4 must vote to continue construction if certain adverse events occur, including: (i) the bankruptcy of Toshiba or, except in the case in which each of the Co-owners has assigned its rights under the Guarantee Settlement Agreement to a third party, a material breachpreviously approved by Toshiba of the Guarantee Settlement Agreement; (ii) termination or rejection in bankruptcy of certain agreements, including the Services Agreement or the Bechtel Agreement; (iii) the Georgia Public Service Commission following the validation process.
The current project-level budget includes an $800 million construction contingency estimate, of which our 30% interest is $240 million. As of September 30, 2019, approximately $67 million of this project-level contingency, or $20 million for our 30% interest, was allocated to the base capital cost forecast for cost risks including, among other factors, attracting and retaining craft labor; adding resources for supervision, field support, project management, initial test program and start-up; and procurement. Georgia Power determineshas stated that it anticipates allocating the remainder of this project-level contingency. The project-level contingency is separate and in addition to our Oglethorpe-level contingency.
As construction continues and testing and system turnover activities increase, risks remain that challenges with management of contractors, subcontractors and vendors; supervision of craft labor and related craft labor productivity, particularly in the installation of electric and mechanical commodities, ability to attract and retain craft labor and/or related cost escalation; procurement, fabrication, delivery, assembly and/or installation and the initial testing and start-up, including any required engineering changes, of plant systems, structures or components or regional transmission upgrades, any of Georgia Power's costs relatingwhich may require additional labor and/or materials; or other issues could arise and further impact the projected schedule and estimated cost.
The April 2019 cost and schedule validation process established target values for monthly construction production and system turnover activities as part of a strategy to maintain margin to the approved in-service dates. To support that strategy, monthly production and activity targets will continue to increase significantly throughout the remainder of 2019 and into 2020. To meet these increasing monthly targets, existing craft construction productivity must improve and additional craft laborers, particularly electrical and pipefitter craft labor, as well as additional supervision and other field support resources, must be retained and deployed.
The effectiveness of the amendments to the Joint Ownership Agreements related to the Plant Alvin W. Vogtle Additional Units Ownership Participation Agreement, dated as of April 21, 2006, as amended, is subject to the condition that we obtain the approval of the Rural Utilities Service as required under our loan contract with the Rural Utilities Service.
In the event the Vogtle project is cancelled, our proportionate share of the Co-owners' cancellation costs are estimated to be approximately $230 million. If the project is cancelled, we would seek regulatory accounting treatment to amortize our investment in the Vogtle project over a long-term period which would require the approval of our board of directors, and we would submit the regulatory accounting treatment request to the Rural Utilities Service for its approval.
There have been technical and procedural challenges to the construction and licensing of Vogtle Units No. 3 and No. 4 at the federal and state level and additional challenges may arise as construction proceeds.arise. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the Nuclear Regulatory Commission that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the Nuclear Regulatory Commission. Various design and other licensing-based compliance matters, including the timely resolutionsubmittal by Southern Nuclear of Inspections, Tests, Analyses,the inspections, tests, analyses, and Acceptance Criteriaacceptance criteria documentation for each unit and the related reviews and approvals by the Nuclear Regulatory Commission necessary to support authorization to load fuel, may arise if construction proceeds, which may result in additional license amendments or require other resolution. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be further delays in the project schedule that could result in increased costs.costs to the Co-owners.
AsThe Co-owners' joint ownership agreements, as amended, provide that the holders of at least 90% of the ownership interests in Vogtle Units No. 3 and No. 4 must vote to continue construction, continues,or can vote to suspend construction, if certain adverse events occur, including: (i) the risk remainsbankruptcy of Toshiba Corporation; (ii) termination or rejection in bankruptcy of certain agreements, including the Services Agreement, the Bechtel Agreement or the agency agreement with Southern Nuclear; (iii) Georgia Power publicly announces its intention not to submit for rate recovery any portion of its investment in Vogtle Units No. 3 and No. 4 (or associated financing costs) or the Georgia Public Service Commission determines that challenges with managementany of contractors, subcontractorsGeorgia Power's costs relating to the construction of Vogtle Units No. 3 and vendors, labor productivity, fabrication, delivery, assembly,No. 4 will not be recovered in retail rates, excluding any additional amounts paid by Georgia Power on behalf of the other Co-owners pursuant to the Joint Ownership Agreement provisions described above and installationthe first 6% of plant systems, structures, and components,costs during any six-month VCM reporting period that are disallowed by the Public Service Commission for recovery, or other issues could arise and may further impact projectfor which Georgia Power elects not to seek cost recovery, through retail rates or (iv) an incremental extension of one year or more over the most recently approved schedule and cost.(each, a Project Adverse Event).
The ultimate outcome of these matters cannot be determined at this time. See Note 8 in Item 8—Notes to Audited Consolidated Financial Statements in our 2018 Form 10-K for additional information about Vogtle Units No. 3 and No. 4.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
General
We are a Georgia electric membership corporation (an EMC) incorporated in 1974 and headquartered in metropolitan Atlanta. We are owned by our 38 retail electric distribution cooperative members. Our members are consumer-owned distribution cooperatives providing retail electric service in Georgia on a not-for-profit basis. Our principal business is providing wholesale electric power to our members, which we provide primarily from our generation assets and, to a lesser extent, from power purchased from other suppliers. As with cooperatives generally, we operate on a not-for-profit basis.
Results of Operations
For the Three and Nine Months Ended September 30, |
Net Margin
Our net margins for the three-month and nine-month periods ended September 30, 20172019 were $20.8$18.3 million and $63.7$51.3 million, respectively, compared to $18.6$11.3 million and $62.5$56.0 million for the same periods of 2016. Through2018. For the nine-months ended September 30, 2017, we collected2019, our net margin was approximately 123%94% of our targeted net margin of $51.7$54.8 million for the year ending December 31, 2017. These collections are typical2019. The targeted net margin for 2019 is based upon achieving a margins for interest ratio of 1.14 as our capacity revenues are generally recorded evenly throughout the year and our management budgets conservatively. In September 2017,approved by our board of directors approved a budget adjustment that reduced revenue requirements by $5.0 million in order to providedirectors. To the extent our members with a measure of relief for costs they incurred as a result of significant system damage from Hurricane Irma. Wenet margin exceeds the targeted net margin, we anticipate our board of directors will approve an additionala budget adjustment by theyear end of the yearto reduce revenue requirements so marginsthat net margin will achieve, but not exceed, the 2019 targeted net margin. Pursuant to Accounting Standards Codification 606, "Revenue from Contracts with Customers," we assessed our 2017projected net margin and annual revenue requirement to meet the targeted margins for interest ratio and recognized cumulative refund liabilities of 1.14.$7.7 million and $20.0 million as of September 30, 2019 and 2018, respectively. For additional information regarding our net margin requirements and policy, see "Item 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Summary of Cooperative Operations—Margins" in our 20162018 Form 10-K.
Operating Revenues
Our operating revenues fluctuate from period to period based on several factors, including fuel costs, weather and other seasonal factors, load requirements in our members' service territories, operating costs, availability of electric generation resources, our decisions of whether to dispatch our owned, purchased or member-owned resources over which we have dispatch rights, and our members' decisions of whether to purchase a portion of their hourly energy requirements from our resources or from other suppliers.
Sales to Members. We generate revenues principally from the sale of electric capacity and energy to our members. Capacity revenues are the revenues we receiverecognize for providing electric service whether or not our generation and purchased power resources are dispatched to produce electricity, and are designed to recover the fixed costs associated with our business, including fixed production expenses, depreciation and amortization expenses and interest charges, plus a targeted margin. Energy revenues are earned by sellingrecognized when we deliver electricity to our members, which involves generating or purchasing electricity for our members. Energy revenues recover the variable costs of our business, including fuel, purchased energy and variable operation and maintenance expense.
The components of member revenues for the three-month and nine-month periods ended September 30, 20172019 and 20162018 were as follows:
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Three Months Ended September 30, | 2017 vs. 2016 % Change | Nine Months Ended September 30, | 2017 vs. 2016 % Change | Three Months Ended September 30, | 2019 vs. 2018 % Change | Nine Months Ended September 30, | 2019 vs. 2018 % Change | |||||||||||||||||||||||||||||||
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Capacity revenues | $ | 217,918 | $ | 228,011 | (4.4%) | $ | 666,226 | $ | 681,384 | (2.2%) | $ | 231,270 | $ | 219,597 | 5.3% | $ | 712,305 | $ | 691,649 | 3.0% | ||||||||||||||||||
Energy revenues | 167,840 | 202,872 | (17.3%) | 440,749 | 476,750 | (7.6%) | 151,278 | 164,932 | (8.3%) | 385,449 | 432,092 | (10.8%) | ||||||||||||||||||||||||||
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Total | $ | 385,758 | $ | 430,883 | (10.5%) | $ | 1,106,975 | $ | 1,158,134 | (4.4%) | $ | 382,548 | $ | 384,529 | (0.5%) | $ | 1,097,754 | $ | 1,123,741 | (2.3%) | ||||||||||||||||||
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MWh Sales to members | 6,962,978 | 7,956,412 | (12.5%) | 18,213,379 | 19,886,944 | (8.4%) | 7,137,087 | 6,757,386 | 5.6% | 17,672,935 | 17,784,450 | (0.6%) | ||||||||||||||||||||||||||
Cents/kWh | 5.54 | 5.42 | 2.3% | 6.08 | 5.82 | 4.4% | 5.36 | 5.69 | (5.8%) | 6.21 | 6.32 | (1.7%) | ||||||||||||||||||||||||||
Member energy requirements supplied | 62 | % | 64 | % | (3.9%) | 63 | % | 64 | % | (1.3%) | 57 | % | 57 | % | 0.0% | 56 | % | 58 | % | (3.4%) | ||||||||||||||||||
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Capacity revenues for the three-month and nine-month periods ended September 30, 2017 reflect a $5.0 million reduction in revenue requirements for the September 2017 budget adjustment approved by the board of directors discussed above.
Energy revenues from members decreased for the three-month and nine-month periods ended September 30, 20172019 compared to the same periods in 20162018 primarily due to a decrease inthe recovery of fuel costs which was largely a result of a decrease in generation for member sales in 2017.costs. For a discussion of fuel costs, which are the primary components ofcosts recovered by energy revenues, see "—Operating Expenses."
Operating Expenses
The following table summarizes our fuel costs and megawatt-hour generation by generating source.
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Cost | Generation | Cents per kWh | Cost | Generation | Cents per kWh | |||||||||||||||||||||||||||||||||||||||||||||||||||
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(dollars in thousands) | (MWh) | (dollars in thousands) | (MWh) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended | 2017 vs. | Three Months Ended | 2017 vs. | Three Months Ended | 2017 vs. | Three Months Ended | 2019 vs. | Three Months Ended | 2019 vs. | Three Months Ended | 2019 vs. | |||||||||||||||||||||||||||||||||||||||||||||
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Fuel Source | 2017 | 2016 | 2016 % Change | 2017 | 2016 | 2016 % Change | 2017 | 2016 | 2016 % Change | 2019 | 2018 | 2018 % Change | 2019 | 2018 | 2018 % Change | 2019 | 2018 | 2018 % Change | ||||||||||||||||||||||||||||||||||||||
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Coal | $ | 30,924 | $ | 49,478 | (37.5%) | 1,157,960 | 1,704,203 | (32.1%) | 2.67 | 2.90 | (8.0%) | $ | 24,095 | $ | 39,001 | (38.2%) | 821,069 | 1,360,086 | (39.6%) | 2.93 | 2.87 | 2.3% | ||||||||||||||||||||||||||||||||||
Nuclear | 23,249 | 21,950 | 5.9% | 2,585,668 | 2,691,129 | (3.9%) | 0.90 | 0.82 | 10.2% | 20,777 | 21,525 | (3.5%) | 2,591,374 | 2,558,186 | 1.3% | 0.80 | 0.84 | (4.7%) | ||||||||||||||||||||||||||||||||||||||
Gas: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Combined Cycle | 67,058 | 73,223 | (8.4%) | 2,888,612 | 2,976,562 | (3.0%) | 2.32 | 2.46 | (5.6%) | 60,549 | 60,411 | 0.2% | 2,898,164 | 2,249,233 | 28.9% | 2.09 | 2.69 | (22.2%) | ||||||||||||||||||||||||||||||||||||||
Combustion Turbine | 22,536 | 33,865 | (33.5%) | 544,294 | 846,699 | (35.7%) | 4.14 | 4.00 | 3.5% | 33,283 | 30,966 | 7.5% | 987,319 | 787,768 | 25.3% | 3.37 | 3.93 | (14.2%) | ||||||||||||||||||||||||||||||||||||||
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$ | 143,767 | $ | 178,516 | (19.5%) | 7,176,534 | 8,218,593 | (12.7%) | 2.00 | 2.17 | (7.8%) | $ | 138,704 | $ | 151,903 | (8.7%) | 7,297,926 | 6,955,273 | 4.9% | 1.90 | 2.18 | (13.0%) | |||||||||||||||||||||||||||||||||||
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Cost | Generation | Cents per kWh | Cost | Generation | Cents per kWh | |||||||||||||||||||||||||||||||||||||||||||||||||||
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(dollars in thousands) | (MWh) | (dollars in thousands) | (MWh) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Nine Months Ended | 2017 vs. | Nine Months Ended | 2017 vs. | Nine Months Ended | 2017 vs. | Nine Months Ended | 2019 vs. | Nine Months Ended | 2019 vs. | Nine Months Ended | 2019 vs. | |||||||||||||||||||||||||||||||||||||||||||||
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Fuel Source | 2017 | 2016 | 2016 % Change | 2017 | 2016 | 2016 % Change | 2017 | 2016 | 2016 % Change | 2019 | 2018 | 2018 % Change | 2019 | 2018 | 2018 % Change | 2019 | 2018 | 2018 % Change | ||||||||||||||||||||||||||||||||||||||
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Coal | $ | 81,867 | $ | 114,961 | (28.8%) | 2,913,161 | 3,945,663 | (26.2%) | 2.81 | 2.91 | (3.5%) | $ | 71,209 | $ | 88,563 | (19.6%) | 2,310,310 | 2,999,117 | (23.0%) | 3.08 | 2.95 | 4.4% | ||||||||||||||||||||||||||||||||||
Nuclear | 66,538 | 61,786 | 7.7% | 7,399,354 | 7,605,266 | (2.7%) | 0.90 | 0.81 | 10.7% | 58,666 | 64,007 | (8.3%) | 7,355,621 | 7,640,520 | (3.7%) | 0.80 | 0.84 | (4.8%) | ||||||||||||||||||||||||||||||||||||||
Gas: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Combined Cycle | 181,254 | 165,272 | 9.7% | 7,546,775 | 7,338,407 | 2.8% | 2.40 | 2.25 | 6.6% | 168,847 | 189,741 | (11.0%) | 7,013,337 | 6,538,930 | 7.3% | 2.41 | 2.90 | (17.0%) | ||||||||||||||||||||||||||||||||||||||
Combustion Turbine | 36,746 | 62,037 | (40.8%) | 881,514 | 1,644,184 | (46.4%) | 4.17 | 3.77 | 10.5% | 50,424 | 52,183 | (3.4%) | 1,452,213 | 1,142,252 | 27.3% | 3.47 | 4.57 | (24.0%) | ||||||||||||||||||||||||||||||||||||||
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$ | 366,405 | $ | 404,056 | (9.3%) | 18,740,804 | 20,533,520 | (8.7%) | 1.96 | 1.97 | (0.6%) | $ | 349,146 | $ | 394,494 | (11.5%) | 18,131,481 | 18,320,819 | (1.0%) | 1.93 | 2.15 | (10.6%) | |||||||||||||||||||||||||||||||||||
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Total fuel costs decreased for the three-month and nine-month periods ended September 30, 20172019 compared to the same periods in 2018 as a result of lower natural gas prices, a shift in generation to relatively more economical natural gas-fired units, as well as scheduled plant outages. Partially offsetting the decreases for the comparable periods, were realized losses incurred for natural gas financial hedging contracts utilized for managing our exposure to fluctuations in market prices of natural gas. Generation increased approximately 5.0% for the three-month period ended September 30, 2019 compared to the same period in 2018 primarily due to warmer temperatures. For the nine-month period ended September 30, 2019 scheduled and unscheduled plant outages as well as milder weather in the first quarter of 2019 contributed to the decrease in generation.
Interest charges
Interest expense increased for the three-month and nine-month periods ended September 30, 2019 as compared to the same periods of 20162018 primarily due to a decreaseincreased long-term debt to finance construction of Vogtle Units No. 3 and No. 4.
Allowance for debt funds used during construction increased in generation as a result of moderate temperatures. In addition, generation for the three-month and nine-month periodperiods ended September 30, 20172019 as compared to the same periodperiods of 2016 was somewhat affected by increased natural gas prices2018 primarily due to construction expenditures for Vogtle Units No. 3 and planned maintenance outages during 2017.No. 4.
Financial Condition
Balance Sheet Analysis as of September 30, |
Assets
Cash and cash equivalents decreased $325.6 million, primarily due to $350 million of first mortgage bonds which matured and were paid during the nine-month period ended September 30, 2019.
Cash used for property additions for the nine-month period ended September 30, 2017 totaled $737.1$887.2 million. Of this amount, approximately $518.5$753.1 million was associated with construction expenditures for Vogtle Units No. 3 and No. 4 $47.7and $44.2 million was for nuclear fuel purchases andpurchases. The remainder was for expenditures forrelated to normal additions and replacements to our existing generation facilities.
The $62.4 million increase in the nuclear decommissioning trust fund was primarily due to an increase in unrealized investment gains.
Restricted investments consist of funds on deposit with the Rural Utilities Service in the Cushion of Credit Account. The funds, including interest earned thereon,We can only be applied to debt service on ourutilize these investments for future Rural Utilities Service-guaranteed Federal Financing Bank notes. Decisionsdebt service payments. The program no longer allows additional funds to be deposited into the account. For the nine-month period ended September 30, 2019, we made $99.2 million of Federal Financing Bank debt service payments utilizing the Cushion of Credit Account. For additional information regarding whenrestricted investments, see Note I of Notes to applyUnaudited Consolidated Financial Statements.
Regulatory assets increased $118.7 million primarily as a result of the funds are guided by the interest rate environmentdeferral of costs associated with asset retirement obligations for closure and post-closure of existing ash ponds at our anticipated liquidity needs.
Table of Contentsco-owned coal facilities.
Equity and Liabilities
Long-term debt increased $98.5$144.8 million duringprimarily as a result of $585 million advanced under the nine-month period ended September 30, 2017 primarily dueDepartment of Energy-guaranteed loan on March 15, 2019, which was utilized to repay a like amount of outstanding commercial paper. At December 31, 2018, the classification of $122.6 million ofoutstanding commercial paper balance of $436.6 million was classified as long-term debt. In October 2017, $122.6 million of tax-exempt bonds was issued to refund the commercial paper on a long-term basis. For information regarding the refunding of commercial paper and the issuance of tax-exempt bonds, see Note K.
Long-term debt and capitalfinance leases due within one year decreased $162.0$325.8 million during the nine-month period ended September 30, 2017. The decrease was primarily due to the redemptiondebt payments of $122.6$350 million of variable rate pollution control revenuefor first mortgage bonds through the issuance of commercial paperwhich matured in January 2017. In addition, the decrease was due to certain quarterly Federal Financing Bank note payments we made, when due, in early January 2017.March 2019.
Short-term borrowings, which primarily provide interim financing for Vogtle Units No. 3 and No. 4 construction costs, increased $529.8$560.7 million during the nine-month period ended September 30, 2017.2019. At December 31, 2018, all short-term borrowings were classified as long-term debt.
Accounts payable increased $87.4decreased $65.4 million forduring the nine-month period ended September 30, 2017 primarily as a result2019. The decrease was largely due to the application of a $104.7 million increase in the payable to Georgia Power Company for operation and maintenance costs for our co-owned plants and capital costs associated with Vogtle Units No. 3 and No. 4. Offsetting the increase was $17.2$30.9 million in credits applied to our members' bills in the first quarter of 2017,2019 for a board approvedboard-approved reduction in 20162018 revenue requirements as a result of margins in excess of that required to meet the 2018 targeted net margin. In addition, a $25.5 million reduction in GPC payables and $24.6 million of property tax payments resulted in a decrease in the related payables. Slightly offsetting these decreases was an increase in payables for purchases of natural gas and related transportation.
Member power bill prepayments represent funds received from our 2016 target.
The current portionmembers for the prepayment of their monthly power bills. At September 30, 2019, $107.7 million of the member power bill prepayments decreased $133.2were classified as a current liability and $77.6 million forwas classified as a long-term liability. During the nine-month periodnine-months ended September 30, 2017 due2019, we received $64.7 million of prepayments from members and we applied $159.1 million to the application of credits against theour members' monthly power bills of members that participate inbills. For information regarding the power bill prepayment program. The long-term portion of member power bill prepayments increased $154.1 million for the nine-month period ended September 30, 2017 due to member contributions to the program made during the third quarter of 2017. For additional information on the member power bill prepayment program, see Note JK of Notes to Unaudited Consolidated Financial Statements.
During the nine-months ended September 30, 2019, regulatory liabilities increased $80.5 million. Deferred asset retirement obligation liabilities increased $37.9 million due to an increase in unrealized gains on nuclear decommissioning funds. Also contributing to the increase, was $36.3 million in collections from our members that are being deferred under one of our rate management programs. The program is designed primarily as a mechanism to assist our members in managing rate impacts associated with the commercial operation of the new Vogtle units.
Capital Requirements and Liquidity and Sources of Capital |
Vogtle Units No. 3 and No. 4
We, Georgia Power Company, the Municipal Electric Authority of Georgia, and the City of Dalton, Georgia, acting by and through its Board of Water, Light and Sinking Fund Commissioners, doing business as Dalton Utilities (collectively, the Co-owners) are parties to an Ownership Participation Agreement that, along with other agreements, governs our participation in two additional nuclear units under construction at Plant Vogtle, Units No. 3 and No. 4. The Co-owners appointed Georgia Power to act as agent under this agreement. Our binding ownership interest and proportionate share of the cost to construct these units is 30%. Pursuant to this agreement, Georgia Power has designated Southern Nuclear Operating Company, Inc. as its agent for licensing, engineering, procurement, contract management, construction and pre-operation services. As of September 30, 2019, our total investment in the additional Vogtle units was $4.6 billion.
In 2008,April 2019, Georgia Power acting for itself and as agent for the Co-owners, entered into an Engineering, ProcurementSouthern Nuclear completed a cost and Construction Agreement (the EPC Agreement) with Westinghouse Electric Company LLCschedule validation process to verify and Stone & Webster, Inc. (collectively, the EPC Contractor). Stone & Webster was subsequently acquired by Westinghouse and changed its nameupdate quantities of commodities remaining to WECTEC Global Project Services Inc. (WECTEC). Pursuantinstall, labor hours to the EPC Agreement, the EPC Contractor agreed to design, engineer, procure, construct and test two 1,100 megawatt nuclear units using the Westinghouse AP1000 technologyinstall remaining quantities and related facilities at Plant Vogtle.
Underproductivity, testing and system turnover requirements, and forecasted staffing needs and related costs. This process confirmed the EPC Agreement, the Co-owners agreed to pay a purchase price subject to certain price escalations and adjustments. The EPC Agreement also providedtotal estimated project capital cost forecast for liquidated damages upon the EPC Contractor's failure to fulfill the schedule and certain performance guarantees, each subject to an aggregate cap of 10% of the contract price, or approximately $920 million.
Toshiba Corporation guaranteed certain payment obligations of the EPC Contractor under the EPC Agreement (the Toshiba Guarantee), including any liability of the EPC Contractor for abandonment of work. In January 2016, Westinghouse delivered to the Co-owners $920 million of letters of credit from financial institutions (Westinghouse Letters of Credit) to secure a portion of the EPC Contractor's potential obligations under the EPC Agreement. The Westinghouse Letters of Credit are subject to annual renewals through June 30, 2020, and require 60 days' written notice to Georgia Power, as agent of the Co-owners, in the event the Westinghouse Letters of Credit will not be renewed.
Under the terms of the EPC Agreement, the EPC Contractor did not have the right to terminate the EPC Agreement for convenience. In the event of an abandonment of work by the EPC Contractor, the maximum liability of the EPC Contractor under the EPC Agreement was 40% of the contract price, or $3.68 billion, of which our proportionate share is approximately $1.1 billion.
On March 29, 2017, the EPC Contractor filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. To provide for a continuation of work at Vogtle Units No. 3 and No. 4, Georgia Power, acting for itself and as agent for the other Co-owners, entered into an Interim Assessment Agreement with the EPC Contractor and WECTEC Staffing Services LLC, which the bankruptcy court approved on March 30, 2017. The Interim Assessment Agreement provided, among other items, that during the term of the Interim Assessment Agreement Georgia Power was obligated to pay, on behalf of the Co-owners, all costs accrued by the EPC Contractor for subcontractors and vendors for services performed or goods provided. The Interim Assessment Agreement, as amended, expired on July 27, 2017.
Subsequent to the EPC Contractor's bankruptcy filing, a number of subcontractors to the EPC Contractor, including Fluor Enterprises, Inc., a subsidiary of Fluor Corporation, alleged non-payment by the EPC Contractor for amounts owed for work performed on Vogtle Units No. 3 and No. 4. Georgia Power, actingAccordingly, we did not change our $7.5 billion project budget, which includes capital costs, allowance for itself and as agent for the Co-owners, has taken, and continues to take, actions to remove liens filed by these subcontractors through the posting of surety bonds. Georgia Power estimates the aggregate liability, through September 30, 2017,funds used during construction, our allocation of the Co-owners for the removal of subcontractor liensproject-level contingency and payment of other EPC Contractor pre-petition accounts payable to total approximately $386 million, of which our proportionate share totals approximately $115 million. As of September 30, 2017, $340 million of this aggregate liability had been paid or accrued by Georgia Power, on behalf of the Co-owners.
On June 9, 2017, Georgia Power and the other Co-owners and Toshiba entered into a settlement agreement regarding the Toshiba Guarantee (the Guarantee Settlement Agreement). Pursuantseparate Oglethorpe-level contingency. There was also no change to the Guarantee Settlement Agreement, Toshiba acknowledged the amount of its obligation under the Toshiba Guarantee is $3.68 billion (the Guarantee Obligations), of which our proportionate share is approximately $1.1 billion, and that the Guarantee Obligations exist regardless of whether Vogtle Units No. 3 and No. 4 are completed. The Guarantee Settlement Agreement also provides for a schedule of payments for the Guarantee Obligations that began in October 2017 and continues through January 2021. In the event Toshiba receives certain payments, including sale proceeds, from or related to Westinghouse (or its subsidiaries) or Toshiba Nuclear Energy Holdings (UK) Limited (or its subsidiaries), it will hold a portion of such payments in trust for the Co-owners and promptly pay them as offsets against any remaining Guarantee Obligations. Under the Guarantee Settlement Agreement, the Co-owners will forbear from exercising certain remedies, including drawing on the Westinghouse Letters of Credit, until June 30, 2020, unless certain events of nonpayment, insolvency, or other material breach of the Guarantee Settlement Agreement by Toshiba occur. If such an event occurs, the
balance of the Guarantee Obligations will become immediately due and payable, and the Co-owners may exercise any and all rights and remedies, including drawing on the Westinghouse Letters of Credit without restriction. In addition, the Guarantee Settlement Agreement does not restrict the Co-owners from fully drawing on the Westinghouse Letters of Credit in the event they are not renewed or replaced prior to the expiration date. In October and November 2017, Georgia Power, on behalf of the Co-owners, received the first two installments of the Guarantee Obligations totaling $377.5 million from Toshiba, of which our proportionate share was $113.3 million. We are considering potential options with respect to our right to payments under the Guarantee Settlement Agreement and our claims against the EPC Contractor in the EPC Contractor's bankruptcy proceeding, including a potential sale of those payment rights and bankruptcy claims. Execution of any such transaction cannot be assured and would require certain consents from and cooperation by the Department of Energy.
On November 9, 2017, Toshiba released its financial results for the second quarter of the fiscal year 2017, which reflected a negative shareholders' equity balance of approximately $5.5 billion as of September 30, 2017. Toshiba also reiterated the existence of material events and conditions that raise substantial doubt about Toshiba's ability to continue as a going concern. As a result, substantial risk regarding the Co-owners' ability to fully collect the Guarantee Obligations continues to exist. An inability or other failure by Toshiba to perform its obligations under the Guarantee Settlement Agreement could have a further material impact on the net cost to the Co-owners of Vogtle Units No. 3 and No. 4, and, therefore, on our financial condition and results of operations as well.
Additionally, on June 9, 2017, Georgia Power, acting for itself and as agent for the other Co-owners, and the EPC Contractor entered into a services agreement, which was amended and restated on July 20, 2017 (the Services Agreement), for the EPC Contractor to transition construction management of Vogtle Units No. 3 and No. 4 to Southern Nuclear and to provide ongoing design, engineering, and procurement services to Southern Nuclear. On July 20, 2017, the bankruptcy court approved the EPC Contractor's motion seeking authorization to (i) enter into the Services Agreement, (ii) assume and assign to the Co-owners certain project-related contracts, (iii) join the Co-owners as counterparties to certain assumed project-related contracts, and (iv) reject the EPC Agreement. The Services Agreement became effective upon approval by the Department of Energy on July 27, 2017 and will continue until the start-up and testing of Vogtle Units No. 3 and No. 4 is complete and electricity is generated and sold from both units. The Services Agreement is terminable by the Co-owners upon 30 days' written notice.
On August 31, 2017, Georgia Power filed its 17th Vogtle Construction Monitoring report (VCM 17 Report) with the Georgia Public Service Commission. In the VCM 17 Report, Georgia Power recommended that construction on Vogtle Units No. 3 and No. 4 be continued with Southern Nuclear serving as project manager. The recommendation to continue construction is supported by all the Co-owners and is based on the results of a comprehensive schedule, cost-to-complete and cancellation assessment. The Georgia Public Service Commission is expected to render a decision on these matters by February 6, 2018.
The revised project schedule Georgia Power submitted to the Georgia Public Service Commission for approval included commercial operationin-service dates of November 2021 for Unit No. 3 and November 2022 for Unit No. 4. Based on comprehensive cost-to complete assessments and the revised commercial operation dates, our revised project budget is $7.0 billion, which includes capital costs, allowance for funds used during construction and a contingency amount. This budget assumes 100% recovery of our $1.1 billion share of the Guarantee Obligations from Toshiba. As of September 30, 2017, our total investment in the additional Vogtle units was approximately $3.9 billion without taking into account any amounts recoverable from Toshiba. Amounts recovered in connection with the Guarantee Settlement Agreement will be recorded as a reduction to the construction work in progress balance as payments are received.
Based on the revised project schedule and budget, the following table provides an updated estimate of our forecasted capital expenditures related to Vogtle Units No. 3 and No. 4 for 2017 through 2019 (dollars in millions).
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2017 | 2018 | 2019 | Total | ||||||||||
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Future Generation | $ | 645 | $ | 677 | $ | 504 | $ | 1,826 | |||||
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In addition to the amounts reflected in the table above, we have budgeted approximately $1.9 billion to complete construction of Vogtle Units No. 3 and No. 4 beyond the years shown in the table. These projected capital expenditures assume that Toshiba fully performs its obligations under the Guarantee Settlement Agreement and the failure of Toshiba to perform those obligations could have a material impact on our costs for Vogtle Units No. 3 and No. 4. For additional information regarding our capital expenditures, see "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Capital Requirements—Capital Expenditures" in our 2016 Form 10-K.
Effective October 23, 2017, Georgia Power, acting for itself and as agent for the other Co-owners, entered into a construction completion agreement (the Bechtel Agreement) with Bechtel Power Corporation, whereby Bechtel will serve as the primary contractor for the remaining construction activities for Vogtle Units No. 3 and No. 4. Facility design and engineering remains the responsibility of Westinghouse under the Services Agreement. The Bechtel Agreement is a cost reimbursable plus fee arrangement, whereby Bechtel will be reimbursed for actual costs plus a base fee and an at-risk fee, which is subject to adjustment based on Bechtel's performance against cost and schedule targets. Each Co-owner is severally (not jointly) liable for its proportionate share, based on its ownership interest, of all amounts owed to Bechtel under the Bechtel Agreement. The Co-owners may terminate the Bechtel Agreement at any time for their convenience, provided that the Co-owners will be required to pay amounts related to work performed prior to the termination (including the applicable portion of the base fee), certain termination-related costs and, at certain stages of the work, the at-risk fee. Bechtel may terminate the Bechtel Agreement under certain circumstances, including, certain Co-owner suspensions of work, certain breaches of the Bechtel Agreementpreviously approved by the Co-owners, Co-owner insolvency and certain other events.
On November 2, 2017, the Co-owners entered into an amendment to their joint ownership agreements for Vogtle Units No. 3 and No. 4 (as amended, the Joint Ownership Agreements) to provide for, among other conditions, additional Co-owner approval requirements. Pursuant to the Joint Ownership Agreements, the holders of at least 90% of the ownership interests in Vogtle Units No. 3 and No. 4 must vote to continue construction if certain adverse events occur, including: (i) the bankruptcy of Toshiba or, except in the case in which each of the Co-owners has assigned its rights under the Guarantee Settlement Agreement to a third party, a material breach by Toshiba of the Guarantee Settlement Agreement; (ii) termination or rejection in bankruptcy of certain agreements, including the Services Agreement or the Bechtel Agreement; (iii) the Georgia Public Service Commission following the validation process.
The current project-level budget includes an $800 million construction contingency estimate, of which our 30% interest is $240 million. As of September 30, 2019, approximately $67 million of this project-level contingency, or $20 million for our 30% interest, was allocated to the base capital cost forecast for cost risks including, among other factors, attracting and retaining craft labor; adding resources for supervision, field support, project management, initial test program and start-up; and procurement. Georgia Power determineshas stated that it anticipates allocating the remainder of this project-level contingency. The project-level contingency is separate and in addition to our Oglethorpe-level contingency.
As construction continues and testing and system turnover activities increase, risks remain that challenges with management of contractors, subcontractors and vendors; supervision of craft labor and related craft labor productivity, particularly in the installation of electrical and mechanical commodities, ability to attract and retain craft labor and/or related cost escalation; procurement, fabrication, delivery, assembly and/or installation and the initial testing and start-up, including any required engineering changes, of plant systems, structures or components or regional transmission upgrades, any of Georgia Power's costs relatingwhich may require additional labor and/or materials; or other issues could arise and further impact the projected schedule and estimated cost.
The April 2019 cost and schedule validation process established target values for monthly construction production and system turnover activities as part of a strategy to maintain margin to the approved in-service dates. To support that strategy, monthly production and activity targets will continue to increase significantly throughout the remainder of 2019 and into 2020. To meet these increasing monthly targets, existing craft construction of Vogtle Units No. 3productivity must improve and No. 4 will not be recovered in retail rates because such costs are deemed unreasonable or imprudent; or (iv) an increase in the construction budget contained in the seventeenth VCM report of more than $1 billion or extension of the project schedule contained in the seventeenth VCM report of more than one year. In addition, pursuant to the Joint Ownership Agreements, the required approval of holders of ownership interests in Vogtle Units No. 3 and No. 4 is at least (i) 90% for a change of the primary construction contractor and (ii) 67% for material amendments to the Services Agreement or agreements with Southern Nuclear or the primary construction contractor, including the Bechtel Agreement.additional craft laborers,
The effectiveness of the amendments to the Joint Ownership Agreements related to the Plant Alvin W. Vogtle Additional Units Ownership Participation Agreement, datedparticularly electrical and pipefitter craft labor, as of April 21, 2006,well as amended, is subject to the condition that we obtain the approval of the Rural Utilities Service as required under our loan contract with the Rural Utilities Service.
In the event the Vogtle project is cancelled, our proportionate share of the Co-owners' cancellation costs are estimated toadditional supervision and other field support resources, must be approximately $230 million. If the project is cancelled, we would seek regulatory accounting treatment to amortize our investment in the Vogtle project over a long-term period which would require the approval of our board of directors,retained and we would submit the regulatory accounting treatment request to the Rural Utilities Service for its approval.
We have a $3.06 billion federal loan guarantee from the Department of Energy, under which we have advanced $1.72 billion as of September 30, 2017. Pursuant to the terms of the Loan Guarantee Agreement, no further advances are permitted pending satisfaction of certain conditions, including approval of the Bechtel Agreement and an amendment to the Loan Guarantee Agreement. The timing of satisfaction of these conditions is currently uncertain but likely to be satisfied in 2018. On September 28, 2017, the Department of Energy issued a conditional commitment to us for up to approximately $1.62 billion in additional guaranteed loans under the Loan Guarantee Agreement. Final approval and issuance of these additional loan guarantees by the Department of Energy cannot be assured and are subject to negotiation of definitive agreements, completion of due diligence by the Department of Energy, receipt of any necessary regulatory approvals and satisfaction of other conditions. For additional information regarding conditions for future advances, potential repayment over a five-year period, covenants and events of default under the Loan Guarantee Agreement with the Department of Energy, see Note K of Notes to Unaudited Consolidated Financial Statements and for additional information regarding the financing of Vogtle Units No. 3 and No. 4, see "Financing Activities—Department of Energy-Guaranteed Loan." We have also financed an additional $1.4 billion of the capital costs of the Vogtle units through capital market debt issuances.deployed.
There have been technical and procedural challenges to the construction and licensing of Vogtle Units No. 3 and No. 4 at the federal and state level and additional challenges may arise as construction proceeds.arise. Processes are in place that are designed to assure compliance with the requirements specified in the Westinghouse Design Control Document and the combined construction and operating licenses, including inspections by Southern Nuclear and the Nuclear Regulatory Commission that occur throughout construction. As a result of such compliance processes, certain license amendment requests have been filed and approved or are pending before the Nuclear Regulatory Commission. Various design and other licensing-based compliance matters, including the timely resolutionsubmittal by Southern Nuclear of Inspections, Tests, Analyses,the inspections, tests, analyses, and Acceptance Criteriaacceptance criteria documentation for each unit and the related reviews and approvals by the Nuclear Regulatory Commission necessary to support authorization to load fuel, may arise if construction proceeds, which may result in additional license amendments or require other resolution. If any license amendment requests or other licensing-based compliance issues are not resolved in a timely manner, there may be further delays in the project schedule that could result in increased costs.costs to the Co-owners.
As construction continues,In late 2018, the risk remainsfirst four nuclear units to utilize Westinghouse's AP1000 technology began commercial operation in China. One of the nuclear units experienced a failure of one of its reactor coolant pumps and is not operating pending replacement of the pump. There are four reactor coolant pumps at each unit. The other three nuclear units remain operational and we are not aware of any issues with the other fifteen pumps. The component manufacturer has completed a root-cause analysis of the reactor coolant pump failure and stated its conclusion that challengesthe failure was an isolated problem with management of contractors, subcontractorsa single part. Southern Nuclear and vendors, labor productivity, fabrication, delivery, assembly,the Co-owners do not expect the issue in China related to the reactor coolant pump will impact the current November 2021 and installation of plant systems, structures, and components, or other issues could arise and may further impact project schedule and cost.November 2022 in service dates.
The ultimate outcome of these matters cannot be determined at this time. See "Risk Factors" in this Form 10-Q for risks related to
For additional information regarding Vogtle Units No. 3 and No. 4, see "Item 1—BUSINESS—OUR POWER SUPPLY RESOURCES—Future Power Resources—Plant Vogtle Units No. 3 and No. 4" in our 2018 Form 10-K. For information regarding our financing of the Guarantee Settlement Agreementadditional Vogtle units, see "Financing Activities—Department of Energy-Guaranteed Loans" and Note L of Notes to Unaudited Consolidated Financial Statements. See "Item 1A—RISK FACTORS" in our 20162018 Form 10-K for a discussion of certain risks associated with the licensing, construction, financing and operation of nuclear generating units.
Environmental Regulations
Federal and state laws and regulations regarding environmental matters affect operations at our facilities. Following are some substantial developments relating to environmental regulations and litigation that have occurred since we filed our Form 10-Q for the quarterly period ended June 30, 2017.
On October 10, 2017,July 8, 2019, the U.S. Environmental Protection Agency (EPA) proposedpublished the final Affordable Clean Energy (ACE) rule. At the same time, in a rule toseparate and distinct action, EPA finalized its repeal of the Clean Power Plan in its entirety on the basis(CPP), determining that the Clean Power Plan exceedsCPP significantly exceeded the EPA's authority under the Clean Air Act. Even though some portionsThe final ACE rule requires states to develop unit-specific standards of performance based on six candidate technologies for heat rate improvements, plus best operation and maintenance practices. The ACE rule addresses carbon dioxide emissions from coal plants and does not include natural gas-fired combustion turbines, including combined cycle units, as affected sources. We have ownership interests in two power plants with affected units and are currently analyzing the final rule to determine its potential impact on operations. The ultimate impact of the ACE rule may be in accord with the Clean Air Act, EPA proposes to find that those portions are not severable from the objectionable portions and that the entire Clean Power Plan be repealed. EPA will decide what action, ifdepend on standards of performance set by Georgia, as well as any to take in the future with regard to any replacement Clean Power Plan and has stated that it intends to issue an advanced notice of proposed rulemaking in the near future to solicit information on alternate systems to reduce greenhouse gas emissions consistent with its authority under the Clean Air Act. We cannot predict the outcome of this current proposal or any litigation that might be brought challenging any resulting final rule, nor can we predict the outcome of the litigation currently pending on the existing Clean Power Plan.
In September 2017, EPA postponed certain compliance dates for its November 2015 rule for the effluent limitations guidelines and standards for the steam electric power generating (ELG Rule) for two years. Plants Scherer and Wansley are regulated under this rule. EPA has stated that it intends to conduct a rulemaking to potentially revise the more stringent best available technology economically achievable effluent limitations and pretreatment standards for existing sources for flue gas desulfurization wastewater and bottom ash transport water established in the ELG Rule; however, it does not intend to revise the ELG Rule for fly ash transport, flue gas mercury control wastewater or other requirements. We cannot predict the outcome of any actions EPA may take to revise the ELG Rule, or any litigation that might be brought challenging any final rule.
We continue to evaluate all EPA actions regarding reviews and reconsiderations of final rules and processing of proposed rulesassociated legal challenges, and cannot predict the outcomebe determined at this time.
For furthera discussion regarding potential effects on our business from other environmental regulations, including potential capital requirements, see "Item 1—BUSINESS—REGULATION—Environmental," "Item 1A—RISK FACTORS" and "Item 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Financial Condition—Capital Requirements—Capital Expenditures" in our 20162018 Form 10-K and "Item 2—Management's Discussion And Analysis Of Financial Condition And Results Of Operations—Financial Condition—Capital Requirements and Liquidity and Sources of Capital—Environmental Regulations" in our quarterly reports on Form 10-Q for the quarterly periods ended March 31, 2017 and June 30, 2017.10-K.
Liquidity
At September 30, 2017,2019, we had $1.07$1.2 billion of unrestricted available liquidity to meet our short-term cash needs and liquidity requirements. This amount included $342$427 million in cash and cash equivalents and $726$797 million of unused and available committed credit arrangements.
At September 30, 2017, we had $1.61under our $1.6 billion of committed credit arrangements, in place, the details of which are reflected in the table below:
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Committed Credit Facilities | Committed Credit Facilities | Committed Credit Facilities | ||||||||||||||
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Authorized | Available | Expiration Date | Authorized | Available | Expiration | |||||||||||
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Unsecured Facilities: | ||||||||||||||||
Syndicated Line of Credit led by CFC | $ | 1,210 | $ | 442 | (1) | March 2020 | $ | 1,210 | $ | 513 | (1) | March 2020(2) | ||||
CFC Line of Credit | 110 | 110 | December 2018 | 110 | 110 | December 2023 | ||||||||||
JPMorgan Chase Line of Credit | 150 | 34 | (3) | October 2018 | 150 | 34 | (4) | October 2021 | ||||||||
Secured Facilities: |
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CFC Term Loan | 250 | 140 | (2) | December 2018 | 140 | 140 | (3) | December 2023 | ||||||||
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Total | $ | 1,610 | $ | 726 | ||||||||||||
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Currently, we are primarily using ourWe have the flexibility to use the $1.2 billion syndicated line of credit for several purposes, including borrowing for general corporate purposes, to support up to $1.0 billion of commercial paper programand to issue letters of credit to third parties. We generally issue commercial paper to provide interim funding for paymentsfinancing of our expenses related to the construction of Vogtle Units No. 3 and No. 4 prior to receiving advances ofwhich we repay with the proceeds from long-term funding undersources. Our loan guaranteed by the Department of Energy-guaranteed Federal Financing Bank loan.Energy is our preferred source of long-term financing of eligible costs for Vogtle Units No. 3 and No. 4. See Note KL of Notes to Unaudited Consolidated Financial Statements and "—Department of Energy-Guaranteed Loan" for a discussion of recent amendments that were made to the Loan Guarantee Agreement withadditional information regarding the Department of Energy which restricts our ability to request further loan advances pending a determination to continue construction of the additional Vogtle units and satisfaction of related conditions, including an amendment to the Loan Guarantee Agreement. Our last advance under this loan was received in December 2016 and timing regarding our ability to make further advances under this loan is uncertain but likely in 2018. The inability to advance funds under our Department of Energy loan has reduced our available liquidity in 2017. We expect this constraint to be mitigated in the coming months through one or more of several potential options including resumption of advances under the Department of Energy loan, monetization of the Toshiba Guarantee Settlement Agreement, or issuance of taxable bonds.Energy-guaranteed loan.
Under our commercial paper program, we are authorized to issue commercial paper in amounts that do not exceed the amount of our committed backup lines of credit, thereby providing 100% dedicated support for any commercial paper outstanding. Our commercial paper program is currently sized at $1.0 billion.
Under our unsecured committed lines of credit, we have the ability to issue letters of credit totaling $760 million in the aggregate, of which $509 million remained available at September 30, 2017.2019. However, amounts related to issued letters of credit reduce the amount that would otherwise be
available to draw for working capital needs. Also, due to the requirement to have 100% dedicated backup for any commercial paper outstanding, any amounts drawn under our committed credit facilities for working capital or related to issued letters of credit will reduce the amount of commercial paper that we can issue. The majority of our outstanding letters of credit are for the purpose of providing credit enhancement on variable rate demand bonds.
TwoThree of our credit facilities contain a financial covenant that requires us to maintain minimum levels of patronage capital. At September 30, 2017,2019, the required minimum level was $675$750 million and our actual patronage capital was $923 million.$1.0 billion. These agreements contain an additional covenant that limits our secured indebtedness and unsecured indebtedness, both as defined in the credit agreements, to $12.0 billion and $4.0 billion, respectively. At September 30, 2017,2019, we had $8.1$9.2 billion of secured indebtedness and $756$560.7 million of unsecured indebtedness outstanding.
At September 30, 2017,2019, we had $512$564.0 million on deposit in the Rural Utilities Service Cushion of Credit Account, all of which is classified as a restricted investment. See "—Balance Sheet Analysis asNote I of September 30, 2017—Assets"Notes to Unaudited Consolidated Financial Statements for moreadditional information regarding this account.
Financing Activities
First Mortgage Indenture. At September 30, 2017,2019, we had $8.1$9.2 billion of long-term debt outstanding under our first mortgage indenture secured equally and ratably by a lien on substantially all of our owned tangible and certain of our intangible property, including property we acquire in the future. See "Item 1—BUSINESS—OGLETHORPE POWER CORPORATION—First Mortgage Indenture" in our 20162018 Form 10-K for further discussion of our first mortgage indenture.
Rural Utilities Service-Guaranteed Loans. At September 30, 2017,2019, we had two approved Rural Utilities Service-guaranteed loans being funded through the Federal Financing Bank totaling $1.1 billion that are in various stages of being drawn down. These two loans totaled $678 million with $501have $676.3 million remaining to be advanced. When advanced, the debt will be secured under our first mortgage indenture. As of September 30, 2017,2019, we had $2.5$2.6 billion of debt outstanding under various Rural Utilities Service-guaranteed loans.
Department of Energy-Guaranteed Loan.Loans. In 2014, we closed onentered into a loan guarantee agreement with the Department of Energy that willto fund up to the lesser$3.1 billion of $3.06 billion or 70% of eligible project costs related to the cost to construct our 30% undivided share of Vogtle Units No. 3 and No. 4. ThisOn March 22, 2019, we and the Department of Energy executed an amended and restated loan isguarantee agreement which increased the aggregate amount of the loan guarantee to $4.7 billion. These loans are being funded by the Federal Financing Bank and isare backed by a federal loan guarantee provided by the Department of Energy.
AsOn March 15, 2019, we received an advance of $585 million under the original loan. In conjunction with this advance, we repaid a like amount of outstanding commercial paper. At September 30, 2017,2019, aggregate Department of Energy-guaranteed borrowings under the original loan totaled $2.4 billion, including capitalized interest. In December 2019, we had advanced $1.72expect to receive the final advance under the original loan in the amount of $567 million. We have no amounts outstanding under the additional loan.
With the additional loan, Department of Energy guaranteed-loans are expected to fund nearly $4.7 billion underof the cost to construct the new Vogtle units. Combined, this loan$4.7 billion and had $1.34the $1.9 billion remaining to be advanced.of debt we have raised in the capital markets represent long-term financing for more than 85% of our $7.5 billion project budget. All of the debt under this loan will be secured ratably with all other debt under our first mortgage indenture. Access to the committed funds under this loan requires us to meet certain conditions related to our business and the Vogtle project and also requires certain third-parties related to the Vogtle project to comply with certain laws. See Note K of Notes to Unaudited Consolidated Financial Statements for a discussion of recent amendments that were made to the Loan Guarantee Agreement with the Department of Energy which restrict our ability to request further loan advances pending a determination to continue construction of the additional Vogtle units and satisfaction of related conditions, including an amendment to the Loan Guaranty Agreement. Our last advance under this loan was received in December 2016 and timing regarding our ability to make further advances under this facility is uncertain. Under certain circumstances, including a decision not to continue construction of the Vogtle units, the Department of Energy has discretion to require that we repay all amounts outstandingadvanced under the loan over a five-year period.
On September 28, 2017, the Department of Energy issued a conditional commitment to us for up to $1.62 billion in additional guaranteed funding under the Loan Guarantee Agreement. Final approval and issuance of these additional loan guarantees by the Department of Energy cannot be assured and are subject to negotiation of definitive agreements, completion of due diligence by the Department of Energy, receipt of any necessary regulatory approvals and satisfaction of other conditions.
In addition to the Department of Energy loan funding, we have issued $1.4 billion of first mortgage bonds to finance a substantial portion of the Vogtle expansion that will not be funded by the
Department of Energy. As of September 30, 2017, we had $3.1 billion of long-term funding in place for the $3.9 billion invested in the Vogtle project to-date. We anticipate utilizing capital markets financing for any Vogtle related costs that we are not able to advance under the Department of Energy-guaranteed loans.
Bond Financings
On October 12, 2017, we closed on a $122.6 million direct bank purchase of tax-exempt bonds and used the proceeds to retire commercial paper that was issued in January 2017 in connection with the redemption of our remaining auction rate securities. See Note K of Notes to Unaudited Consolidated Financial Statements for more information regarding this refinancing.
In late 2017 or early 2018, we plan to issue approximately $400 million of tax-exempt pollution control revenue bonds, the proceeds of which will be used to refinance $400 million of existing pollution control bonds that are callable on January 1, 2018 and that have higher interest rates than our other tax-exempt debt. When issued, out payment obligations related to these bonds will beguarantee agreement is secured ratably with all other debt under our first mortgage indenture.
AsFor more information regarding the loan guarantee agreement, see Note L of September 30, 2017, we had $980.8 million of outstanding obligations relatedNotes to tax-exempt private activity bonds related to certain of our pollution control facilities. The Tax Cut and Jobs Act, as proposed by members of the House of Representatives on November 2, 2017, could take away our ability to utilize tax-exempt private activity bonds to finance or refinance qualifying pollution control facilities if issued on or after January 1, 2018 and impact the interest rates on our private activity bonds outstanding prior to January 1, 2018.
Unaudited Consolidated Financial Statements. For more detailed information regarding our financing plans, see "Item 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Financial Condition—Financing Activities" in our 20162018 Form 10-K.
Credit Rating Risk
The table below sets forth our current ratings from S&P Global Ratings, Moody's Investors Service and Fitch Ratings.
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We have financial and other contractual agreements in place containing provisions which, upon a credit rating downgrade below specified levels, may require the posting of collateral in the form of letters of credit or other acceptable collateral. Our primary exposure to potential collateral postings is at rating levels of BBB–/Baa3 or below. As of September 30, 2017, our maximum potential collateral requirements were as follows:
At senior secured rating levels:
At senior unsecured or issuer rating levels:
The Rural Utilities Service Loan Contract contains covenants that, upon a credit rating downgrade below investment grade by two rating agencies, could result in restrictions on issuing debt. Certain of our pollution control bond agreements contain provisions based on the ratings assigned to the bonds (which could be related to either our rating or a bond insurer's rating if the bonds are insured) that, upon a credit rating downgrade below specified levels, could result in increased interest rates. Also, borrowing rates and commitment fees in two of our line of credit agreements are based on credit ratings and could increase if our ratings are lowered. None of these covenants and provisions, however, would result in acceleration of any debt due to credit rating downgrades.
Given our current level of ratings, our management does not have any reason to expect a downgrade that would result in any material impacts to our business. However, our ratings reflect only the views of the rating agencies and we cannot give any assurance that our ratings will be maintained at current levels for any period of time.
Newly Adopted or Issued Accounting Standards
For a discussion of recently issued or adopted accounting pronouncements, see Note E of Notes to Unaudited Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have not been any material changes to market risks from those reported in "Item 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK" ofin our 20162018 Form 10-K.
Item 4. Controls and Procedures
As of September 30, 2017,2019, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.
There have been no changes in internal control over financial reporting or other factors that occurred during the quarter ended September 30, 20172019 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.
Except as disclosed under "Item 1—Legal Proceedings" in our quarterly report on Form 10-Q for the quarterly period ended June 30, 2017, thereThere have been no material changes fromto the legal proceedings disclosed in "Item 3—LEGAL PROCEEDINGS" in our 20162018 Form 10-K.
Except as discussed below, thereThere have been no material changes from the risk factors disclosed in "Item 1A—RISK FACTORS" in our 20162018 Form 10-K.
Our participation in the development and construction of Vogtle Units No. 3 and No. 4 could have a material impact on our financial condition and results of operations.
We are contractually committed to participating in the construction of two additional nuclear units at Plant Vogtle and have committed significant capital expenditures to this endeavor. The construction of large, complex generating plants involves significant financial risk. Further, no nuclear plants have been constructed in the United States using advanced designs, such as the Westinghouse AP1000 design, and therefore estimating the total cost of construction and the related schedule is inherently uncertain. We also rely on Georgia Power and Southern Nuclear as our agents for the oversight of the construction of the additional units at Plant Vogtle and do not exercise direct control over the construction process.
Our current project budget for the Vogtle Units, which includes capital costs, allowance for funds used during construction and a contingency amount, is $7.0 billion and the scheduled commercial operation dates are November 2021 for Unit No. 3 and November 2022 for Unit No. 4. Certain events have materially delayed the original commercial operation dates and increased the original project budget. The most significant of these relate to the EPC Contractor's filing for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code and its subsequent rejection of the fixed price EPC Agreement.
We continue to be subject to construction risks and no longer have the benefit of the "fixed" price EPC Agreement, which means that any cost overruns will be allocated to the Co-owners based on their ownership interest percentage. Factors that could lead to further cost increases and schedule delays or even the inability to complete this project include:
Additionally, we do not control the determination as to whether the Vogtle project continues to move forward as continued construction of Vogtle Units No. 3 and No. 4 is subject to approval by the Georgia Public Service Commission. On August 31, 2017, Georgia Power recommended that construction on Vogtle Units No. 3 and No. 4 be continued with Southern Nuclear serving as project manager in its VCM 17 Report filed with the Georgia Public Service Commission. The recommendation to continue construction is supported by all the Co-owners and is based on the results of a comprehensive schedule, cost-to-complete and cancellation assessment. The Georgia Public Service Commission is expected to make a decision on these matters by February 6, 2018.
Further, on November 2, 2017, the Co-owners amended the Joint Ownership Agreements to provide that holders of at least 90% of the ownership interests in Vogtle Units No. 3 and No. 4 must vote to continue construction upon the occurrence of any of those adverse events. As we are a 30% owner in the Vogtle project, we, along with Georgia Power and the Municipal Electricity Authority of Georgia, will need to each determine to move forward with the Vogtle project upon the occurrence of certain adverse events. In the event the Vogtle project is cancelled, our proportionate share of the Co-owners' cancellation costs are estimated to be approximately $230 million. As of September 30, 2017, our total investment in the additional Vogtle units was approximately $3.9 billion. If the project is cancelled, we would seek regulatory accounting treatment to amortize our investment in the Vogtle project over a long-term period which would require the approval of our board of directors, and we would submit the regulatory accounting treatment request to the Rural Utilities Service for its approval.
Following the bankruptcy of the EPC Contractor, the rejection of the EPC Agreement and our comprehensive cost-to-complete assessment, we increased our project budget to $7.0 billion from $5.0 billion. This increase is expected to increase our capital expenditures through 2022 and lead to a corresponding increase in our long-term debt outstanding at completion of the Vogtle units to $11.5 billion from the previously disclosed amount of $10 billion. These increases in capital expenditures and in our long-term debt will continue to constrain our equity ratio and will affect certain of our other financial metrics. Increased debt and the related impacts on our financial metrics could negatively impact our credit ratings. Any downgrade in our credit ratings would increase our borrowing costs and decrease our access to the credit and capital markets.
The long-term project cost will also be impacted by our ability to finance the capital costs at competitive interest rates. We are currently unable to make advances from the remaining $1.4 billion of committed funds under our Loan Guarantee Agreement with the Department of Energy and will not be able to make additional advances until we enter into an amendment to the Loan Guarantee Agreement with the Department of Energy. The timing of further advances under the Loan Guarantee Agreement is uncertain but is likely to occur in 2018. Prolonged inability to access funding pursuant to the Department of Energy Loan Guarantee Agreement may constrain our liquidity and lead us to finance certain expenditures through alternative resources, likely at a higher interest rate. We have received a conditional commitment from the Department of Energy for approximately $1.6 billion of additional loan guarantees; however final approval of these additional amounts cannot be assured. See Note K of Notes to Unaudited Consolidated Financial Statements for additional information about the Loan Guarantee Agreement and related conditions.
The ultimate outcome of these matters cannot be determined at this time.
Any inability or other failure by Toshiba to perform its obligations under the Guarantee Settlement Agreement could have a further material impact on the cost to the Co-owners of Vogtle Units No. 3 and No. 4, and therefore on our financial condition and results of operations.
On June 9, 2017, Georgia Power and the other Co-owners and Toshiba entered into the Guarantee Settlement Agreement. Pursuant to the Guarantee Settlement Agreement, Toshiba acknowledged the $3.68 billion amount of its Guarantee Obligations, of which our proportionate share is approximately $1.1 billion, and that the Guarantee Obligations exist regardless of whether Vogtle Units No. 3 and No. 4 are completed. The Guarantee Settlement Agreement also provides for a schedule of payments for the Guarantee Obligations that began in October 2017 and continues through January 2021. In the event Toshiba receives certain payments, including sale proceeds, from or related to Westinghouse (or its subsidiaries) or Toshiba Nuclear Energy Holdings (UK) Limited (or its subsidiaries), it will hold a portion of such payments in trust for the Co-owners and promptly pay them over as offsets against any remaining Guarantee Obligations. Under the Guarantee Settlement Agreement, the Co-owners will forbear from exercising remedies in respect of the Toshiba Guarantee, including drawing on the Westinghouse Letters of Credit, until June 30, 2020, unless certain events of nonpayment, insolvency, or other material breach of the Guarantee Settlement Agreement by Toshiba occur. If such an event occurs, the balance of the Guarantee Obligations will become immediately due and payable, and the Co-owners may exercise any and all rights and remedies, including drawing on the Westinghouse Letters of Credit without restriction. In addition, the Guarantee Settlement Agreement does not restrict the Co-owners from fully drawing on the Westinghouse Letters of Credit in the event they are not renewed or replaced prior to the expiration date.
On November 9, 2017, Toshiba released its financial results for the second quarter of fiscal year 2017, which reflected a negative shareholders' equity balance of approximately $5.5 billion as of September 30, 2017. Toshiba also announced the existence of material events and conditions that raise substantial doubt about Toshiba's ability to continue as a going concern. As a result, substantial risk regarding the Co-owners' ability to fully collect the Guarantee Obligations continues to exist. An inability or other failure by Toshiba to perform its obligations under the Guarantee Settlement Agreement could have a further material impact on the net cost to the Co-owners of Vogtle Units No. 3 and No. 4, and, therefore, on our financial condition and results of operations as well.
In October and November 2017, Georgia Power, on behalf of the Co-owners, received the first two installments of the Guarantee Obligations totaling $377.5 million from Toshiba, of which our proportionate share was $113.3 million. We are considering potential options with respect to our right to payments under the Guarantee Settlement Agreement and our claims against the EPC Contractor in the EPC Contractor's bankruptcy proceeding, including a potential sale of those payment rights and bankruptcy claims. Any such transaction cannot be assured and would be subject to Department of Energy consents and related approvals under the Loan Guarantee Agreement and related agreements.
The ultimate outcome of these matters cannot be determined at this time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Not Applicable.
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 13, | By: | /s/ Michael L. Smith | ||
Michael L. Smith President and Chief Executive Officer | ||||
Date: November 13, | /s/ Elizabeth B. Higgins | |||
Elizabeth B. Higgins Executive Vice President and Chief Financial Officer (Principal Financial Officer) |